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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
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: 0-18195
U.S. LONG DISTANCE CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2522103
(State of Incorporation) (I.R.S. Employer
Identification No.)
9311 SAN PEDRO, SUITE 100, SAN ANTONIO, TEXAS 78216
(Address of Principal Executive Office) (Zip Code)
(210) 525-9009
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
___________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant at December 13, 1996 was $129,312,069.
There were 15,076,381 shares of the Registrant's Common Stock outstanding at
December 13, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed in
connection with the 1997 Annual Meeting of Stockholders to be held on
February 25, 1997, are incorporated by reference in Part III hereof.
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U.S. LONG DISTANCE CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
ITEM PAGE
NUMBER NUMBER
- ------ ------
- Index........................................................ 2
PART I
1. Business..................................................... 3
2. Properties................................................... 10
3. Legal Proceedings............................................ 10
4. Submission of Matters to a Vote of Security Holders.......... 10
PART II
5. Market for the Company's Common Equity and Related
Stockholder Matters......................................... 11
6. Selected Financial Data...................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 13
8. Financial Statements and Supplementary Data.................. 21
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 39
PART III
10. Directors and Executive Officers of the Company.............. 40
11. Executive Compensation....................................... 40
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 40
13. Certain Relationships and Related Transactions............... 40
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 41
Signatures................................................... 47
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PART I
ITEM 1. BUSINESS
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND ITEMS DISCUSSED
IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS THAT
INVOLVES RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF U.S. LONG DISTANCE CORP.
AND ITS SUBSIDIARIES (COLLECTIVELY, THE "COMPANY") MAY DIFFER MATERIALLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. CERTAIN FACTORS
THAT COULD CONTRIBUTE TO SUCH DIFFERENCES ARE DISCUSSED WITH THE
FORWARD-LOOKING STATEMENTS THROUGHOUT THIS REPORT AND ARE SUMMARIZED IN
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -FORWARD-LOOKING STATEMENTS-CAUTIONARY LANGUAGE."
The Company is a fully-integrated long distance communications company.
From fiscal 1991 through fiscal 1996, the Company's revenues increased at a
compounded annual rate of 60%, totaling $180.3 million for fiscal 1996. The
Company offers an integrated group of communication services including direct
dial long distance, prepaid calling cards, travel cards, data transmission
and calling center services.
The long distance telephone industry has changed significantly since the
mandated divestiture by American Telephone and Telegraph Co. ("AT&T") of its
22 local telephone companies in 1984. Regulations mandating equal access to
the existing telecommunications network led to the creation of hundreds of
new long distance companies. Competition now pervades across all categories
of long distance telephone services, including both domestic and
international direct dial long distance telephone services, operator assisted
and calling card services, and 800/888 specialized in-bound long distance
telephone services. While AT&T and, to a lesser extent, MCI
Telecommunications Corporation ("MCI") and Sprint Corporation ("Sprint"),
together dominate the estimated $78 billion long distance telecommunications
industry, management believes that a growing share of the market is serviced
by smaller long distance companies such as the Company. Industry sources
estimate that approximately 80% of the long distance market is shared among
AT&T, MCI and Sprint.
The Telecommunications Act of 1996, which was signed into law on
February 8, 1996, is the first major overhaul of the telecommunications law
since the divestiture of AT&T. This act allows telecommunications providers
such as the Company to provide local telephone services. The local telephone
service industry is estimated to be a $95 billion industry and is dominated
by the Regional Bell Operating Companies (RBOCs). The Company is actively
pursuing its entrance into the local service industry. The Company is
currently certified to offer local service in three states and has
certification pending in four other states. The Company has signed an
interconnection agreement with Southwestern Bell enabling the Company to
provide local telephone service to business and residential customers in
Southwestern Bell's five-state service area. Additionally, the
Telecommunications Act of 1996 allows the RBOCs to compete in the long
distance industry. However, the applicant RBOC must first satisfy a
legislative "checklist" that outlines the steps required for an RBOC to open
its network to competition on a local basis.
On July 10, 1996, the Company's Board of Directors approved a plan to
spin-off the Company's commercial billing clearinghouse and information
management services business ("Billing Group Business") as a separate public
company (the "Distribution"). To effect the spin-off, the Board approved the
distribution of the outstanding shares of common stock of its wholly owned
subsidiary that owned and operated the Billing Group Business, Billing
Information Concepts Corp. ("Billing"), to its stockholders. The Distribution
was tax-free for federal income tax purposes to the stockholders of the
Company, and the Company will not recognize income, gain or loss as a result
of the Distribution, except for direct spin-off costs. The Distribution was
completed on August 2, 1996.
DIRECT DIAL LONG DISTANCE SERVICES
The Company is a full-service long distance carrier currently providing
direct dial long distance services to small and medium-sized commercial
customers and, to a lesser extent, residential customer accounts. The Company
was authorized to provide direct dial long distance services to customers in
47 states at September 30, 1996. However, the Company focuses its direct
sales efforts in the West Coast, Pacific Northwest, Southwest and Southeast
regions of the United States to take advantage of network efficiencies. In
addition to its basic "one-plus" service, the Company provides inbound 800
service, travel and prepaid calling card services, private line services,
data transmission services, wholesale carrier services and other
customer-specific products.
The Company began offering direct dial long distance services following
its entry into the direct dial long distance business in August 1991 through
the acquisition of three related direct dial long distance companies in
Texas. At September 30, 1996, the Company serviced approximately 47,000
commercial and residential customer accounts. The Company carried an average
of 106.5 million minutes per month of long distance traffic during the fiscal
quarter ended September 30, 1996, as compared to 62.6 million and 44.7
million during the fiscal quarters ended September 30, 1995 and 1994,
respectively. In fiscal 1996, 1995 and 1994, the Company had $119.4 million,
$84.5 million and $62.8 million, respectively, in direct dial long distance
revenues, comprising 66%, 59% and 53% of total operating revenues in each
period, respectively.
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INDUSTRY OVERVIEW
Direct dial long distance revenues industrywide are estimated to be
approximately $78 billion in 1996, up from approximately $73 billion in 1995.
AT&T, MCI and Sprint dominate the long distance industry. Industry sources
estimate that these companies control a combined market share of
approximately 80%. These companies offer comprehensive communications
services in a wider array of products than other long distance companies and
typically target national, multi-state business customers and millions of
residential long distance users through national television and media
advertising. The Company believes that over 500 smaller long distance
companies account for the remaining 20% of the market. These companies
typically concentrate on smaller regional and local business customers.
Competition in the direct dial long distance industry has historically been
based upon price. More recently, the focus has been moving towards customer
service, product design and innovation, customized billing capabilities,
transmission quality and availability of service.
SALES AND MARKETING
The Company's direct dial long distance sales personnel are located
throughout the Company's service area and are responsible for marketing to
commercial accounts. The Company supervises sales and marketing efforts from
its corporate headquarters and utilizes various advertising media to enhance
its commercial marketing efforts and to attract and retain residential
customers. The Company examines the calling profiles of target markets and
designs long distance services that specifically fill certain demands. For
example, the Company issues long distance calling cards customized to include
a customer's corporate logo and has also customized prepaid calling cards to
be used as promotional marketing tools. The Company also directly markets to
employees of commercial customers for their residential service. In addition
to its own sales force, the Company markets its direct dial long distance
services through authorized agents, other carriers and affinity organizations
(strategic partnerships).
The Company currently has an exclusive marketing agreement with Nolan
Ryan, formerly a player with the Texas Rangers-Registered
Trademark-professional baseball team and a potential hall of fame candidate,
who acts as the Company's spokesman for its direct dial long distance
services and whose picture appears in the Company's advertisements and
product literature, including prepaid calling cards.
OPERATIONS
The Company completes calls that are originated when a pre-subscribed
customer dials "1" plus the area code and number or when a customer selects
the Company's network through dial-up access to reach any domestic or
international destination. All long distance calls placed over the Company's
network are directed to call destination points by computerized digital
network switching equipment operating at one of the Company's switching
centers. The switching equipment receives a customer's direct dial call,
verifies the caller's billing status and authorization codes, routes the call
to the dialed destination, monitors the call's duration and collects other
information for billing purposes. The Company's switching equipment selects
the most cost-efficient transmission circuit or path available prior to
switching and completing each call. The Company employs state-of-the-art
digital switching equipment at the Company's switching centers in Houston,
Texas; Waco, Texas; Seattle, Washington; and Los Angeles, California. The
Company has also purchased a digital switch in Atlanta, Georgia, and will
take possession of it in January 1997.
To satisfy increasing or anticipated usage of its long distance network
and to ensure that its network is optimally accessible when network demand is
heavy, the Company, from time to time, adds circuit capacity at each existing
switching center by increasing the number of telecommunications ports and
access lines. The Company utilizes state of the art Common Channel Signaling
System 7, which is currently operational for virtually all originating and
terminating traffic within the Company's markets. This network protocol
significantly reduces connect time delays and provides additional technical
capabilities and efficiencies for the routing of calls.
COMPETITIVE ADVANTAGES
The Company competes with AT&T, MCI and Sprint and numerous local,
regional and national carriers on the basis of its products and services,
competitive pricing and local identity. The Company, generally, prices its
services up to 20% below AT&T, MCI and Sprint comparable service offerings.
In addition, by designing long distance products and services that fill
specific market needs, the Company enhances its ability to compete with AT&T,
MCI and Sprint and others.
The Company believes that its emphasis on customer service distinguishes
itself from many of its competitors. The Company has taken an integrated team
approach to sales and service by increasing the number of sales support
representatives in its field offices to maintain responsive service after the
sale. The Company recently deployed notebook computers to the sales force to
enhance marketing presentations and automate the customer order entry
function. Additionally, the Company implemented a computerized bulletin
board service called Advantage Direct, which is similar to the remote access
service offered to its operator services customers. This service allows
customers to monitor and evaluate calling patterns and volume by department
or location. Moreover, in competing with certain regional and local long
distance carriers, the Company believes it holds a competitive advantage
within its territory because the Company's regional concentration of traffic
over its network facilities allows for certain cost efficiencies of a
national carrier. In addition, the Company believes that its local identity
in the markets it serves provides an advantage in marketing its services and
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competing with long distance carriers based outside of the target regions.
Management believes that the Company has developed the expertise in
information systems necessary to meet the needs of its direct dial long
distance customers. For instance, the Company provides an invoice indicating
call detail in a form that assists customers in controlling and monitoring
communications costs for various projects or departments.
The Company employs digital switching equipment utilizing a network
comprised largely of high quality fiber-optic circuitry to maximize
communications quality. The Company believes that its use of a digital
fiber-optic network is particularly advantageous in marketing both its voice
and data transmission services. The Company also designs redundant and
diverse routes to each major service area to ensure service availability.
The communications industry is ever-changing, and the recently passed
Telecommunications Act of 1996 is expected to have a major impact on the
industry's competitive environment. In essence, the RBOCs will be competing
with long distance carriers for both domestic and international long distance
customers. The Company believes it is prepared to meet this challenge by
capitalizing on its experienced management team and sales force, personalized
customer service, quality products and services and competitive pricing
structures.
STRATEGY AND GROWTH OPPORTUNITIES
The Company's strategic focus in the direct dial long distance industry
is to compete with AT&T, MCI and Sprint primarily on the basis of competitive
pricing, while offering a comparable or higher level of service. Moreover,
the Company intends to remain focused on small and medium-sized commercial
customers and will continue its efforts to develop innovative and
cost-efficient services that meet the needs of its customers. The Company
intends to introduce new communications products, such as local service,
Internet access, paging, frame relay/ISDN and cellular service, over the next
12 to 18 months. The introduction of the local service product provides the
Company the largest opportunity for growth. The local services industry is
estimated to be a $95 billion market. Each of the Company's existing 47,000
customer accounts are already utilizing this service from the local exchange
carrier in each locality. The Company believes that it has the potential to
capitalize on its relationship with existing customers to bundle the local
product with its existing products and services. The bundling of these
services with long distance service will enhance the Company's product
offerings and provide new and existing customers with the integrated
communication services they desire. To a lesser extent, the Company also
continues to market to residential customers.
The Company expects to look for opportunities to expand its long
distance business, both by internal growth and through acquisitions. The
primary focus of the Company's acquisition activities is to make additional
acquisitions that will grow the Company's direct dial long distance business.
The Company believes its operator services business affords it the
opportunity to expand its direct dial long distance business on a more
cost-effective basis than many of its competitors. By having a concentration
of operator services call traffic in a particular geographic region, the
Company can utilize any long distance facilities it installs or acquires to
service a ready base of call traffic, thereby lowering the marginal
transmission costs for any direct dial long distance traffic that the Company
acquires or develops in that region. The Company believes this cost advantage
not only improves the potential profitability of both the Company's operator
services and direct dial long distance services businesses in such region,
but also expands the number of companies that would be attractive acquisition
candidates in that region.
The Company continually evaluates business opportunities, including
potential acquisitions. One or more of such acquisitions could result in a
substantial change in the Company's operations and financial condition. The
success of the Company's acquisition activities will depend, among other
things, on the availability of acquisition candidates, the availability of
funds to finance acquisitions and the availability of management resources to
oversee the operation of acquired businesses. While the Company has, from
time to time, had discussions with communications companies, it has no
agreements or pending negotiations with respect to any acquisition at the
date of this report that would have a material impact on the Company's
financial position or results of operations. There is no assurance that any
acquisitions will be completed.
OPERATOR SERVICES
The Company provides operator assisted services for private pay
telephones, hotels, motels, university dormitories and hospitals. The
Company's operator services are accessed when calls requiring operator
assistance and/or alternate billing options are placed from customer
locations. Such services involve the use of live and automated operators to
receive, validate and complete the calls. The Company processes collect,
third-party, person-to-person and calling card calls and, generally, shares a
percentage of call revenues with its customers.
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At September 30, 1996, the Company provided operator services to
approximately 135,900 hotel, motel, hospital and dormitory rooms. In
addition, at September 30, 1996, the Company had service contracts with
private pay telephone owners covering approximately 61,300 pay telephones.
The Company carried 7.6 million average monthly minutes of operator services
traffic during the fourth quarter of fiscal 1996, as compared to 8.3 million
and 9.1 million average monthly minutes during the fourth quarters of fiscal
1995 and 1994, respectively. The Company's operator services revenues
amounted to $60.9 million, $59.6 million, $54.7 million in fiscal 1996, 1995
and 1994, respectively.
INDUSTRY OVERVIEW
Management believes that there are approximately 125 operator services
providers competing within the long distance communications industry. AT&T
continues to dominate the operator services market, supplying operator
services for traffic originating from both the hospitality and pay telephone
industries. Additionally, MCI and Sprint provide operator services and are
considered by management to be major competitors. Excluding AT&T, MCI,
Sprint, General Telephone Operating Companies (GTE) and the RBOCs, management
believes the Company is one of the five largest providers of operator
services.
Many operator services providers, including the Company, initially
focused on the hospitality industry. More recently, as the private pay
telephone industry has grown and taken market share from the public pay
telephone market traditionally served by AT&T, many operator services
providers gained increased market share by providing service to the owners of
private and public pay telephones. Competition between the Company and other
operator services providers is based upon commission programs, quality of
service, reporting and customer service.
SALES AND MARKETING
The Company markets its operator services nationally through the
combined effort of regional sales representatives based in Illinois, Texas,
Florida and California and a network of agents. The Company's corporate
sales force focuses on larger accounts, such as hotel management companies,
multi-unit franchises, hospital chains, large private pay telephone companies
and universities. The Company's agents market the Company's operator
services on a nationwide basis and typically receive a commission based upon
the volume of business generated. The Company also participates in various
industry trade shows and promotes its operator services through
advertisements in trade magazines. The Company customizes its communications
services to provide, among other things, individualized reports and
specialized call branding to customers.
OPERATIONS
The Company owns and operates its own operator center in San Antonio,
Texas, which employed 311 operators and support staff at September 30, 1996.
The Company provides live and automated operator services 24 hours per day,
365 days per year, and features multi-lingual operators versed in Spanish,
French, German, Japanese and a variety of other languages. The Company
maintains a sophisticated emergency call handling system that enables its
operators to access police, fire and other emergency agencies within the
jurisdiction of the telephone from which the call is placed. The Company
utilizes its own transmission facilities when possible or contracts to use
facilities of other long distance network providers as necessary.
The Company switches the majority of its operator assisted calls at its
four main switching centers. Many operator assisted calls are transmitted to
the Company's switching centers via call processing equipment installed at
customer locations or in customer pay telephone equipment. This call
processing equipment is programmed to recognize calls requiring operator
assistance and to access the Company's network by dialing the Company's
access number, then passing the call record information to one of the
switching centers. The Company validates the authorization code or telephone
number to be billed and then completes the call, while recording the date,
destination, duration and time of day for subsequent billing purposes. At
September 30, 1996, the Company was authorized to complete international and
interstate calls placed throughout the United States, as well as intrastate
calls within 46 states.
COMPETITIVE ADVANTAGES
Management believes that the Company enjoys several competitive
advantages over many others in the operator services industry. By virtue of
the Company's large call volumes relative to many other operator services
providers and the cost efficiencies it realizes by routing a large portion of
its operator services traffic over its own facilities and maintaining its own
operator center, the Company is able to provide high quality transmission on
an efficient and economical basis. Additionally, because it is the source of
commission payments to its operator services customers, the Company believes
that its financial stability and history of timely payments allow it to
compete effectively against many smaller, under-capitalized operator services
providers. Moreover, the Company's flexible rate options allow it to offer
customized commission programs to its customers as compared to larger
operator services providers.
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In 1994, the Company implemented a computerized bulletin board service
called Stealth that allows its customers to access the system from remote
locations and obtain customized and sophisticated reporting of calling
patterns and volumes for each customer location or pay telephone. This
advanced reporting system allows the Company's operator services customers to
analyze their traffic on a daily basis and maximize telecommunications
revenues by, for example, relocating underutilized telephones. The Company's
detailed reporting also allows its customers to reconcile the accuracy or
integrity of their commissions. The Company employs a skilled, professional
staff of customer service employees and technicians, who provide service 24
hours per day, 365 days per year.
STRATEGY AND GROWTH OPPORTUNITIES
The Company has developed a strong presence in operator services
throughout the United States. Through its direct sales force and agents and
its participation in state, regional and national trade associations, the
Company intends to pursue geographic expansion on a nationwide basis. The
Company will continue to market its operator services business to both the
private pay telephone and hospitality industries and present new products and
services for these markets.
The Company's existing relationship with operator service customers, who
typically own or manage numerous private pay telephones or hotels, provides a
unique opportunity for the Company. The Company will have the potential to
provide local access to a large volume of phone lines, yet limited number of
customers. These characteristics will allow the Company to quickly and
efficiently enter the local services market in targeted areas.
CORPORATE SYNERGY
Management believes that the Company has certain operating advantages
and cost efficiencies through the integration of its two businesses. The
combined traffic volumes of the Company's operator services and direct dial
long distance businesses operate to lower the Company's transmission costs
for both of these businesses in geographic regions where the Company operates
long distance switching equipment. In addition, the Company's sales force
can provide integrated long distance solutions by offering both operator
services and direct dial long distance telephone services and, in the near
future, local services. The opportunity to bundle products and services
strengthens customer relationships and, thus, customer retention.
GOVERNMENT REGULATION
GENERAL
The Company competes in an industry that, to a large degree, continues
to be regulated by government agencies. At approximately the same time as the
required divestiture of the Bell telephone companies by AT&T in 1984, the
Federal Communications Commission (the "FCC") announced rules that were
created to foster a self-regulating, interstate telecommunications industry,
relying upon competitive forces to keep rates and services in check.
Management believes that the current direct dial marketplace demonstrates
substantial progress toward the fulfillment of these objectives. For example,
the cost of a long distance call has significantly declined while the number
of long distance companies has multiplied. Competition has encouraged these
direct dial long distance companies to find ever more efficient methods of
carrying calls.
OPERATOR SERVICES
On October 15, 1990, President Bush signed into law the Telephone
Operator Consumer Service Improvement Act of 1990. Congress directed the FCC
to impose upon the interstate operator services market certain rules and
regulations designed to increase consumer awareness concerning the operator
services provider carrying the call, the information the caller can request
of the operator, and the alternatives available to the consumer for reaching
other long distance carriers. Operator services providers were required to
file with the FCC informational tariffs that describe the rules and
regulations governing the provision of interstate operator assisted
telecommunications and to include all rates that may apply to an interstate
call. Furthermore, operator services providers were required to submit, on a
Congressionally prescribed timetable, certain reports relating to rate
changes, complaints and costs. Based on these reports, on November 16, 1992,
the FCC submitted to Congress its "Final Report Pursuant to the Telephone
Operator Consumer Services Improvement Act of 1990." The purpose of this
report was to identify whether increased regulatory scrutiny by the FCC was
required to satisfy Congressional objectives. The FCC determined that
"...market forces are securing rates and charges that are just and
reasonable..." and therefore stated "...we conclude that no further action is
necessary...".
At September 30, 1996, the Company was authorized to carry intrastate
operator assisted traffic in 46 states. Authorization is pending approval in
one other state. State regulatory agencies have the authority to impose their
own rules and regulations governing the provision of intrastate operator
services, including regulation of rates. Many states have rules similar if
not identical to those imposed by the FCC on interstate operator assisted
calls. At the date of this report, the Company was in material compliance
with the requirements of each of the individual state regulatory agencies and
continues to pursue authorization to provide intrastate operator services in
other
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targeted states. Certain states are expected to introduce or revise their
rules governing operator services providers within the next year. Currently,
the Company does not anticipate significant difficulty in complying with the
new or revised rules.
DIRECT DIAL LONG DISTANCE SERVICES
The FCC has regulatory jurisdiction over interstate and international
telecommunications common carriers, like the Company. Under Section 214 of
the Federal Communications Act, the FCC must certify a communications common
carrier before it may provide international services. The Company has
obtained Section 214 authorization to provide international switched services
by means of resale. The FCC has ruled that "non-dominant" common carriers,
like the Company, need not apply for Section 214 authorization for the
provision of domestic U.S. interstate services.
At September 30, 1996, the Company was authorized to provide intrastate
long distance service within 47 states. Regulations within each of these
states, as they pertain to completing direct dial long distance calls for the
Company's customers within the state, are virtually static and pose no
foreseeable concern. As the Company expands the geographic scope of its
direct dial long distance business, it will seek state regulatory approvals
as necessary to provide intrastate long distance service.
BILLED PARTY PREFERENCE
Another issue under consideration by the FCC currently is termed "Billed
Party Preference," or BPP. This term refers to a concept in which any long
distance call outside the local telephone company's calling area carried from
a publicly available telephone would be completed over the long distance
carrier network of the billed party's previously expressed preference. This
would be accomplished through a local telephone company database system that
would match every calling card and telephone number to a preferred long
distance company and then direct all calls accordingly. In April 1992, the
FCC tentatively proposed adopting BPP. During the summer of 1992, comments
from local telephone companies, long distance carriers and other industry
participants revealed that the cost of imposing BPP could be in excess of
$1.0 billion and could require hundreds of millions of dollars each year to
support its operation. The majority of these commentors were in opposition to
the implementation of BPP. Certain commentors made clear that many technical
impediments remain to full deployment of BPP. Other commentors claimed that
no technology exists that could implement BPP without making call processing
significantly less convenient for many operator services calls, particularly
those requiring a live operator.
In August 1994, industry members responded to a Commission Further
Notice of Proposed Rulemaking. The Commission had tentatively concluded,
based upon their calculation of related cost information previously submitted
by industry members, that the potential benefits of a BPP system appeared to
outweigh its costs, although the Commission admitted the financial data it
used in its study could be outdated. Once again, industry participants were
resoundingly opposed to the Commission's proposal, including AT&T and most of
the RBOCs. To date, the FCC has taken no further action.
If such a system were implemented successfully, the unique market niche
of operator services provider presubscription, such as that of the Company,
would be rendered virtually ineffectual, as an owner of publicly available
telephones would be unable to direct operator assisted calls over the network
of such owner's desired carrier. It is difficult to assess the industry
support for BPP given the inherent problems described above, and the FCC
continues to consider implementation of the proposal. In any event, local
telephone companies have indicated that, if so directed, approximately two to
four years would be required to reconfigure their networks to BPP's
specifications. Thus, while BPP remains viable, the Company believes that it
is not likely to be implemented in the near term.
On March 9, 1995, the FCC requested industry comment on two proposals it
had recently received relative to the BPP proceeding. In an ex-parte
petition, the National Association of Attorney's General ("NAAG") suggested
that the FCC modify its current branding requirement such that operator
service providers ("OSPs") would be required to announce at the beginning of
each call more specific information for obtaining access to alternate
carriers (the "NAAG Petition"). Another petition filed by a coalition of
industry members, including most of the RBOC's two competitive access
providers, the American Public Communications Counsel ("APCC") and the
Competitive Telecommunications Association ("CompTel"), recommended that the
FCC impose certain rate thresholds for interstate operator assisted services,
which the FCC would presume to be reasonable, and any OSP electing to charge
rates higher than such threshold would be required to first prove to the FCC
that such rates are justified based upon the underlying costs of the service
(the "APCC Rate Cap Proposal"). The NAAG Petition was proposed to remain in
effect until such time that BPP is adopted and fully implemented. The APCC
Rate Cap Proposal was proposed to obviate the need to consider any further
action regarding BPP.
In June 1996, the FCC issued a Second Further Notice of Proposed
Rulemaking (SFNPRM) in this proceeding. In it, the FCC proposed adopting a
rule which would require OSPs to announce the rates for certain calls to the
billed party prior to connecting the call, thereby allowing the billed party
to disconnect such call without incurring any unwanted charges. In
September, the FCC released its Second request for Comment in the SFNPRM
soliciting technical and other administrative details to support the proposed
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announcement requirement. Most commentors objected to the discriminatory
nature of the proposal, which would have some carriers announcing rates while
others would not.
If adopted, the NAAG Petition or any form of modified call branding
could have a negative effect upon the number of calls completed over OSP
networks such as the Company's, if end users elect to act upon the additional
branding announcement regarding rates or access to other carriers.
Furthermore, additional network time would be consumed without a
corresponding increase in revenue. If the APCC Rate Cap Proposal is adopted,
OSPs such as the company may be immediately required to lower their
interstate rates until such time as the FCC rules upon an attempt to justify
higher, existing rates. OSPs may be required to adjust the amount of
commission payments made to their subscriber customers as a result of
implementation of such a proposal, or effect other operational changes to
offset any reduction in interstate operator services revenue. The Company
cannot predict when and if any final ruling on either proposal might be
issued.
MFJ LEGISLATION
On February 8, 1996, President Clinton signed the Telecommunications Act
of 1996 into law. The new law allows the RBOCs to petition their respective
"in-region" state regulatory agencies to seek authority from the FCC to allow
the applicant RBOC to provide long distance services. To obtain this
authority, each state agency is required to certify to the FCC that the
applicant RBOC has satisfied a legislative "checklist" that outlines the
steps required for an RBOC to open its network to competition on a local
basis. These steps include the provision of competitive network
interconnection, unbundled access to network elements and other necessary
access to poles, ducts, conduits and rights-of-way. Furthermore, applicant
RBOCs must provide non-discriminatory access to white pages listings and
telephone number assignments. Applicant RBOCs must provide local number
portability, toll dialing parity and local service resale. The FCC is
required to consult with the Department of Justice ("DOJ") to assist in
determining if an applicant RBOC's entry into the long distance business
violates any anti-trust standards the DOJ considers appropriate. Ninety days
after receiving such an application, the FCC is required to render its
decision. RBOCs are required to establish separate subsidiaries through
which they could first offer in-region long distance services. RBOCs may
provide out-of-region long distance services subject to existing laws and
regulations governing long distance communications.
To date, no RBOC has requested authority for in-region interLATA
authority, because the provisions set forth above have not been satisfied by
any RBOC. However, many entities have reached interconnection agreements
with RBOCs to date, including the Company, and many states are impending
rules governing local competition. It is reasonable to expect that the
conditions for RBOC entry will be met in the near future, and carriers in the
interLATA long distance business today, such as the Company, will encounter
new, formidable competition.
TEXAS PIU ISSUE
In a Final Order released in Docket 10127 on April 12, 1993, the Texas
Public Utility Commission ("PUC") adopted new regulations governing the
method by which interexchange carriers ("IXCs") such as the Company calculate
intrastate access charges paid to local telephone companies. These new rules
required an independent auditor's review and approval of an IXC's methodology
of determining its own intrastate access usage. An independent audit by an
accounting firm verified that the Company's process of calculating PIU is
reasonable and statistically valid and, as such, no additional PIU or billing
adjustments are required.
REGULATORY RATE PROCEEDINGS
During the course of normal operations, a regulated company may, at any
time, come under specific scrutiny with regard to any of its rates, terms or
conditions by which such service is rendered by the state or federal
regulatory agency charged with such oversight responsibility, or by an
attorney general or other jurisdictional consumer officials. In such cases,
a regulated company can be required to, among other things, provide cost
justification for the charges it imposes on some or all of its services, or
to address perceived consumer inequities. After review of such
justification, the regulatory agency generally has the authority to require a
carrier to modify the process by which such services are rendered or to
effect changes to its applicable rate structure. Consumer officials and
attorneys general can pursue civil action if their concerns are not
adequately addressed by the carrier. The Company operates in several
jurisdictions in which its tariffs or services may, from time to time, fall
under such scrutiny at the discretion of the governing regulatory agency or
other officials. The Company could therefore be required, as a result of
such an investigation and subsequent proceeding, to implement changes in its
rate structure, which could ultimately affect its revenues. The Company
cannot predict whether or not any such requirement may be imposed in any
particular jurisdiction.
EMPLOYEES
At September 30, 1996, the Company had 602 full-time employees,
including 15 officers, 224 sales and marketing personnel, 68 network,
technical and operations personnel, 111 accounting, administrative and
support personnel and 184 telephone operators and
9
<PAGE>
customer service representatives and related support personnel. At September 30,
1996, the Company also employed 181 part-time telephone operators and
customer service representatives. None of the Company's employees are
represented by a union. The Company believes that its employee relations are
good.
ITEM 2. PROPERTIES
At September 30, 1996, the Company occupied approximately 93,500 square
feet of space for its corporate offices at 9311 San Pedro, San Antonio,
Texas, and Billing has assumed the liability for and occupies approximately
18,000 square feet of space at the same location until April 1, 1997, at
which time the space reverts back to the Company. The approximate 111,500
square feet is leased pursuant to a lease agreement that expires in January
1999. Additionally, at September 30, 1996, the Company leased approximately
17,000 square feet of space for its operator services center at 2200 Danbury,
San Antonio, Texas, and approximately 56,000 square feet in the aggregate for
26 sales and operations offices throughout Texas, Oklahoma, New Mexico,
Louisiana, California, Oregon and Washington. The Company believes that its
facilities are adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS
On December 18, 1996, the Securities and Exchange Commission filed a
civil injunctive action in the Federal District Court for the District of
Columbia alleging that Mr. Parris H. Holmes, Jr., Chairman of the Board of
the Company, failed to file timely twelve reports regarding certain 1991 and
1992 transactions in the stock of the Company as required by Section 16(a) of
the Securities Exchange Act of 1934, as amended. Section 16(a) requires
officers and directors of reporting companies to file monthly reports with
the Commission regarding their personal transactions in the securities of
their company. Mr. Holmes settled this action on December 18, 1996, without
admitting or denying the allegations of the complaint, by consenting to the
entry of an injunction barring future violations with respect to these
requirements and paying a civil penalty of $50,000.
The Commission has conducted an investigation relating to trading in the
securities of Value-Added Communications, Inc. ("VAC"), an operator services
provider based in Dallas, Texas, and of the Company (In the Matter of Trading
in the Securities of Value-Added Communications, Inc. (HO-2765)). A proposed
merger between the Company and VAC was terminated in February 1993. The
investigation concerned whether certain persons may have purchased securities
while in possession of material non-public information or disclosed this
information to others. The Commission Staff has notified Mr. Holmes of its
decision to terminate this investigation.
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes
it is unlikely that the final outcome of any of the claims or proceedings to
which the Company is a party would have a material adverse effect on the
Company's financial position or results of operations; however, due to the
inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period
in which such resolution occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year, no matter was submitted by
the Company to a vote of its stockholders through the solicitation of proxies
or otherwise.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $0.01 per share (the "Common
Stock"), is quoted on the Nasdaq National Market System under the symbol
"USLD." The table below sets forth the high and low bid prices for the Common
Stock from October 1, 1994, through December 13, 1996, as reported by the
Nasdaq National Market System. These price quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
HIGH LOW
---- ---
Fiscal Year Ended September 30, 1995:
1st quarter................................. $12 3/4 $ 9 1/4
2nd quarter................................. $16 $11 1/2
3rd quarter................................. $17 7/8 $14 1/2
4th quarter................................. $17 3/7 $14 1/2
Fiscal Year Ended September 30, 1996:
1st quarter................................. $15 1/8 $10 7/8
2nd quarter................................. $20 1/8 $13
3rd quarter(1).............................. $41 1/8(1) $19 5/8(1)
4th quarter (Pre-Distribution)(1)........... $39 3/8(1) $25 1/2(1)
4th quarter (Post-Distribution)(1).......... $10 (1) $ 4 3/8(1)
Fiscal Year Ended September 30, 1997:
1st quarter (through December 13, 1996)...... $10 1/8 $ 7 1/2
- -------------------
(1) On May 14, 1996, the Company's Board of Directors approved the spin-off of
Billing. On August 2, 1996, the Company completed the Distribution of all of
the capital stock of Billing. The average stock price for the first 10
business days after the distribution date was $6.77 for the Company and $19.36
for Billing.
STOCKHOLDERS
At December 13, 1996, there were 15,076,381 shares of Common Stock
outstanding, held by 641 holders of record. The last reported sales price of
the Common Stock on December 13, 1996, was $8 13/16 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain all earnings for the operation
and development of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. Furthermore, certain
covenants in various credit agreements of the Company prohibit the payment of
cash dividends on the Common Stock.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the audited
Consolidated Financial Statements of the Company. The data presented below
for the fiscal years ended September 30, 1996, 1995 and 1994 should be read
in conjunction with the Consolidated Financial Statements, the Notes thereto
and the other financial information included elsewhere in this report. All
periods presented reflect the spin-off of Billing as discontinued operations
as of September 30, 1991. See Note 3 to the Consolidated Financial
Statements for further discussion of the spin-off. The Company has never
declared cash dividends on its Common Stock, nor does it anticipate doing so
in the foreseeable future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Total operating revenues............................... $180,346 $144,050 $117,541 $80,119 $48,050
Net loss from continuing operations.................... $(13,754) $ (2,083) $ (2,475) $(1,265) $(1,835)
Net loss from continuing operations per common share... $ (0.89) $ (0.14) $ (0.18) $ (0.10) $ (0.16)
SEPTEMBER 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Total assets(1) ...................................... $99,244 $86,027 $79,413 $64,835 $36,573
Long-term obligations, less current portion........... $10,341 $16,168 $16,684 $13,266 $17,603
SEPTEMBER 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS)
OPERATING DATA (UNAUDITED):
Operator services minutes per month(2)................ 7,600 8,300 9,100 10,600 4,800
Pay telephones serviced(3)............................ 61.3 60.9 52.0 44.8 15.9
Rooms serviced(3)..................................... 135.9 136.9 122.0 106.0 90.7
Direct dial long distance minutes per month(2)........ 105,400 62,600 44,700 17,200 10,300
</TABLE>
(1) Excludes net assets of discontinued operations.
(2) Calculated based upon a monthly average over the fiscal quarter ended on
the date indicated.
(3) At end of the period.
12
<PAGE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS - CAUTIONARY STATEMENTS
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SPECIFICALLY, ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS REPORT REGARDING THE
COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND PLANS AND OBJECTIVES OF
MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S
MANAGEMENT, AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF SIMILAR
IMPORT, AS THEY RELATE TO THE COMPANY OR COMPANY MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEW
OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, THE OPERATION OF THE
COMPANY'S NETWORKS, TRANSMISSION COSTS, PRODUCT INTRODUCTIONS AND ACCEPTANCE,
TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND OTHER
FACTORS DESCRIBED HEREIN ("CAUTIONARY STATEMENTS"). ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO BE CORRECT. BASED UPON CHANGING CONDITIONS,
SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD
ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR
INTENDED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE APPLICABLE CAUTIONARY STATEMENTS.
GENERAL
The following is a discussion of the consolidated financial condition and
results of operations of the Company for fiscal 1996, 1995 and 1994. It should
be read in conjunction with the Consolidated Financial Statements of the
Company, the Notes thereto and the other financial information included
elsewhere in this report. For purposes of the following discussion, references
to year periods refer to the Company's fiscal years ended September 30 and
references to quarterly periods refer to the Company's fiscal quarters ended
December 31, March 31, June 30 and September 30.
On July 10, 1996, the Company's Board of Directors approved a plan to
spin-off the Company's Billing Group Business as a separate public company.
To effect the spin-off, the Board approved the distribution of the
outstanding shares of common stock of its wholly owned subsidiary that owned
and operated the Billing Group Business, Billing, to the Company's
stockholders. The Distribution was tax-free for federal income tax purposes
to the Company's stockholders, and the Company did not recognize income, gain
or loss as a result of the Distribution except for direct spin-off costs.
The Distribution was completed on August 2, 1996.
The accompanying Consolidated Statements of Income reflect the operating
results of Billing as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30. Prior period operating results have been
restated to reflect continuing operations. The Consolidated Pro Forma
Statements of Income are also included and discussed in a separate
section below.
OVERVIEW
Revenues grew to $180.3 million in 1996 from $144.1 million in 1995 and
$117.5 million in 1994. During the five-year period ended September 30, 1996,
revenues grew at a 60% annual compounded rate. The Company's gross profit
margin was 34.3% in 1996, 34.7% in 1995 and 37.9% in 1994. The decrease in
gross margin from 1994 to 1996 was largely due to the growth of lower gross
margin direct dial long distance revenues as a percentage of total revenues.
The Company's selling, general and administrative ("SG&A") expenses as a
percentage of revenues were 28.1%, 28.9% and 32.8% in 1996, 1995 and 1994,
respectively. The decrease from 1994 to 1996 was primarily the result of
tighter expense controls and increased efficiencies. Depreciation and
amortization expenses as a percentage of revenues were 6.5%, 7.0% and 7.2% in
1996, 1995 and 1994, respectively.
Net loss from continuing operations of $13.8 million, $2.1 million and
$2.5 million was reported for 1996, 1995 and 1994, respectively. The Company
reported net income of $1.4 million, or $0.09 per share, for 1996; $12.0
million, or $0.83 per share, for 1995; and $6.1 million, or $0.43 per share,
for 1994. Fiscal 1996 results were down compared to 1995 and 1994 due to
$13.0 million of direct spin-off costs and $2.8 million in restructuring
charges incurred in fiscal 1996. As further discussed in the Outlook, the
Company believes that it has the competitive product offerings, personnel and
financial resources for continued business success.
13
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements
of Income as a percentage of total operating revenues for the years ended
September 30, 1996, 1995 and 1994:
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Direct dial long distance services.............. 66.2% 58.6% 53.5%
Operator services............................... 33.8 41.4 46.5
----- ----- -----
Total operating revenues........................ 100.0% 100.0% 100.0%
Operating expenses:
Cost of services................................ 65.7% 65.3% 62.1%
Selling, general and administrative............. 28.1 28.9 32.8
Spin-off costs.................................. 7.2 0.0 0.0
Restructuring charges........................... 1.6 0.0 0.0
Depreciation and amortization................... 6.5 7.0 7.2
----- ----- -----
Loss from operations.............................. (9.1)% (1.2)% (2.1)%
----- ----- -----
----- ----- -----
</TABLE>
OPERATING REVENUES
Revenues in 1996 increased by 25% to $180.3 million
from $144.1 million in 1995 and by 53% from $117.5 million in 1994. Growth in
direct dial long distance services revenues accounted for $34.9 million of
the total increase in revenues from 1995 to 1996.
DIRECT DIAL LONG DISTANCE SERVICES. Direct dial long distance services
revenue increased 41% to $119.4 million in 1996 compared to $84.5 million in
1995 and 90% compared to $62.8 million in 1994. The increase in revenue is
primarily attributable to growth in the number of customers serviced. The
Company believes that there are opportunities for continued expansion, both
internally and externally through acquisitions, in both of its primary
businesses. However, because direct dial long distance services represent
the largest market in which the Company is active, management believes that
this business presents the Company with its greatest revenue growth
opportunity. The Company believes that its base of operator services business
affords it the opportunity to expand its direct dial long distance business
on a more cost effective basis than many of its direct dial long distance
competitors. Accordingly, the Company continues to consider potential
acquisitions. Acquisition activity is focused primarily on small to
medium-sized companies that will grow the Company's direct dial long distance
business. While the Company has, from time to time, had discussions with such
companies, it has no agreements or pending negotiations with respect to any
acquisition at the date of this report that would have a material impact on
the Company's financial position or results of operations.
OPERATOR SERVICES. Operator services revenue was $60.9 million in 1996
compared to $59.6 million in 1995 and $54.7 million in 1994. The Company
processed 17.5 million operator services calls in 1996 compared to 17.4
million in 1995 and 17.2 million in 1994. The Company serviced an average of
approximately 66,100 pay telephones and 128,300 hospitality rooms per month
for 1996, compared to an average of approximately 55,200 pay telephones and
130,300 hospitality rooms per month for 1995 and 48,200 pay telephones and
103,000 hospitality rooms per month for 1994. Although the volume of
operator services calls has increased, the related increase in revenues have
been, and will continue to be, offset by several factors, including an
increase in the percentage of pay telephones serviced by the Company located
in states that impose rate tariff regulations on operator services providers
and an increasing awareness on the part of the consumer of the ability to
select a carrier of choice by dialing access codes of other carriers
("dial-around"). Additionally, changes in federal or state regulations could
negatively impact revenues of the Company (see Note 15 to the Consolidated
Financial Statements).
OPERATING EXPENSES
COST OF SERVICES. The gross profit margin was 34.3%,
34.7% and 37.9% during 1996, 1995 and 1994, respectively. The decline in
gross profit margins from 1994 to 1996 is primarily due to the change in the
Company's revenue mix. The Company's direct dial long distance services gross
margins have increased; however, the improvement was offset by an increase in
the direct dial long distance services revenue as a percentage of total
revenue. Such revenues have a lower gross margin than the operator services
revenue and accounted for 66%, 59% and 54% of revenue during 1996, 1995 and
1994, respectively. The direct dial long distance services margin has
increased primarily as a result of continued improvements in networking
efficiencies and reductions in transmission costs.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses for 1996 were $50.7
million, representing 28.1% of revenues, compared to $41.6 million in 1995,
or 28.9% of revenues, and $38.5 million in 1994, or 32.8% of revenues. SG&A
expenses as a percentage of revenues have continued to decrease as a result
of tighter expense controls and efforts to streamline the Company's
operations.
14
<PAGE>
DIRECT SPIN-OFF COSTS. Direct spin-off costs represent costs incurred in
connection with the Distribution of Billing. The $13.0 million amount
represents certain professional and filing fees, payments required for
terminating or restructuring employment contracts, tax payments triggered by
the spin-off and non-cash expenses associated with the vesting of stock grants.
RESTRUCTURING CHARGES. The $2.8 million in restructure charges for 1996
includes costs associated with consolidating customer service, credit and
collection and other support functions; vacating certain office facilities;
terminating certain marketing contracts; writing down excess assets and
providing severance payments.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
$11.8 million, $10.0 million and $8.4 million in 1996, 1995 and 1994,
respectively. Depreciation and amortization expense as a percentage of
revenues decreased to 6.5% in 1996 from 7.0% in 1995 and 7.2% in 1994. This
decrease as a percentage of revenue is primarily attributable to the increase
in revenues and was achieved despite a charge of $727,000 related to asset
write-offs in the fourth quarter of fiscal 1996.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations in 1996 increased to $16.5 million from $1.6
million in 1995 and $2.4 million in 1994. Excluding direct spin-off costs and
restructuring charges, the Company would have reported a loss from continuing
operations of $667,000 in 1996. The continued improvement in operations is
primarily attributable to the decrease in SG&A expenses as a percentage of
revenues, as discussed above, and the increase in revenues.
OTHER EXPENSE, NET
Net other expense decreased to $628,000 in 1996 from $999,000 and $866,000
in 1995 and 1994, respectively. The decrease is primarily attributable to a
lower level of indebtedness over the past year.
INCOME TAXES
The Company's effective tax rate is higher than the federal statutory rate
due to the addition of state income taxes and certain deductions taken for
financial reporting purposes which are not deductible for federal income tax
purposes.
NET INCOME
The Company reported net income of $1.4 million, $12.0 million and $6.1
million in 1996, 1995 and 1994, respectively. The decrease in 1996 is
attributable to the direct spin-off costs and restructuring charges incurred.
EFFECTS OF SPIN-OFF OF BILLING GROUP BUSINESS
The Consolidated Statements of Income included in this report reflect the
continuing and discontinued operations of the Company for the years ended
September 30, 1996, 1995 and 1994. Included below is supplemental unaudited pro
forma financial information that management believes is important to provide an
understanding of the results of the Company on a stand-alone basis.
Consolidated Pro Forma Statements of Income are presented below for each of the
last four fiscal years as well as for each quarter of fiscal 1996 and 1995.
These unaudited Consolidated Pro Forma Statements of Income are based on the
historical statements of the periods presented adjusted to reflect the items
discussed in the accompanying Notes to the unaudited Consolidated Pro Forma
Financial Statements. The unaudited Consolidated Pro Forma Statements of Income
give effect to the spin-off as if it had occurred on September 30, 1992. The
pro forma adjustments reflect the terms of the spin-off agreements, which are
expected to have a continuing impact on the Company.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes and with the Company's historical Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" set forth herein. The pro forma
financial statements should not be considered indicative of the operating
results which the Company will achieve in the future if it were operated on an
independent, stand-alone basis because, among other things, these statements
are based on historical rather than prospective information and upon certain
assumptions which are subject to change.
The unaudited Consolidated Pro Forma Statements of Income of the Company
reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented and to make the
unaudited pro forma statements not misleading.
15
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
FISCAL YEAR ENDED
SEPTEMBER 30,
-----------------------------------------
1996 1995 1994 1993
<S> ------- -------- -------- --------
PRO FORMA <C> <C> <C> <C>
Operating revenues:
Direct dial long distance services (A)......... $119,401 $ 84,484 $ 62,834 $ 29,673
Operator services.............................. 60,945 59,566 54,707 50,446
-------- -------- -------- --------
Total operating revenues................... 180,346 144,050 117,541 80,119
Cost of services................................. 118,493 94,038 72,944 47,403
-------- -------- -------- --------
Gross profit 61,853 50,012 44,597 32,716
Selling, general and administrative expense (B).. 50,722 41,580 38,541 27,804
Depreciation and amortization expense............ 11,798 10,032 8,424 5,060
-------- -------- -------- --------
Loss from operations (C)...................... (667) (1,600) (2,358) (148)
Other expense, net............................... (628) (999) (865) (1,561)
-------- -------- -------- --------
Loss before income tax benefit................... (1,295) (2,599) (3,233) (1,709)
Income tax benefit (D)........................... 544 1,092 1,358 718
-------- -------- -------- --------
Net loss before extraordinary items.............. (751) (1,507) (1,875) (991)
Extraordinary loss............................... 0 0 0 (316)
-------- -------- -------- --------
Net loss......................................... $ (751) $ (1,507) $ (1,875) $ (1,307)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per common share........................ $ (0.05) $ (0.10) $ (0.13) $ (0.11)
Weighted average common shares and common share
equivalents outstanding......................... 15,398 14,587 14,069 12,117
THREE MONTHS ENDED
-----------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996
------ -------- -------- ---------
PRO FORMA
Operating revenues:
Direct dial long distance services (A)........ $25,034 $29,046 $31,306 $34,015
Operator services............................. 14,674 14,609 15,378 16,284
------- ------- ------- -------
Total operating revenues................... 39,708 43,655 46,684 50,299
Cost of services................................. 26,386 28,875 30,498 32,734
------- ------- ------- -------
Gross profit.................................. 13,322 14,780 16,186 17,565
Selling, general and administrative expense (B).. 11,382 12,929 13,139 13,272
Depreciation and amortization expense............ 2,771 2,938 2,702 3,387
------- ------- ------- -------
Income (loss) from operations (C)............. (831) (1,087) 345 906
Other expense, net............................... (186) (215) (159) (68)
------- ------- ------- -------
Income (loss) before income tax benefit
(provision)..................................... (1,017) (1,302) 186 838
Income tax benefit (provision) (D)............... 428 547 (79) (352)
------- ------- ------- -------
Net income (loss)................................ $ (589) $ (755) $ 107 $ 486
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common share............... $ (0.04) $ (0.05) $ 0.01 $ 0.03
Weighted average common shares and common share
equivalents outstanding......................... 14,853 15,189 15,715 15,833
</TABLE>
16
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1994 1995 1995 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
PRO FORMA
Operating revenues:
Direct dial long distance services (A)........ $19,968 $19,896 $21,210 $23,410
Operator services............................. 12,940 13,075 15,441 18,110
------- ------- ------- -------
Total operating revenues................... 32,908 32,971 36,651 41,520
Cost of services................................. 21,312 21,619 24,708 26,399
------- ------- ------- -------
Gross profit.................................. 11,596 11,352 11,943 15,121
Selling, general and administrative expense (B).. 9,881 9,624 10,264 11,811
Depreciation and amortization expense............ 2,355 2,428 2,653 2,596
------- ------- ------- -------
Profit (loss) from operations................. (640) (700) (974) 714
Other expense, net............................... (275) (240) (260) (224)
------- ------- ------- -------
Income (loss) before income tax benefit
(provision)..................................... (915) (940) (1,234) 490
Income tax benefit (provision) (D)............... 384 395 519 (206)
------- ------- ------- -------
Net income (loss)................................. $ (531) $ (545) $ (715) $ 284
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common share............... $ (0.04) $ (0.04) $ (0.05) $ 0.02
Weighted average common shares and common share
equivalents outstanding......................... 14,208 14,497 14,759 14,886
</TABLE>
NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(A) The long distance and 800 services provided by the Company to
Billing have, historically, been eliminated in consolidation.
The pro forma statements of income reflect an adjustment for
these long distance and 800 services revenues to achieve arm's
length pricing consistent with the Telecommunications Agreement
that has been executed between the Company and Billing.
(B) The billing clearinghouse and information management services
provided by Billing to the Company have, historically, been
eliminated in consolidation. The pro forma statements of income
reflect an adjustment for these billing clearinghouse and
information management costs to achieve arm's length pricing
consistent with the Zero Plus-Zero Minus Billing and Information
Management Services Agreement and the One-Plus Billing and
Information Management Services Agreement that have been
executed between Billing and the Company.
(C) In order to reflect the operating results of the Company on
normalized basis, these unaudited Consolidated Pro Forma
Statements of Income exclude direct spin-off costs and
restructuring charges. Direct spin-off costs were $13.0 million
and $6.3 million for the year and quarter ended September 30,
1996, respectively. Restructuring charges were $2.8 million for
the year and quarter ended September 30, 1996.
(D) On the unaudited Consolidated Pro Forma Statements of Income,
the Company reflects a pro forma benefit (provision) for income
taxes at a 42% tax rate for all periods presented for purposes
of comparability. Actual tax amounts will be higher in the third
and fourth quarters of fiscal 1996 due to nondeductibility of
certain nonrecurring expenses associated with the spin-off and
restructuring.
17
<PAGE>
OUTLOOK
The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially.
The industry in which the Company operates is very competitive and is
characterized by rapid change. In addition, the Company has faced, and
continues to face, regulatory issues which have affected or which may affect
operating revenues and operating profit. The continued success of the Company
is dependent on its ability to adapt to these competitive and regulatory
changes. In developing strategies to achieve continued growth in operating
revenues and operating profits, the Company anticipates continuing geographic
expansion, expanding its product offerings and controlling costs to improve
gross margins and reduce SG&A expense as a percentage of revenue.
The Company continues to evaluate and take actions to improve the
profitability of its existing products, to identify new products to fully
utilize the Company's existing sales distribution channels and to evaluate
programs that are expected to increase revenues through partnerships with
independent sales agents. The Company has implemented, among other things, a
regionalized approach to pricing, which is expected to improve price
competitiveness. Furthermore, management is in the process of expanding
product offerings to include local access and Internet services, as well as
frame relay and paging services in selected markets. The expansion of
products should increase revenues, as well as strengthen customer
relationships and increase customer retention. The Company also plans to
expand its direct dial long distance services residential customer base in
selected markets through direct marketing efforts, as well as by offering
long distance services to employees of commercial customers. To expand its
footprint nationally over the next several years, management is considering
and will continue to consider new investments in switching and related
networking equipment. The Company has purchased a digital switch in Atlanta,
Georgia, and will take possession of it in January 1997. In addition, the
Company continues to evaluate acquisition candidates in strategic geographic
areas to expand its market. However, the Company has no agreement or pending
negotiations with respect to any acquisition at the date of this report that
would have a material impact on the Company's financial position or results
of operations.
The Company has implemented a number of actions designed to improve
overall profitability and reduce the Company's cost structure. With regard to
improving the Company's gross margins, management is focused on maximizing
network efficiencies by implementing technological improvements and reducing
unit costs. In November 1995, the Company joined the Associated
Communication Companies of America ("ACCA") which provides members with
opportunities to pool purchasing power to acquire lower transmission rates
from interexchange carriers through volume discounts and to work in
partnership with other members to capitalize on resource sharing arrangements
such as switch partitioning and network sharing. The Company already has
realized, from this arrangement, certain benefits during the last half of
fiscal 1996 and expects continued benefits as the arrangement continues to be
phased in. Lastly, management has streamlined and reorganized certain
corporate, administrative and overhead functions to better align its
infrastructure with the smaller operation that resulted from the spin-off.
Over the past several years, the Company has undertaken a program of
developing new products and expanding its existing service offerings,
geographic focus and network. In connection with these new products and
services, the Company has made significant investments in telecommunications
circuits, switches, equipment and software. These investments, generally, are
timed to coincide closely with anticipated revenue growth. In addition, the
Company continues to increase its sales and marketing, customer support,
network operations and field services commitments in anticipation of the
expansion of its customer base in targeted geographic markets. The Company
expects to continue to expand the breadth and scale of its network and
related sales and marketing, customer support and operations activities. The
Company attempts to carefully plan these expansion efforts to minimize the
effect to profitability; however, they can cause the Company to incur
significant increases in expenses from time to time in anticipation of
potential future growth in the Company's customer base and targeted
geographic markets.
The Company's future results of operations and the other forward looking
statements contained in this Outlook, in particular the statements regarding
revenue growth and reducing cost structure, involve a number of risks and
uncertainties. In addition to the factors discussed above, other factors that
could cause actual results to differ materially are the following: business
conditions and the general economy, competitive factors, acceptance of new
products and pricing pressures, availability of leased network facilities,
risk of collection of accounts receivable, technological advancements,
regulatory factors, litigation and other factors as discussed in the
cautionary statements.
The Company believes that it has the competitive product offerings,
personnel and financial resources for continued business success; however,
future revenues, costs and profits all are influenced by a number of factors
and are subject to certain risks and uncertainties, as discussed above.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $8.8 million at September 30,
1996, from $0 at September 30, 1995. This increase is attributable to the
transfer of cash from Billing to the Company pursuant to the spin-off of
Billing. Cash has, historically, been managed by a centralized cash
management department in Billing. Consequently, cash was not allocated among
the Company's subsidiaries and was recorded on the balance sheet of Billing.
Total consolidated cash was $22.9 million at September 30, 1995, none of
which is reflected on the Company's balance sheet for financial reporting
purposes. Working capital was $20.1 million at September 30, 1996, compared
to $11.7 million at September 30, 1995. The Company's current ratio was 1.7:1
at September 30, 1996, versus 1.5:1 at September 30, 1995. Additionally, the
Company's cash flow provided by operations was $1.6 million for fiscal 1996
and $1.8 million for 1995. Cash flow provided by operating activities would
have been $5.8 million had the Company not incurred direct spin-off costs and
restructuring charges.
Accounts receivable increased to $35.9 million at September 30, 1996
from $30.5 million at September 30, 1995. This increase is attributable
primarily to a higher level of direct dial long distance services revenues in
the fourth quarter of 1996 compared to the fourth quarter of 1995. Trade
accounts payable and accrued liabilities increased to $10.9 million and $13.6
million, respectively, at September 30, 1996 from $10.7 million and $6.7
million at September 30, 1995. The increases in accounts payable and accrued
liabilities are due to the overall expansion of the Company's business.
Prepaids and other current assets increased to $6.0 million at September 30,
1996 from $4.1 million at September 30, 1995. This increase is attributable
to an increase in a receivable from Billing for equipment loans under the
Company's financing facility pursuant to the spin-off. The decrease in other
assets to $4.9 million at September 30, 1996 from $6.5 million at September
30, 1995 is due to the normal amortization of these assets and a $727,000
write-down of customer lists associated with certain acquisitions.
Capital expenditures amounted to approximately $11.0 million during
1996. These expenditures were related primarily to the purchase of
telecommunications equipment, computer equipment and software, and office
furniture. During 1996, the Company financed approximately $3.5 million of
equipment through long-term borrowings. During 1997, the Company anticipates
capital expenditures of $18.0 million to $22.0 million to service the
Company's projected growth. Approximately $10.0 million to $12.0 million of
these capital expenditures are expected to be purchases of telecommunications
equipment, approximately $5.0 million to $7.0 million are expected to be
purchases of computer hardware and software to develop systems to support the
anticipated growth of the Company's business and the remainder is expected to
be for purchases of office furniture and equipment. The Company anticipates
financing these capital expenditures primarily through term notes with
various lending institutions. Although line of credit commitments have been
made by various lenders for equipment purchases, there is no assurance that
the Company will be able to obtain satisfactory financing for these capital
expenditures.
The Company's operations and expansion into new geographic markets will
continue to require substantial capital investment for the development and
procurement of transmission facilities and telecommunications and office
equipment. In addition, any acquisitions that the Company may consummate may
require substantial capital investment. The Company believes that it has the
ability to continue to secure long-term equipment financing and that this
ability, combined with cash flow generated from operations and available
borrowing capacity under its existing credit facilities, will be sufficient
to fund capital expenditures, working capital needs and debt repayment
requirements for the foreseeable future.
The Company has a revolving credit receivable financing facility which
allows the Company to borrow against its own direct dial long distance
services and operator services accounts receivable. At September 30, 1996,
the Company had approximately $14.0 million available for borrowing and did
not have any amounts borrowed under this facility. Any borrowings under this
facility will bear interest at the prime rate plus .5%. This facility is
collateralized by the related accounts receivable and by virtually all of the
assets of the Company not otherwise pledged as security under other debt
agreements.
The Company is a guarantor on a $45.0 million credit receivable
financing facility for Billing. Under the terms of the Transitional Services
and Sublease Agreement entered into pursuant to the spin-off, the Company's
potential liability as guarantor is compensated at the rate of 1% of the
average annual outstanding balance. At September 30, 1996, Billing had $19.0
million outstanding under this facility. Both the revolving credit financing
facility and the guarantee arrangement terminate on December 31, 1996. The
Company anticipates executing agreements in the near future which would
provide the Company with receivable financing facilities exceeding $10.0
million.
In fiscal 1996, the Company entered into a $10.0 million equipment
financing facility with an interest rate float at the 30-day commercial paper
rate plus 2.70%. No amounts were outstanding under this facility at September
30, 1996. The agreement provides for a one-year period during which the
Company may finance up to $10.0 million in equipment on an interest payment
only basis. Upon completion of this period in September 1997, the note amount
will convert to a series of term notes with 20% of the total amount borrowed
due in each of the next five years. Any amounts not due in a given year may
be prepaid and reborrowed at the Company's discretion.
19
<PAGE>
The Company has various fixed rate notes with interest rates ranging
from 6.75% to 11.0%, due in varying amounts through August 2001. The proceeds
from the issuance of these notes were used to acquire certain computer and
telecommunications equipment and office furniture. The loans are secured by
the assets acquired with the proceeds of such notes. Certain of these notes
are also guaranteed by Billing.
Historically, the Company has obtained financing for capital
expenditures through term debt agreements and capital lease agreements that
were guaranteed and cross-collateralized by the Company and Billing. These
debt agreements were negotiated based on the strength of the consolidated
financial statements, earnings and cash flow of the consolidated group. Most
of these debt agreements were secured by the assets of all the subsidiaries
within the consolidated group. The Company has received from certain lenders
loan agreement amendments or separate loan agreements whereby the subject
indebtedness will be secured by only the Company's assets. In other cases,
the existing cross guarantees and security arrangements between the Company
and Billing will remain in place for the duration of the facility. In this
regard, the Company and Billing have agreed to pay each other a credit
support fee.
The credit facilities discussed above contain various restrictions and
financial ratio maintenance requirements. Under one of its credit
facilities, the Company is required to maintain a quarterly ratio of
consolidated operating income, as defined in the agreements, to consolidated
fixed charges of 1.5 to 1.0. Further, the Company is required to maintain a
ratio of funded debt, as defined in the agreement, to total capitalization of
not greater than 60% and total debt to total capitalization of not greater
than 85%. Other agreements require the Company to maintain cash flow
coverage ratios, as defined in the agreements, ranging between 1.25 and 1.40
and a minimum tangible net worth ranging between $30.0 million and $35.0
million. Under one agreement, the Company is prohibited from paying a cash
dividend on its common stock. Cross-default provisions of the Company's most
significant credit facilities may place the Company in default of such
facilities should it fail to satisfy provisions of certain other loan
agreements. Under the Company's most significant credit facilities,
USLD has guaranteed the obligations of its subsidiaries. The Company was
in compliance with all required covenants at September 30, 1996 and 1995.
The Company continually evaluates business opportunities, including
potential acquisitions. The primary focus of the Company's acquisition
activities is to make additional acquisitions that will grow the Company's
direct dial long distance business. One or more of such acquisitions could
result in a substantial change in the Company's operations and financial
condition. The success of the Company's acquisition activities will depend,
among other things, on the availability of acquisition candidates, the
availability of funds to finance acquisitions and the availability of
management resources to oversee the operation of acquired businesses. While
the Company has, from time to time, had discussions with other
telecommunications companies, it has no agreements or pending negotiations
with respect to any acquisition at the date of this report that would have a
material impact on the Company's financial position or results of operations.
As consideration for any acquisitions, the Company may issue common
stock, preferred stock, convertible debt or other securities, in addition to
or in lieu of the payment of cash, that could result in dilution of the
percentage ownership of public stockholders. The Company does not intend to
seek stockholder approval for any such acquisitions or security issuances
unless required by applicable law or regulations.
SEASONALITY
Approximately 95% of the Company's direct dial long distance revenues is
generated by commercial customers and, accordingly, the Company experiences
general decreases in long distance revenues around national holidays when
commercial traffic is reduced. The Company typically experiences decreases in
operator services revenues in the fall and winter months as pay telephone
usage declines due to cold and inclement weather in many parts of the United
States. As a result of the seasonal variations discussed above, revenue
reported in the Company's first fiscal quarter ending December 31 (which
includes the Thanksgiving, Christmas and New Year's Eve holidays),
historically, has been the lowest level of any quarter of the year.
Conversely, due to increased traffic from pay telephones during the spring
and summer months and a lower concentration of national holidays, the Company
has historically experienced its highest revenue levels in the third and
fourth quarters of the fiscal year. Because the Company's fixed operating
expenses do not decrease during the first fiscal quarter, the Company's
profitability is also, generally, at its lowest level for any quarter of the
year.
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business.
Prices charged to the Company for switching equipment and transmission costs
have not materially changed during the year. General operating expenses such
as salaries, employee benefits and occupancy costs are, however, subject to
normal inflationary pressures.
NEW ACCOUNTING STANDARDS
The Company is not currently, nor does it expect to be, materially
affected by any new standards recently issued by the Financial Accounting
Standards Board.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the related
report of the Company's independent public accountants thereon are included
in this report at the page indicated.
ITEM PAGE
---- ----
Report of Independent Public Accountants......................... 22
Consolidated Balance Sheets at September 30, 1996 and 1995....... 23
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994............................... 24
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1996, 1995 and 1994......................... 25
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994............................... 26
Notes to Consolidated Financial Statements....................... 27
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Long Distance Corp.:
We have audited the accompanying consolidated balance sheets of U.S.
Long Distance Corp. (a Delaware corporation) and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Long
Distance Corp. and subsidiaries as of September 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1996, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the Consolidated Financial Statements,
effective October 1, 1993, the Company changed its method of accounting for
income taxes.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
November 14, 1996
22
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................................................... $ 8,842 $ 0
Accounts receivable, net of allowances for doubtful accounts of $2,519 (1996) and $1,938 (1994)... 35,867 30,548
Prepaids and other................................................................................. 6,002 4,077
-------- -------
Total current assets..................................................................... 50,711 34,625
Property and equipment................................................................................. 58,370 47,800
Less accumulated depreciation and amortization..................................................... (28,793) (19,106)
-------- -------
Net property and equipment............................................................... 29,577 28,694
Equipment held under capital leases, net of accumulated depreciation of $1,458 (1996)
and $1,958 (1995)...................................................................................... 282 1,540
Other assets:
Excess of cost over net assets acquired, net of accumulated amortization of $2,065 (1996)
and $1,502 (1995)................................................................................. 13,804 14,685
Other assets, net of accumulated amortization of $4,892 (1996) and $4,443 (1995).................. 4,870 6,483
Net assets of discontinued operations (see Note 3)................................................. 0 39,083
-------- -------
Total assets.................................................................................. $ 99,244 $125,110
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................................................ $10,909 $ 10,748
Accrued liabilities............................................................................... 13,581 6,684
Current portion of long-term debt................................................................. 5,854 5,147
Current portion of obligations under capital leases............................................... 294 372
-------- -------
Total current liabilities............................................................... 30,638 22,951
Other liabilities..................................................................................... 52 3,318
Long-term debt, less current portion.................................................................. 10,146 12,327
Obligations under capital leases, less current portion................................................ 143 523
Payable to Billing Information Concepts Corp., net.................................................... 0 17,860
Commitments and contingencies (See Note 6, 10 and 14)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or
outstanding at September 30, 1996 or 1995...................................................... 0 0
Common stock, $0.01 par value, 50,000,000 shares authorized; 15,255,977 and 14,281,866
shares issued and 15,051,876 and 14,094,634 shares outstanding at September 30, 1996 and 1995,
respectively................................................................................... 153 143
Additional paid-in capital...................................................................... 54,554 49,304
Retained earnings................................................................................ 5,465 20,473
Treasury stock................................................................................... (1,907) (1,789)
-------- -------
Total stockholders' equity............................................................. 58,265 68,131
-------- -------
Total liabilities and stockholders' equity............................................. $99,244 $125,110
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
FOR THE YEAR
ENDED SEPTEMBER 30,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Direct dial long distance services..................................................... $ 119,401 $ 84,484 $ 62,834
Operator services...................................................................... 60,945 59,566 54,707
--------- -------- --------
Total operating revenues............................................................. 180,346 144,050 117,541
Cost of services......................................................................... 118,493 94,038 72,944
--------- -------- --------
Gross profit........................................................................... 61,853 50,012 44,597
Selling, general and administrative expense.............................................. 50,722 41,580 38,541
Direct spin-off costs.................................................................... 12,969 0 0
Restructuring charges.................................................................... 2,840 0 0
Depreciation and amortization expense.................................................... 11,798 10,032 8,424
--------- -------- --------
Loss from continuing operations........................................................ (16,476) (1,600) (2,368)
Other income (expense):
Interest income........................................................................ 894 682 473
Interest expense....................................................................... (1,356) (1,643) (1,609)
Other, net............................................................................. (166) (38) 270
--------- -------- --------
Total other income (expense)......................................................... (628) (999) (866)
--------- -------- --------
Loss from continuing operations before income tax benefit................................ (17,104) (2,599) (3,233)
Income tax benefit 3,350 516 758
Net loss from continuing operations...................................................... (13,754) (2,083) (2,475)
Discontinued operations (Note 3):
Income from discontinued operations, net of income taxes of $9,292 (1996),
$8,661 (1995) and $5,038 (1994)....................................................... 15,161 14,118 8,565
--------- -------- --------
Net income............................................................................... $ 1,407 $ 12,035 $ 6,090
--------- -------- --------
--------- -------- --------
Net income (loss) per common share:
--------- -------- --------
Continuing operations.................................................................. $ (0.89) $ (0.14) $ (0.18)
Discontinued operations................................................................ 0.98 0.97 0.61
Net income per common share............................................................ $ 0.09 $ 0.83 $ 0.43
Weighted average common shares and common share equivalents
outstanding........................................................................... 15,398 14,587 14,069
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
-------------- --------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1993....... 11,913 $119 0 $0 $36,113 $ 1,998 $ (93)
Pooling with Telecom West Inc........ 270 3 0 0 5 123 0
Exercise of stock options and
warrants............................ 113 1 0 0 827 0 0
Issuance of common stock............. 636 6 0 0 5,358 0 0
Issuance of treasury stock........... 0 0 0 0 237 0 66
Purchase of treasury stock........... 0 0 0 0 0 0 (1,637)
Net income........................... 0 0 0 0 0 6,090 0
------ ------ ------ ------ ------- -------- -------
Balances at September 30, 1994....... 12,932 129 0 0 42,540 8,211 (1,664)
Pooling with L.D. Network, Inc....... 175 2 0 0 1 227 0
Exercise of stock options and
warrants............................ 1,080 11 0 0 4,805 0 0
Issuance of common stock............. 195 2 0 0 2,422 0 0
Retirement of treasury stock......... (100) (1) 0 0 (949) 0 950
Purchase of treasury stock........... 0 0 0 0 0 0 (1,075)
Other capital contribution........... 0 0 0 0 485 0 0
Net income........................... 0 0 0 0 0 12,035 0
------ ------ ------ ------ ------- -------- -------
Balances at September 30, 1995....... 14,282 143 0 0 49,304 20,473 (1,789)
Issuance of common stock............. 223 2 0 0 1,210 0 0
Return of escrowed shares............ 0 0 0 0 0 0 (118)
Exercise of stock options and
warrants............................ 751 8 0 0 3,913 0 0
Other capital contribution........... 0 0 0 0 127 0 0
Spin-off of Billing Information
Concepts Corp....................... 0 0 0 0 0 (16,415) 0
Net income........................... 0 0 0 0 0 1,407 0
------ ------ ------ ------ ------- -------- -------
Balances at September 30, 1996....... 15,256 $153 0 $0 $54,554 $ 5,465 $(1,907)
------ ------ ------ ------ ------- -------- -------
------ ------ ------ ------ ------- -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR
ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
--------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations........ $ (13,754) $ (2,083) $ (2,475)
Adjustments to reconcile net loss from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization............ 11,798 10,032 8,424
Provision for losses on accounts
receivable.............................. 8,388 6,231 5,095
Deferred compensation.................... 4,078 255 220
Loss on write-down of property and
equipment............................... 1,084 171 48
Changes in current assets and liabilities,
net of effects from purchase of direct
dial long distance companies:
Increase in accounts receivable........ (13,001) (12,882) (6,535)
(Increase) decrease in prepaids and
other................................. (766) 600 (1,997)
Increase (decrease) in accounts payable 161 (4,222) 4,853
Increase (decrease) in accrued
liabilities........................... 6,897 1,869 (300)
Increase (decrease) in other
liabilities........................... (3,266) 1,843 1,398
--------- -------- --------
Net cash provided by operating activities.... 1,619 1,814 8,731
Net cash provided by discontinued operations 16,661 6,549 1,007
Cash flows from investing activities:
Purchases of property and equipment........ (11,007) (9,761) (7,036)
Acquisition of direct dial long distance
companies, net of cash acquired........... 0 (175) (565)
Proceeds from sale of assets............... 45 632 179
Other investing activities................. (335) (54) (880)
--------- -------- --------
Net cash used in investing activities........ (11,297) (9,358) (8,302)
Cash flows from financing activities:
Proceeds from issuance of debt.......... 3,500 4,784 7,339
Payments on debt........................ (5,742) (5,512) (4,875)
Payments on capital leases.............. (458) (1,267) (2,544)
Financing costs......................... 0 0 (267)
Proceeds from issuance of common stock,
net of issuance costs.................. 4,559 4,065 470
Purchase of treasury stock.............. 0 (1,075) (1,559)
--------- -------- --------
Net cash provided by (used in) financing
activities.................................. 1,859 995 (1,436)
--------- -------- --------
Net increase in cash and cash equivalents.... 8,842 0 0
Cash and cash equivalents, beginning of year 0 0 0
--------- -------- --------
Cash and cash equivalents, end of year....... $ 8,842 $ 0 $ 0
--------- -------- --------
--------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
NOTE 1. BUSINESS ACTIVITY
U.S. Long Distance Corp. ("USLD") was redomesticated from Canada and
reincorporated under the Delaware Corporation Law Act in the State of
Delaware, United States of America, in 1987. USLD and its subsidiaries
(collectively, the "Company") offer an integrated group of communications
services including direct dial long distance, prepaid calling cards, travel
cards, data transmission and calling center services. The Company's network
consists of a highly advanced, digital switching system which provides
nationwide, largely fiber-optic, access throughout the United States.
The Company is a full-service long distance carrier currently providing
direct dial long distance services to small and medium-sized commercial
customers and, to a lesser extent, residential customers. In addition, the
Company provides operator assisted services for private pay telephones,
hotels, motels, university dormitories and hospitals. In fiscal 1996, direct
dial long distance services represented approximately two-thirds of the
Company's revenues, while operator services represented approximately
one-third of revenues.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of USLD and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
current period and prior period amounts have been reclassified for
comparative purposes.
On August 2, 1996, the Company completed the spin-off of its billing
clearinghouse and information management services business, Billing
Information Concepts Corp. ("Billing"). The spin-off has been accounted for
as a discontinued operation and, accordingly, the Company restated its
consolidated financial statements for all periods presented prior to that
date in accordance with Accounting Principles Board ("APB") Opinion No. 30.
Financial disclosures for all periods presented reflect that restatement.
Cash was historically managed by a centralized cash management
department in Billing. Consequently, cash was not allocated among USLD's
subsidiaries and was recorded on the balance sheet of Billing. Total
consolidated cash was $22.9 million at September 30, 1995, none of which is
reflected on the Company's balance sheet for financial reporting purposes.
The intercompany payable to Billing has been reported as a separate line
item in the restated balance sheet under the caption "Payable to Billing,
net" between the liability and stockholders' equity sections of the balance
sheet. See further discussion of discontinued operations in Note 3.
ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION POLICIES
The Company recognizes revenue from its direct dial long distance and
operator services as such services are performed.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed on a straight-line basis over the estimated useful lives of the
related assets, which range from three to ten years. Upon disposition, the
cost and related accumulated depreciation and amortization are removed from
the accounts and the resulting gain or loss is reflected in other income for
that period. Expenditures for maintenance and repairs are charged to expense
as incurred. Direct installation costs and major improvements are capitalized.
27
<PAGE>
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired represents the excess of the
consideration paid over the fair value of the net assets acquired. The
initial acquisition of the direct dial long distance business is being
amortized using the straight-line method over 40 years, all subsequent
acquisitions of direct dial long distance businesses are being amortized over
20 years. The Company annually assesses the appropriateness of the asset
valuations and the amortization periods.
OTHER ASSETS
Other assets include financing costs related to the issuance of
long-term debt, which have been deferred and are amortized over the life of
each respective agreement, acquisition costs of direct dial long distance
customer bases, which are amortized over the expected useful life of the
customer bases, and costs incurred to acquire operator services agreements,
which are amortized over the life of each respective contract. In addition, a
certificate of deposit held as security for an equipment financing facility,
long-term deposits and the long-term portion of notes receivable have been
included in other assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of the Company's financial instruments
have been determined by the Company using appropriate valuation methodologies
and approximate their recorded book values at September 30, 1996 and 1995.
The carrying values of the Company's cash, receivables, accounts payable,
debt and all other financial instruments approximate their fair market values.
ADVERTISING EXPENSE
The Company charges advertising costs to expense as the costs are
incurred. Total advertising expense was $1.1 million, $543,000 and $796,000
for the years ended September 30, 1996, 1995 and 1994, respectively.
INCOME TAXES
In February 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which the Company adopted effective October 1,
1993. Under SFAS No. 109, deferred tax liabilities and assets are recorded
based on enacted income tax rates that are expected to be in effect in the
period in which the deferred tax liability or asset is expected to be settled
or realized. A change in the tax laws or rates results in adjustments to the
deferred tax liabilities or assets. The effects of such adjustments are
required to be included in income in the period in which the tax laws or
rates are changed. The adoption of SFAS No. 109 did not have a material
impact on the Company's financial position or results of operations. Prior
to October 1, 1993, the Company accounted for income taxes in accordance with
the provisions of APB Opinion No. 11, "Accounting for Income Taxes."
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share was computed by dividing net income
(loss) applicable to common stock by the weighted average number of common
shares and common share equivalents outstanding during the applicable period.
The weighted average number of shares outstanding during each fiscal year
differs from the number of shares outstanding at each year end due to assumed
conversions of options and warrants that were outstanding during the
respective periods.
28
<PAGE>
STATEMENTS OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated were
as follows:
YEAR ENDED SEPTEMBER 30,
---------------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
Cash payments for interest .............. $1,393 $1,685 $ 1,641
Cash payments for income taxes........... 187 414 0
Noncash investing and financing
activities:
Assets acquired in connection with
acquisitions ........................ 0 939 11,560
Liabilities assumed in connection
with acquisitions.................... 0 351 4,273
Common stock issued in connection
with acquisitions.................... 0 896 4,962
Capital lease and debt obligations
incurred............................. 1,159 470 295
Contingent obligations incurred....... 0 0 1,637
Tax benefit recognized in connection
with stock option exercises.......... 1,421 1,236 392
Return of escrowed treasury stock..... 118 0 0
Reimbursable spin-off costs due
from Billing ........................ 704 0 0
Dividend pursuant to spin-off of
Billing.............................. 34,345 0 0
For purposes of determining cash flows, the Company considers all
temporary cash investments purchased with an original maturity of three
months or less to be cash equivalents.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In fiscal 1996, the Company determined that
certain computer equipment, customer lists and goodwill were impaired and,
accordingly, wrote down these assets by $1.8 million, of which $1.1 million
is included in restructuring charges and $727,000 is included in depreciation
and amortization expense.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a fair value based method of accounting
for employee stock options or similar equity instruments. Under the fair
value based method, compensation cost is measured at the grant date based on
the value of the award and is recognized over the service period of the
award, which is usually the vesting period. However, SFAS No. 123 also
allows entities to continue to measure compensation costs using the intrinsic
value method prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees." Entities electing to remain with the accounting prescribed by
APB Opinion No. 25 must make pro forma disclosures of net income and earnings
per share as if the fair value based method of SFAS No. 123 had been applied.
The accounting and disclosure requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December 15, 1995.
The Company intends to measure compensation costs in accordance with APB
Opinion No. 25 and to provide pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting under SFAS
No. 123 had been applied. Therefore, management of the Company does not
anticipate SFAS No. 123 will have a material impact on the Company's
financial position or results of operations.
In June 1996, FASB issued SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides accounting and reporting standards for, among other things, the
transfer and servicing of financial assets, such as factoring receivables
with recourse. SFAS No. 125 is effective for transfers and servicing of
financial assets occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted.
Management of the Company does not anticipate the adoption of SFAS No. 125
will have a material impact on the Company's financial position or results of
operations.
NOTE 3. DISCONTINUED OPERATIONS
On August 2, 1996, the Company completed the spin-off of Billing, its
billing clearinghouse and information management services business. The
spin-off has been accounted for as a discontinued operation and, accordingly,
the Company restated its Consolidated Financial Statements for all periods
presented prior to that date. The spin-off was a tax-free distribution of
100% of the common stock of Billing to the Company's stockholders. Revenue
of the discontinued operations of Billing was $85.8 million, $80.8 million
and $57.7 million in fiscal 1996, 1995 and 1994, respectively. Net income of
the discontinued operations of Billing was $15.2 million, $14.1 million and
$8.6 million in fiscal 1996, 1995 and 1994, respectively. In connection with
the spin-off, the
29
<PAGE>
Company entered into an agreement with Billing under which the intercompany
payable/receivable balances were forgiven. Additionally, Billing agreed to
reimburse the Company for direct out-of-pocket expenses associated with the
spin-off and to transfer cash to the Company to provide the Company a working
capital balance of $21.5 million at the spin-off date. The net effect of this
agreement resulted in the Company recording the distribution as a dividend in
the amount of $16.4 million for financial statement purposes. Direct spin-off
costs recorded as operating expenses in the year ended September 30, 1996
were approximately $13.0 million and include professional fees, tax payments
triggered by the spin-off, payments called for under employment agreements
and costs associated with accelerated stock grants.
The summarized components of net assets of discontinued operations at
September 30, 1995 were as follows (in thousands):
Current assets....................................... $100,735
Property and equipment, net.......................... 4,785
Other................................................ 1,375
--------
Total assets...................................... 106,895
Accounts payables, accruals and debt................. 60,405
Revolving line of credit............................. 23,030
Other liabilities and obligations.................... 2,237
--------
Total liabilities................................. 85,672
--------
Receivable from the Company.......................... (17,860)
--------
Net assets of discontinued operations............. $ 39,083
--------
--------
NOTE 4. ACQUISITIONS
On October 1, 1993, the Company acquired Telecom West Inc. ("TWI"), a
direct dial long distance company, in exchange for 270,000 shares of its
common stock. The business combination has been accounted for as a
pooling-of-interests combination. The accompanying consolidated financial
statements include the operating results of TWI since the effective date of
the business combination. The consolidated financial statements for periods
prior to the combination have not been restated to include the accounts and
results of operations of TWI due to the transaction not having a significant
impact on the Company's prior period financial position or results of
operations.
During fiscal 1994, the Company acquired four other separate,
privately-owned direct dial long distance companies located in Texas and
California. These acquisitions have been accounted for as purchases and,
accordingly, the results of operations of each company have been included in
the Company's consolidated financial statements since the respective dates of
acquisition. An aggregate of $1.0 million cash and 650,000 shares of the
Company's common stock were issued in connection with these purchase
transactions. Total assets acquired and liabilities assumed for these
acquired companies were approximately $2.8 million and $3.3 million,
respectively. The excess of the aggregate purchase price over the fair value
of aggregate net tangible assets acquired is approximately $8.0 million, of
which approximately $6.9 million has been recorded as goodwill and is being
amortized on a straight-line basis over 20 years. The remaining balance has
been recorded as the purchase price for customer lists and is being amortized
on a straight-line basis over five years.
On October 6, 1994, the Company acquired L.D. Network, Inc. ("LDN"), a
direct dial long distance company, in exchange for 175,000 shares of its
common stock. The business combination has been accounted for as a
pooling-of-interests combination. The accompanying consolidated financial
statements include the operating results of LDN since October 1, 1994. The
consolidated financial statements for periods prior to the combination have
not been restated to include the accounts and results of operations of LDN
due to the transaction not having a significant impact on the Company's prior
period financial position or results of operations.
In March 1995, the Company acquired the long distance commercial
customer base of a company and certain assets of another company. These
acquisitions have been accounted for as purchases and, accordingly, the
results of operations of each acquisition have been included in the Company's
consolidated financial statements since the respective effective dates of
acquisition. Cash of $175,000 and 78,000 shares of the Company's common stock
were issued in connection with these purchase transactions. Total assets
acquired and liabilities assumed for these acquisitions were approximately
$1.1 million and $280,000, respectively. The excess of the purchase price
over the fair value of aggregate net tangible assets acquired is
approximately $1.0 million, of which approximately $316,000 has been recorded
as goodwill and is being amortized on a straight-line basis over 20 years.
The remaining balance has been recorded as the purchase price for customer
lists and is being amortized on a straight-line basis over five years.
30
<PAGE>
No pro forma financial information with regard to any acquisitions has
been presented as the acquisitions do not have a significant impact, either
individually or in the aggregate, on the Company's prior or current period
financial position or results of operations. The Company granted certain
registration rights to the persons receiving its common stock in the
acquisitions and caused its subsidiaries to enter into employment agreements
with certain principals of the acquired companies.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
SEPTEMBER 30,
----------------
1996 1995
---- ----
(IN THOUSANDS)
Communications equipment...................... $ 40,573 $ 33,652
Furniture, fixtures and equipment............. 15,018 11,437
Leasehold improvements........................ 2,779 2,711
-------- --------
Less accumulated depreciation................. (28,793) (19,106)
-------- --------
Net property and equipment................. $ 29,577 $ 28,694
-------- --------
-------- --------
NOTE 6. DEBT
Long-term debt is comprised of the following:
SEPTEMBER 30,
----------------
1996 1995
---- ----
(IN THOUSANDS)
Fixed interest rate term notes................. $16,000 $17,474
Less - Current portion......................... 5,854 5,147
------- -------
Long-term debt, less current portion......... $10,146 $12,327
------- -------
------- -------
The Company has a revolving credit receivable financing facility which
allows the Company to borrow against its own operator services accounts
receivable and certain direct dial long distance services accounts
receivable. At September 30, 1996, the Company had approximately $14.0
million available for borrowing and did not have any amounts borrowed under
this facility. At September 30, 1995, the Company did not have any amounts
borrowed under this facility. Any borrowings under this facility will bear
interest at the prime rate plus .5%. This facility is collateralized by the
related accounts receivable and by virtually all of the assets of the Company
not otherwise pledged as security under other debt agreements. This financing
facility terminates on December 31, 1996.
The Company is a guarantor on a $45.0 million credit receivable
financing facility for Billing. Under the terms of the Transitional Services
and Sublease Agreement discussed further in Note 13, the Company's potential
liability as guarantor is compensated by Billing at the rate of 1% of the
average annual outstanding balance. At September 30, 1996, Billing had $19.0
million outstanding under this facility. The guarantee arrangement terminates
on December 31, 1996.
In fiscal 1996, the Company entered into a $10.0 million equipment
financing facility with an interest rate at the 30-day commercial paper rate,
as defined in the agreement, plus 2.70%. No amounts were outstanding under
this facility at September 30, 1996. The agreement provides for a one-year
period during which the Company may finance up to $10.0 million in equipment
on an interest payment only basis. Upon completion of this period in
September 1997, the outstanding borrowings will convert to a series of term
notes with 20% of the total amount borrowed due in each of the next five
years. Any amounts not due in a given year may be prepaid and reborrowed at
the Company's discretion. A commitment fee of $75,000 was paid in connection
with this facility. It is being amortized over five years.
The Company has various fixed rate notes with interest rates ranging
from 6.75% to 11.0%, due in varying amounts through August 2001. The proceeds
from the issuance of these notes were used to acquire certain computer and
telecommunications equipment and office furniture. The loans are secured by
the assets acquired with the proceeds of such notes. Certain of these notes
are also guaranteed by Billing.
Historically, the Company has obtained financing for capital
expenditures through term debt agreements and capital lease agreements that
were guaranteed and cross-collateralized by the Company and Billing. These
debt agreements were negotiated based on the strength of the consolidated
financial statements, earnings and cash flow of the consolidated group. Most
of these debt agreements were secured by the assets of all the subsidiaries
within the consolidated group. The Company has received from certain lenders
loan
31
<PAGE>
agreement amendments or separate loan agreements whereby the subject
indebtedness will be secured by only the Company's assets. In other cases,
the existing cross guarantees and security arrangements between the Company
and Billing will remain in place for the duration of the facility. In this
regard, the Company and Billing have agreed to pay each other a credit
support fee of 1% of the average annual outstanding balance.
The credit facilities discussed above contain various restrictions and
financial ratio maintenance requirements. Under one of its credit
facilities, the Company is required to maintain a quarterly ratio of
consolidated operating income, as defined in the agreement, to consolidated
fixed charges of 1.5 to 1.0. Further, the Company is required to maintain a
ratio of funded debt, as defined in the agreement, to total capitalization of
not greater than 60% and total debt to total capitalization of not greater
than 85%. Other agreements require the Company to maintain cash flow
coverage ratios, as defined in the agreements, ranging between 1.25 and 1.40
and a minimum tangible net worth ranging between $30.0 million and $35.0
million. Under one agreement, the Company is prohibited from paying a cash
dividend on its common stock. Cross-default provisions of the Company's most
significant credit facilities may place the Company in default of such
facilities should it fail to satisfy provisions of certain other loan
agreements. Under the Company's most significant credit facilities, USLD has
guaranteed the obligations of its subsidiaries. The Company was in compliance
with all required covenants at September 30, 1996 and 1995.
Scheduled maturities for the years ending September 30, 1997 through
2001 are as follows (in thousands):
Year Ending September 30,
1997................................... $ 5,854
1998................................... 4,960
1999................................... 2,759
2000................................... 1,653
2001................................... 774
-------
Total debt................................. $16,000
-------
-------
NOTE 7. LEASES
The Company leases certain equipment and office space under operating
leases. Rental expense for fiscal 1996, 1995 and 1994, was $2.5, $2.6 and
$2.3 million, respectively. Future minimum lease payments under
non-cancelable operating leases at September 30, 1996, are as follows (in
thousands):
Year Ending September 30,
1997................................... $2,231
1998................................... 1,800
1999................................... 476
2000................................... 63
2001................................... 74
Thereafter............................. 179
------
Total minimum lease payments............... $4,823
------
------
The Company also leases various computer and telecommunications
equipment under capital lease arrangements. Future minimum lease payments
under these capital leases, together with the present value of the net
minimum lease payments at September 30, 1996, are $437,000 and are due in
varying amounts through 1999.
NOTE 8. SHARE CAPITAL
On June 1, 1994, the Company was authorized by its board of directors to
purchase up to 1,000,000 shares of its outstanding common stock. Shares were
purchased from time to time on the open market over the course of the twelve
months that began June 1, 1994 as market and other relevant conditions
warranted. During the twelve-month period ended May 31, 1995, the Company
purchased an aggregate of 267,500 shares at an average market price of $9.84
per share. All of these shares were purchased subsequent to July 1, 1994.
In November 1994, the Company retired 100,000 shares of treasury stock
carried at a cost of $950,000. These shares were returned to authorized and
unissued shares. In November 1995, the escrow agreement relating to the
Company's acquisition of the long distance commercial customer base of a
company in March 1995 and pursuant to which 16,869 shares of the Company's
common stock were held in escrow was terminated. These 16,869 shares were
returned to the Company and are being held as treasury shares. At September 30,
1996, the Company had 204,101 shares of treasury stock, carried at cost.
Other capital contributions in fiscal 1995 and 1996 are from a director
of the Company and represent a settlement of certain securities matters. No
cash dividends were paid on the Company's common stock during fiscal 1996,
1995 or 1994.
32
<PAGE>
On December 12, 1995, the Board of Directors adopted the U.S. Long
Distance Corp. 1995 Employee Restricted Stock Plan (the "Restricted Stock
Plan"), which provides for the awarding of restricted stock to officers and
certain key employees of the Company. An aggregate of 500,000 shares of
common stock are reserved for awards under the Restricted Stock Plan. The
number of shares of common stock to be awarded to an employee and other terms
of the award are determined by a committee of disinterested persons who will
administer the Restricted Stock Plan. The Restricted Stock Plan provides for
certain restrictions upon the sale of the stock. Subsequently, the
Restricted Stock Plan was amended to allow for immediate vesting at the
discretion of the committee. In fiscal 1996, 188,000 shares of stock were
granted under this plan. Compensation expense of $553,000 was recognized upon
the amortization of deferred compensation and is included in selling, general
and administrative expense. An additional $3.4 million of compensation
expense was recognized in fiscal 1996 due to the acceleration of vesting of
stock grants pursuant to the spin-off of Billing and is included in direct
spin-off costs. At September 30, 1996, 312,000 shares were available for
granting under this plan.
On April 12, 1996, the Company, upon authorization by its Board of
Directors, adopted a Shareholder Rights Plan ("Rights Plan") and declared a
dividend of one preferred share purchase right on each share of its
outstanding common stock. The rights will become exercisable if a person or
group acquires 15% or more of the Company's common stock or announces a
tender offer, the consummation of which would result in ownership by a person
or group of 15% or more of the common stock. These rights, which expire on
April 12, 2006, entitle stockholders to buy one ten-thousandth of a share of
a new series of participating preferred shares at a purchase price of $90.00
per one ten-thousandth of a preferred share. The Rights Plan was designed to
assure that stockholders receive fair and equal treatment in the event of any
proposed takeover of the Company.
NOTE 9. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company has granted stock options to directors, employees and other
affiliated parties as follows:
NUMBER OF PRICE RANGE OF SHARES
SHARES UNDER OPTION
------ ------------
Outstanding, September 30, 1993....... 1,252,689
Canceled.......................... (141,054) $1.20 - $3.59
Granted........................... 657,850 $2.43 - $3.59
Exercised......................... (112,386) $0.39 - $2.53
---------
Outstanding, September 30, 1994....... 1,657,099
Canceled.......................... (65,264) $2.03 - $3.40
Granted........................... 300,500 $2.43 - $3.85
Exercised......................... (471,861) $0.39 - $3.14
---------
Outstanding, September 30, 1995....... 1,420,474
Canceled.......................... (665,144) $2.20 - $2.95
Granted........................... 1,924,700 $2.91 - $8.48
Exercised......................... (281,900) $2.20 - $3.08
---------
Outstanding, September 30, 1996....... 2,398,130
---------
---------
In connection with the August 2, 1996 spin-off of Billing, further
discussed in Note 3, the Company effected a tax-free distribution of 100% of
the common stock of Billing to the Company's stockholders. Immediately prior to
that distribution, Billing, under its employee stock plans, granted options to
purchase Billing common stock to each holder of an outstanding option to
purchase shares of the Company's common stock under the U.S. Long Distance
Corp. 1990 Employee Stock Option Plan, as amended ("Employee Plan") and the
U.S. Long Distance Corp. 1993 Non-Employee Director Stock Option Plan
("Director Plan"), respectively. In connection with the grant of the Billing
options, the exercise price of the Company's options was adjusted via a formula
adjustment designed to preserve the economic value of the Company's options
existing immediately prior to the distribution. Except for the formula
adjustment, the terms of each of the Company's adjusted option are
substantially the same as those in effect prior to the distribution. The per
share exercise price of the Company's options was adjusted based on the
relative fair market values of the underlying common stock of each of the two
companies, or by a factor of 25.9%. The fair market value per share of common
stock of each company was defined as the average of the last sales price per
share of that common stock on the Nasdaq National Market system for each of the
ten consecutive trading days immediately subsequent to the date of
distribution.
Stock options to purchase an aggregate of 117,500 shares were
outstanding at September 30, 1996, were granted outside of any plan and are
exercisable at prices ranging from $4.38 to $6.38 at varying dates through
August 23, 2002. Stock options to purchase an aggregate of 65,000 shares were
outstanding at September 30, 1996, were granted under the provisions of the
Director Plan and are exercisable at prices ranging from $2.78 to $4.76 per
share. The Director Plan options have certain vesting requirements and
expire at varying dates through February 28, 2001. There were 115,000 shares
remaining to be issued under the Director Plan at September 30,
33
<PAGE>
1996. Stock options to purchase an aggregate of 2,215,630 shares were
outstanding at September 30, 1996, were granted under the provisions of the
Employee Plan, and are exercisable at prices ranging from $0.39 to $8.48 per
share. The Employee Plan options, which have certain vesting requirements,
expire at varying dates through August 22, 2002. The Employee Plan provides
for the granting of incentive stock options and nonqualified stock options.
As of September 30, 1996, there were 790,515 shares remaining to be issued
under the Employee Plan. Options to purchase a total of 1,031,385, 756,524
and 610,792 shares of common stock were exercisable under all plans at
September 30, 1996, 1995 and 1994, respectively.
The excess of the market value of the common stock on the date granted
over the exercise price of such options results in compensation expense to
the Company over the vesting period. Approximately $145,000, $255,000 and
$220,000 of compensation expense was recognized by the Company during fiscal
1996, 1995 and 1994, respectively. There were no deferred compensation costs
netted against additional paid-in capital at September 30, 1996 while
$145,000 was netted against paid-in capital at September 30, 1995.
Stock warrants to purchase 469,741 shares of common stock were
outstanding at September 30, 1995. These warrants were issued in connection
with the sale of the senior subordinated notes in July 1991 and were
exercisable at $0.01 per share. Warrants to purchase 469,741 and 608,459
shares of common stock were exercised in fiscal 1996 and 1995, respectively.
There were no such warrants exercised in fiscal 1994. There were no such
stock purchase warrants outstanding at September 30, 1996.
In addition, the Company has granted warrants to purchase 225,000 shares
of common stock, pursuant to two telecommunications service agreements. The
exercise price of the warrants was equal to the market value of the Company's
common stock on the date of grant. Pursuant to the spin-off of Billing, the
exercise price associated with these warrants was adjusted to $3.24 per
share. The warrants vest ratably over the contract periods.
NOTE 10. INCOME TAXES
The income tax benefit is comprised of the following:
YEAR ENDED SEPTEMBER 30,
-------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Current........................ $ 119 $ 2,574 $ 1,965
Deferred....................... 3,231 (2,058) (1,207)
------- ------- -------
Income tax benefit............. $ 3,350 $ 516 $ 758
------- ------- -------
------- ------- -------
The income tax benefit for fiscal 1996, 1995 and 1994 differs from the
amount computed by applying the statutory federal income tax rate of 35% for
fiscal 1996 and 1995 and 34% for fiscal 1994 to loss from continuing
operations before taxes. The reasons for these differences were as follows:
YEAR ENDED SEPTEMBER 30,
----------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
Computed income tax benefit at
statutory rate................... $ 5,986 $ 910 $ 1,099
Increases (reductions) in taxes
resulting from:
State income taxes............ (311) (146) (185)
Amortization of asset
valuations in excess of tax.. (98) (165) (12)
Non-deductible expenses
related to spin-off.......... (2,455) 0 0
Other, net.................... 228 (83) (144)
------- ------- -------
------- ------- -------
Income tax benefit................. $ 3,350 $ 516 $ 758
------- ------- -------
------- ------- -------
34
<PAGE>
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
SEPTEMBER 30,
-----------------
1996 1995
---- ----
(IN THOUSANDS)
Deferred tax assets:
Deferred compensation............... $ 1,713 $ 0
Expense provisions.................. 1,460 88
------- -------
Total gross deferred tax assets... 3,173 88
Deferred tax liabilities:
Tax depreciation and amortization
in excess of book.................. (2,556) (2,933)
Prepaid expenses.................... (262) (222)
Other............................... (407) (216)
------- -------
Total gross deferred tax
liabilities...................... (3,225) (3,371)
------- -------
Net deferred tax liability........ $ (52) $(3,283)
------- -------
------- -------
The Company has been notified by the Internal Revenue Service ("IRS")
that a fiscal 1992 transaction between a wholly owned foreign subsidiary
(Mega Plus Dialing, Inc.) and its U.S. subsidiary (Billing, formerly Zero
Plus Dialing, Inc.) is proposed to be treated differently by the IRS than
originally characterized by the Company. The IRS district office has issued a
report that proposed an assessment of taxes, penalties and interest. The
assessment has been appealed to the appellate division of the IRS. The
Company and its tax counsel believe the possibility that the IRS will prevail
in this matter is remote. Consequently, no accrual for this potential
liability or any associated taxes, interest or penalties has been made.
Management of the Company does not anticipate this matter will have a
material impact on the Company's financial position or results of operations.
During fiscal 1996, the Company incurred expenses related to the
spin-off of Billing. Under federal income tax law, expenses incurred for
effecting a corporate reorganization are non-deductible capital expenditures.
Approximately $7.0 million of the spin-off expenses were determined to be
non-deductible, resulting in a reduction of the income tax benefit of
approximately $2.5 million.
During fiscal 1996, the Company recognized a tax gain related to the
liquidation of its wholly owned foreign subsidiary, Mega Plus Dialing, Inc.
(MPDI). The gain arose in conjunction with the redemption of common and
preferred shares of Billing held by MPDI. The Company paid Canadian federal
taxes totaling US $3.3 million on the gain. This tax payment generated a
foreign tax credit for U.S. federal income tax purposes equal to this amount.
NOTE 11. BENEFIT PLANS
The Company adopted the U.S. Long Distance Corp. 401(k) Retirement Plan
("Retirement Plan") effective January 1, 1992. Participation in the
Retirement Plan is offered to eligible employees of the Company or its
subsidiaries. Generally, all employees of the Company or its subsidiaries who
are 21 years of age and who have completed one year of service during which
they worked at least 1,000 hours are eligible for participation in the
Retirement Plan.
The Retirement Plan is a defined contribution plan which allows
participants to make voluntary salary deferral contributions, on a pretax
basis, of between 1% and 15% of their compensation in the form of voluntary
payroll deductions up to a maximum amount as statutorily determined. In
fiscal 1996, the Company made matching contributions of 50% of the first 3%
of the participant's contribution. In fiscal 1995 and 1994, the Company made
matching contributions at a percentage determined annually of 25% of the
first 6% of the participant's contribution. The Company may, from time to
time, make additional discretionary contributions. No discretionary
contributions were made in fiscal 1996 or 1995. During fiscal 1994, a
discretionary contribution in the amount of approximately $51,000 was made.
During fiscal 1996, 1995 and 1994, the Company's contributions totaled
approximately $162,000, $150,000 and $198,000, respectively.
The Company adopted the U.S. Long Distance Corp. Executive Compensation
Deferral Plan ("Executive Plan") and the U.S. Long Distance Corp. Director
Compensation Deferral Plan ("Director Plan"), effective January 1, 1994.
Participation in the Executive Plan is offered to selected employees
occupying management positions who are determined by the Company's board of
directors, from time to time, to be eligible to participate in the Executive
Plan. Participation in the Director Plan is offered to individuals occupying
a position as an outside director. The Executive and Director Plans are
defined contribution plans which provide that participants may make voluntary
contributions, on a pretax basis, of between 1% and 100% of their eligible
compensation. Under the Executive Plan, the Company made matching
contributions equal to the lesser of 100% of a participant's contributions or
an amount determined by a formula established by the plan. Matching
contributions under the Director Plan were 33% of the participant's
contributions. The Company has the right to make matching contributions of a
different amount or no contributions under both plans. During fiscal 1996,
1995 and 1994, the Company contributed $114,000, $87,000 and $60,000 to the
Executive Plan and $75,000, $15,000 and $6,000 to the Director Plan,
respectively.
35
<PAGE>
Additionally, the Company adopted the U.S. Long Distance Corp. Executive
Qualified Disability Plan ("Disability Plan"), effective January 1, 1994.
The Disability Plan provides long-term disability benefits for certain
employees occupying management positions through disability insurance
coverage purchased by the Company and through Company funded payments.
Benefits under the Disability Plan are provided directly by the Company based
on definitions contained in the insurance policies.
The U.S. Long Distance Corp. Employee Stock Purchase Plan (the "ESPP"),
which was established under the requirements of Section 423 of the Internal
Revenue Code of 1986, as amended, became effective July 1, 1995. The ESPP
enables employees who have completed at least six months of continuous
service with the Company to purchase shares of the Company's common stock at
a 15% discount through voluntary payroll deductions.
NOTE 12. RESTRUCTURING CHARGES
In the fourth quarter of fiscal 1996, the Company recorded
restructuring charges of $2.8 million. These restructuring charges include
costs associated with consolidating customer service, credit and collection
and other support functions, vacating certain office facilities, terminating
certain marketing contracts, writing down excess assets and providing
severance payments.
NOTE 13. RELATED PARTY TRANSACTIONS
For purposes of governing certain ongoing relationships between the
Company and Billing after the spin-off and to provide for an orderly
transition, the Company and Billing have entered into certain agreements.
Such agreements include: (i) the Distribution Agreement, providing for, among
other things, the spin-off and the division between the Company and Billing
of certain assets and liabilities and material indemnification provisions;
(ii) the Benefits Plans and Employment Matters Allocation Agreement,
providing for certain allocations of responsibilities with respect to benefit
plans, employee compensation, and labor and employment matters; (iii) the Tax
Sharing Agreement pursuant to which the Company and Billing agreed to
allocate tax liabilities that relate to periods prior to and after the
Distribution Date; (iv) the Transitional Services and Sublease Agreement
pursuant to which will provide certain services on a temporary basis and
sublease certain office space to Billing and Billing will provide certain
services to the Company on a temporary basis; (v) the Zero Plus-Zero Minus
Billing and Information Management Services Agreement and the One-Plus
Billing and Information Management Services Agreement pursuant to which
Billing will provide billing clearinghouse and information management
services to the Company for an initial period of three years; and (vi) the
Telecommunications Agreement pursuant to which the Company will provide long
distance telecommunications services to Billing for an initial period of
three years; and (vii) the Leasing Agreement, whereby the Company and Billing
agree to pay certain usage charges. It is the intention of the Company and
Billing that the Transitional Service and Sublease Agreement, the Zero
Plus-Zero Minus Billing and Information Management Services Agreement, the
One-Plus Billing And Information Management Services Agreement, the
Telecommunications Agreement, and the Leasing Agreement reflect terms and
conditions similar to those that would have been arrived at by independent
parties bargaining at arm's length; however, there can be no assurances that
such agreements are on terms at least as favorable as could have been
obtained from unaffiliated third parties.
The Company and Billing share a common individual on their boards of
directors. Therefore, the companies are considered related parties for
financial disclosure purposes. At September 30, 1996 and 1995, the Company
had accounts receivable from Billing of $1.3 million and $242,000, as well as
notes receivable of $1.0 million and $0, respectively. In addition, the
Company had accounts payable to Billing of $1.1 million and $1.1 million at
September 30, 1996 and 1995, as well an intercompany payable of $0 and $17.9
million, respectively. Operating revenues from Billing were $3.6 million,
$1.7 million and $924,000 for the years ended September 30, 1996, 1995 and
1994, respectively. Operating expenses related to Billing were $5.3 million,
$5.3 million and $5.3 million for the years ended September 30, 1996, 1995
and 1994, respectively.
From time to time, the Company has loaned to or was otherwise owed
amounts from certain officers and directors of the Company. The highest
amount outstanding of advances to officers and directors during fiscal 1996
and 1995 was $212,000 and $894,000, respectively. The amount outstanding at
September 30, 1996 and 1995 was $75,000 and $212,000, respectively.
NOTE 14. COMMITMENTS AND CONTINGENCIES
36
<PAGE>
The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business. The Company believes
it is unlikely that the final outcome of any of the claims or proceedings to
which the Company is a party would have a material adverse effect on the
Company's financial position or results of operations; however, due to the
inherent uncertainty of litigation, there can be no assurance that the
resolution of any particular claim or proceeding would not have a material
adverse effect on the Company's results of operations for the fiscal period
in which such resolution occurred.
The Company is obligated to pay a minimum of approximately $7.2 million
during fiscal 1997 for usage charges under service agreements with certain
long distance carriers. The Company anticipates exceeding the minimum usage
volumes with these vendors.
NOTE 15. REGULATORY MATTERS
BILLED PARTY PREFERENCE
An issue under consideration by the Federal Communications Commission
(the "FCC") currently is termed Billed Party Preference ("BPP"). This term
refers to a concept in which any long distance call outside the local
telephone company's calling area, carried from a publicly available
telephone, would be completed over the long distance carrier network of the
billed party's previously expressed preference. This would be accomplished
through a local telephone company database system that would match every
calling card and telephone number to a preferred long distance company and
then direct all calls accordingly. In April 1992, the FCC tentatively
proposed adopting BPP. During the summer of 1992, comments from local
telephone companies, long distance carriers and other industry participants
revealed that the cost of imposing BPP could be in excess of $1.0 billion and
could require hundreds of millions of dollars each year to support its
operation. The majority of these commentors were in opposition to the
implementation of BPP. Commentors made clear that many technical impediments
remain to full deployment of BPP. Other commentors claimed that no
technology exists that could implement BPP without making call processing
significantly less convenient for many operator services calls, particularly
those requiring a live operator.
In August 1994, industry members responded to a Commission Further
Notice of Proposed Rulemaking. The Commission had tentatively concluded,
based upon their calculation of related cost information previously submitted
by industry members, that the potential benefits of a BPP system appeared to
outweigh its costs, although the Commission admitted the financial data it
used in its study could be outdated. Once again, industry participants were
resoundingly opposed to the Commission's proposal, including AT&T and most of
the Regional Bell Operating Companies (the "RBOCs"). To date, the FCC has
taken no further action.
If such a system were implemented successfully, the unique market niche
of operator services provider presubscription, such as that of the Company,
would be rendered virtually ineffectual, as an owner of publicly available
telephones would be unable to direct operator assisted calls over the network
of such owner's desired carrier. In any event, local telephone companies
have indicated that, if so directed, approximately two to four years would be
required to reconfigure their networks to BPP's specifications. Thus, while
BPP remains viable, the Company believes that it is not likely to be
implemented in the near term.
On March 9, 1995, the FCC requested industry comment on two proposals it
had recently received relative to the BPP proceeding. In an ex-parte
petition, the National Association of Attorney's General ("NAAG") suggested
that the FCC modify its current branding requirement such that operator
service providers ("OSPs") would be required to announce at the beginning of
each call more specific information for obtaining access to alternate
carriers (the "NAAG Petition"). Another petition filed by a coalition of
industry members, including most of the RBOCs, two competitive access
providers, the American Public Communications Counsel ("APCC") and the
Competitive Telecommunications Association ("CompTel"), recommended that the
FCC impose certain rate thresholds for interstate operator assisted services,
which the FCC would presume to be reasonable, and any OSP electing to charge
rates higher than such threshold would be required to first prove to the FCC
that such rates are justified based upon the underlying costs of the service
(the "APCC Rate Cap Proposal"). The NAAG Petition was proposed to remain in
effect until such time that BPP is adopted and fully implemented. The APCC
Rate Cap Proposal was proposed to obviate the need to consider any further
action regarding BPP.
Subsequently, in June 1996, the FCC issued a Second Further Notice of
Proposed Rulemaking (SFNPRM) in this proceeding. In it, the FCC proposed
adopting a rule which would require operator service providers to announce
the rates for certain calls to the billed party prior to connecting the call,
thereby allowing the billed party to disconnect such call without incurring
any unwanted charges. In September, the FCC released its Second Request for
Comment in the SFNPRM soliciting technical and other administrative details
to support the proposed announcement requirement. Most commentors objected
to the discriminatory nature of the proposal, which would have some carriers
announcing rates while others would not. If any of these proposals are
adopted by the FCC, the Company's operator service traffic could be
negatively affected.
37
<PAGE>
MFJ LEGISLATION
On February 8, 1996, President Clinton signed the Telecommunications Act
of 1996 into law. The new law allows the RBOCs to petition their respective
"in-region" state regulatory agencies to seek authority from FCC to allow the
applicant RBOC to provide long distance services. To obtain this authority,
each state agency is required to certify to the FCC that the applicant RBOC
has satisfied a legislative "checklist" that outlines the steps required for
an RBOC to open its network to competition on a local basis. These steps
include the provision of competitive network interconnection, unbundled
access to network elements and other necessary access to poles, ducts,
conduits and rights-of-way. Furthermore, applicant RBOCs must provide
non-discriminatory access to white pages listings and telephone number
assignments. Applicant RBOCs must provide local number portability, toll
dialing parity and local service resale. The FCC is required to consult with
the Department of Justice ("DOJ") to assist in determining if an applicant
RBOC's entry into the long distance business violates any anti-trust
standards the DOJ considers appropriate. Ninety days after receiving such an
application, the FCC is required to render its decision. RBOCs are required
to establish separate subsidiaries through which they could first offer
in-region long distance services. RBOCs may provide out-of-region long
distance services subject to existing laws and regulations governing long
distance communications.
To date, no RBOC has requested authority for in-region interLATA
authority, because the provisions set forth above have not been satisfied by
any RBOC. However, many entities have reached interconnection agreements
with RBOCs to date, including the Company, and many states have adopted rules
governing local competition. It is reasonable to expect that the conditions
for RBOC entry will be met in the near future, and carriers in the interLATA
long distance business today, such as the Company, will encounter new,
formidable competition.
TEXAS PIU ISSUE
In a Final Order released in Docket 10127 on April 12, 1993, the Texas
Public Utility Commission ("PUC") adopted new regulations governing the
method by which interexchange carriers ("IXCs") such as the Company calculate
intrastate access charges paid to local telephone companies. These new rules
required an independent auditor's review and approval of an IXC's methodology
of determining its own intrastate access usage. An independent audit by an
accounting firm verified that the Company's process of calculating PIU is
reasonable and statistically valid and, as such, no additional PIU or billing
adjustments are required.
REGULATORY RATE PROCEEDINGS
During the course of normal operations, a regulated company may at any
time come under specific scrutiny with regard to any of its rates, terms or
conditions by which such service is rendered by the state or federal
regulatory agency charged with such oversight responsibility, or by an
attorney general or other jurisdictional consumer officials. In such cases,
a regulated company can be required to, among other things, provide cost
justification for the charges it imposes on some or all of its services, or
to address perceived consumer inequities. After review of such
justification, the regulatory agency generally has the authority to require a
carrier to modify the process by which such services are rendered or to
effect changes to its applicable rate structure. Consumer officials and
attorneys general can pursue civil action if their concerns are not
adequately addressed by the carrier. The Company operates in several
jurisdictions in which its tariffs or services may, from time to time, fall
under such scrutiny at the discretion of the governing regulatory agency or
other officials. The Company could therefore be required, as a result of
such an investigation and subsequent proceeding, to implement changes in its
rate structure, which could ultimately affect its revenues. The Company
cannot predict whether or not any such requirement may be imposed in any
particular jurisdiction.
38
<PAGE>
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share amounts
<TABLE>
THREE MONTHS ENDED
------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1996 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues.......................... $39,708 $43,655 $46,684 $50,299
Loss from operations........................ (831) (1,088) (6,284) (8,273)
Net loss from continuing operations......... (846) (1,080) (4,016) (7,812)
Income from discontinued operations, net.... 3,948 5,021 4,317 1,875
Net income (loss)........................... 3,102 3,941 301 (5,937)
Net income (loss) per common share:
Continuing operations....................... $ (0.06) $ (0.08) $ (0.25) $ (0.50)
Discontinued operations..................... 0.27 0.33 0.27 0.11
Net income (loss) per common share.......... 0.21 0.25 0.02 (0.39)
THREE MONTHS ENDED
------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995
---- ---- ---- ----
Operating revenues.......................... $32,908 $32,971 $36,651 $41,520
Income (loss) from operations............... (641) (700) (974) 715
Net income (loss) from continuing
operations................................. (641) (663) (867) 88
Income from discontinued operations, net.... 2,911 3,102 3,921 4,184
Net income.................................. 2,270 2,439 3,054 4,272
Net income (loss) per common share:
Continuing operations....................... $ (0.04) $ (0.05) $ (0.06) $ 0.01
Discontinued operations..................... 0.20 0.22 0.27 0.28
Net income per common share................. 0.16 0.17 0.21 0.29
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is incorporated herein by
reference from the information under the captions "Election of Directors"
(Item 1 on proxy), "Management - Directors and Executive Officers," and
"Section 16(a) Reporting" of the Company's definitive proxy statement to be
filed pursuant to Regulation 14A with the Securities and Exchange Commission
relating to its Annual Meeting of Stockholders to be held on February 25,
1997 (the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference from the information under the caption "Management - Committees,
Meetings and Compensation of the Board of Directors - Directors' Fees" and
from the information under the caption "Executive Compensation" of the
Company's Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference from the information under the caption "Voting Securities and
Principal Stockholders" of the Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference from the information under the caption "Certain Transactions" of
the Company's Definitive Proxy Statement.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF REPORT
1. Financial Statements:
The consolidated financial statements of the Company and the related
report of the Company's independent public accountants thereon have been
filed under Item 8 hereof.
2. Financial Statement Schedules:
The following financial statement schedule and the report of
independent public accountants thereon are included in this report at the
page indicated. All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission have been omitted because such schedules are not required under
the related instructions or are inapplicable or because the information
required is included in the Consolidated Financial Statements or notes
thereto.
ITEM PAGE
---- ----
Report of Independent Public Accountants..............................42
Schedule II - Valuation and Qualifying Accounts.......................43
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Long Distance Corp.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of U.S. Long Distance Corp.
and subsidiaries and have issued our report thereon dated November 14, 1996.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
November 14, 1996
42
<PAGE>
SCHEDULE II
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO WRITE-OFFS BALANCE AT
FISCAL BEGINNING COSTS AND OTHER CHARGED TO END OF
YEAR DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ALLOWANCE PERIOD
---- ----------- --------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
1994 Allowance for doubtful accounts $2,861 $5,095 $0 $(5,658) $2,298
1995 Allowance for doubtful accounts $2,298 $6,231 $0 $(6,591) $1,938
1996 Allowance for doubtful accounts $1,938 $8,388 $0 $(7,807) $2,519
</TABLE>
43
<PAGE>
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified in
parentheses. See the Index of Exhibits included with the exhibits filed as
part of this report.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation (Filed herewith)
3.2 Bylaws, as amended (Filed herewith)
4.1 Form of Certificate Evidencing Common Stock (Filed herewith)
4.2 Amended Letter Agreement dated October 6, 1992, by and between
Communications Central, Inc., U.S. Long Distance Corp. and U.S. Long
Distance, Inc. (Exhibit 4.7 to Amendment No. 1 to Registration
Statement on Form S-3, SEC File No. 33-71228, dated November 23,
1993) as amended by Letter Agreement dated January 11, 1995 (Exhibit
4.7 to September 30, 1995, Form 10-K) and as amended by Letter
Agreement dated August 21, 1996 (Filed herewith)
4.3 Agreement dated March 23, 1993 by and between Paytel Northwest,
Inc., U.S. Long Distance Corp. and U.S. Long Distance, Inc., as
amended by Agreement dated August 23, 1995 (Exhibit 4.8 to September
30, 1995, Form 10-K) and as amended by Addendum No. 3 to
Telecommunications Services Agreement dated February 22, 1996 (Filed
herewith)
4.4 Rights Agreement by and between the Company and U.S. Trust Company of
Texas, N.A. dated April 12, 1996 (Exhibit 4.1 to Form 8-K filed April 17,
1996)
10.1 Amended and Restated Employment Agreement dated November 1, 1993, by and
between the Company and Parris H. Holmes, Jr. (Exhibit 10.2 to
September 30, 1993, Form 10-K) as amended by the First Amendment to
Amended and Restated Employment Agreement dated January 3, 1995 and
Second Amendment to Amended and Restated Employment Agreement, dated
November 15, 1995 (Exhibit 10.2 to September 30, 1995, Form 10-K) and
Agreement Regarding Vesting and Adjustment of Stock Options, dated
June 25, 1996, by and between the Company, Billing Information
Concepts Corp. and Parris H. Holmes, Jr. (Filed herewith)
10.2 Amended and Restated Employment Agreement, dated November 1, 1993, by
and between the Company and Larry M. James as amended by First
Amendment to Amended and Restated Employment Agreement dated January
3, 1995 and Second Amendment to Amended and Restated Employment dated
November 15, 1995, and Agreement Regarding Vesting and Adjustment of
Stock Options, dated June 25, 1996, by and between the Company,
Billing Information Concepts Corp. and Larry M. James (Filed herewith)
10.3 Amended and Restated Employment Agreement, dated June 25, 1996, by and
between the Company and W. Audie Long and Agreement Regarding Vesting
and Adjustment of Stock Options, dated June 25, 1996, by and between
the Company, Billing Information Concepts Corp. and W. Audie Long
(Filed herewith)
10.4 Form of Employment Agreement by and between the Company and its Vice
Presidents (Exhibit 10.4 to September 30, 1993, Form 10-K)
10.5 1990 Employee Stock Option Plan, as amended (Filed herewith)
10.6 Form of Option Agreement by and between the Company and its Employees,
Under the Employee Stock Option Plan (Exhibit 10.8 to September 30,
1992, Form 10-K)
10.7 Form of Stock Option Agreement for Directors, Key Employees and Advisors
of U.S. Long Distance Corp. (Exhibit 4.14 to Registration Statement on
Form S-8, SEC File No. 33-41039, dated June 5, 1991)
44
<PAGE>
10.8 Form of Stock Option Agreement for Key Employees of U.S. Long Distance
Corp. (Exhibit 4.15 to Registration Statement on Form S-8, SEC File
No. 33-41039, dated June 5, 1991)
10.9 Amended and Restated Loan and Security Agreement dated May 22, 1991,
by and between Zero Plus Dialing, Inc. (currently Billing Information
Concepts, Inc.), U.S. Long Distance Corp. and U.S. Long Distance, Inc.
and Bell Atlantic TriCon Leasing Corporation ("Bell Atlantic")
(currently FINOVA Capital Corporation) (Exhibit 10.10 to September 30,
1991, Form 10-K) and related Revolving Credit Note dated May 24, 1991,
Term Note dated June 1992, Corporate Guaranties dated May 24, 1991,
and First Amendment and Joinder to Amended and Restated Loan and
Security Agreement dated December 17, 1992 (Exhibit 10.9 to September
30, 1992, Form 10-K)
10.10 Second Amendment to Amended and Restated Loan and Security Agreement
dated April 2, 1993 by and between Zero Plus Dialing, Inc. (currently
Billing Information Concepts, Inc.), U.S. Long Distance Corp., U.S.
Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic (currently
FINOVA Capital Corporation) (Exhibit 10.11 to September 30, 1993, Form
10-K)
10.11 Third Amendment to Amended and Restated Loan and Security Agreement
dated October 1, 1993 by and between Zero Plus Dialing, Inc.
(currently Billing Information Concepts, Inc.), U.S. Long Distance
Corp., U.S. Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic
(currently FINOVA Capital Corporation) (Exhibit 10.12 to September 30,
1993, Form 10-K)
10.12 Fourth Amendment to Amended and Restated Loan and Security Agreement
dated October 1, 1993 by and between Zero Plus Dialing, Inc.
(currently Billing Information Concepts, Inc.), U.S. Long Distance
Corp., U.S. Long Distance, Inc., U.S. Billing, Inc. and Bell Atlantic
(currently FINOVA Capital Corporation) (Exhibit 10.13 to September 30,
1993, Form 10-K)
10.13 Fifth Amendment to Amended and Restated Loan and Security Agreement
dated November 16, 1993 by and between Zero Plus Dialing, Inc.
(currently Billing Information Concepts, Inc.), U.S. Long Distance
Corp., U.S. Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition
Corp. d/b/a Telecom West, Inc., STS Telecommunications, Inc. and Bell
Atlantic (currently FINOVA Capital Corporation) (Exhibit 10.14 to
September 30, 1993, Form 10-K)
10.14 Sixth Amendment to Amended and Restated Loan and Security Agreement
dated December 7, 1993 by and between Zero Plus Dialing, Inc.
(currently Billing Information Concepts, Inc.), U.S. Long Distance
Corp., U.S. Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition
Corp., STS Telecommunications, Inc. and Bell Atlantic (currently
FINOVA Capital Corporation) (Exhibit 10.36 to September 30, 1994, Form
10-K)
10.15 Seventh Amendment to Amended and Restated Loan and Security Agreement
dated March 17, 1994 by and between Zero Plus Dialing, Inc. (currently
Billing Information Concepts, Inc.), U.S. Long Distance Corp., U.S.
Long Distance, Inc., U.S. Billing, Inc., USLD Acquisition Corp.,
California Acquisition Corp., Telecom Acquisition Corp., STS
Telecommunications, Inc., Enhanced Services Billing, Inc. and Bell
Atlantic (currently FINOVA Capital Corporation) (Exhibit 10.37 to
September 30, 1994, Form 10-K)
10.16 Letter Agreement dated December 2, 1993 by and between Bell Atlantic
(currently FINOVA Capital Corporation) and U.S. Long Distance Corp.
(Exhibit 10.15 to September 30, 1993, Form 10-K)
10.17 Office Lease Agreement dated September 29, 1988, by and between U.S.
Long Distance, Inc. and Nowlin Building Partnership, Ltd., as amended
(Exhibit 10.10 to September 30, 1992, Form 10-K)
10.18 Agreement of Lease dated September 1, 1992, by and between U.S. Long
Distance, Inc. and Multi-Employer Property Trust (Exhibit 10.13 to
September 30, 1992, Form 10-K)
10.19 Loan and Security Agreement dated July 25, 1991, by and between Buyer
Acquisition Corporation (NTX) and Bell Atlantic (currently FINOVA
Capital Corporation) (Exhibit 10.13 to September 30, 1991, Form 10-K)
and related Revolving Credit Note, Term Note, Subordination Agreement
and Corporation Guaranties dated July 25, 1991 (Exhibit 10.14 to
September 30, 1992, Form 10-K)
10.20 Loan and Security Agreement Nos. 2882, 2883, 2884 and 2885 by and
between U.S. Long Distance Corp. and Charter Financial, Inc. dated
August 29, 1996 (Filed herewith)
45
<PAGE>
10.21 WCMA and Term WCMA Loan and Security Agreement No. 9608340801 by and
between U.S. Long Distance, Inc. and Merrill Lynch Business Financial
Services Inc. ("Merrill Lynch"), dated as of August 23, 1996, as
amended by letter agreement dated November 5, 1996, and Term WCMA
Note, dated August 23, 1996, made by U.S. Long Distance, Inc. and
payable to Merrill Lynch (Filed herewith)
10.22 Operator Services Agreement by and between the Company and
G-Five Corp., dated September 16, 1993 (Exhibit 10.33 to September
30, 1993, Form 10-K), as amended by Amendment to Operator Services
Agreement dated August 31, 1995 (Filed herewith)
10.23 1993 Non-Employee Director Plan of U.S. Long Distance Corp. (Filed
herewith)
10.24 Form of Director Option Agreement by and between the Company and
Non-Employee Directors (Filed herewith)
10.25 Form of Director Fee Option Agreement by and between the Company and
Non-Employee Directors (Filed herewith)
10.26 U.S. Long Distance Corp. Executive Qualified Disability Plan (Exhibit
10.42 to September 30, 1994, Form 10-K)
10.27 U.S. Long Distance Corp. Executive Compensation Deferral Plan,
Restated Effective December 12, 1995 (Filed herewith)
10.28 U.S. Long Distance Corp. Director Compensation Deferral Plan, Restated
Effective December 19, 1995 (Filed herewith)
10.29 U.S. Long Distance Corp. Employee Stock Purchase Plan (Exhibit 10.44
to September 30, 1995, Form 10-K)
10.30 U.S. Long Distance Corp. Restricted Stock Plan (Exhibit 10.45 to
September 30, 1995, Form 10-K)
10.31 Merrill Lynch Special Prototype Defined Contribution Plan and Adoption
Agreement for Merrill Lynch Special Prototype Defined Contribution
Plan (401(k) Plan) (Filed herewith)
10.32 Distribution Agreement dated as of July 10, 1996 between the Company
and Billing Information Concepts Corp. (Exhibit 10.1 to Form 8-K filed
August 2, 1996)
10.33 Benefit Plans and Employment Matters Allocation Agreement dated as of
July 10, 1996 between the Company and Billing Information Concepts
Corp. (Exhibit 10.2 to Form 8-K filed August 2, 1996)
10.34 Tax Sharing Agreement dated as of July 10, 1996 between the Company
and Billing Information Concepts Corp. (Exhibit 10.3 to Form 8-K filed
August 2, 1996)
10.35 Transitional Services and Sublease Agreement dated as of July 10, 1996
between the Company and Billing Information Concepts Corp. (Exhibit
10.4 to Form 8-K filed August 2, 1996)
10.36 Zero Plus-Zero Minus Billing and Information Management Services
Agreement dated as of July 10, 1996 between the Company and Billing
Information Concepts Corp. (Exhibit 10.5 to Form 8-K filed August 2,
1996)
10.37 Telecommunications Agreement dated as of July 10, 1996 between the
Company and Billing Information Concepts Corp. (Exhibit 10.6 to Form
8-K filed August 2, 1996)
11.1 Statement regarding computation of per share earnings (Filed herewith)
21.1 Subsidiaries of the Company (Filed herewith)
23.1 Consent of Arthur Andersen LLP (Filed herewith)
27.1 Financial Data Schedule (Filed herewith)
(b) REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K on August 2, 1996, relating
to the Distribution of Billing Information Concepts Corp.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized:
U.S. LONG DISTANCE CORP.
By: /s/ LARRY M. JAMES
--------------------------------
Larry M. James
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Date: December 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on the 19th day of
December, 1996.
SIGNATURE TITLE
--------- -----
/s/ PARRIS H. HOLMES, JR. Chairman of the Board
- -----------------------------
Parris H. Holmes, Jr.
/s/ LARRY M. JAMES President and Chief Executive Officer
- ----------------------------- (Principal Executive Officer)
Larry M. James
/s/ PHILLIP J. STORIN Senior Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial and Accounting Officer)
Phillip J. Storin
/s/ CHARLES E. AMATO Director
- -----------------------------
Charles E. Amato
/s/ GARY D. BECKER Director
- -----------------------------
Gary D. Becker
47
<PAGE>
Page 1
RESTATED CERTIFICATE OF INCORPORATION
OF
U. S. LONG DISTANCE CORP.
U. S. Long Distance Corp., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is U. S. LONG DISTANCE CORP. The date of
filing of its original Certificate of Incorporation with the Secretary of State
was September 21, 1987.
2. This Restated Certificate of Incorporation only restates and
integrates and does not further amend the provisions of the Certificate of
Incorporation of this corporation as heretofore amended or supplemented, and
there is no discrepancy between those provisions and the provisions of this
Restated Certificate of Incorporation.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is hereby restated without further amendments or changes
to read as herein set forth in full:
1. The name of the corporation is U. S. LONG DISTANCE CORP.
2. The address of its registered office in the State of Delaware is
10th Floor, One Rodney Square, 10th and King Streets, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is RL&F Service Corp.
3. The nature of the business or purposes to be conducted or
promoted is:
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of, trade,
deal in and deal with goods, wares and merchandise and personal property of
every class and description.
To acquire, and pay for in cash, stock or bonds of this
corporation or otherwise, the good will, rights, assets and property, and
to undertake or assume the whole or any part of the obligations or
liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant licenses in
respect of, mortgage or otherwise dispose of letters patent of the United
States or any foreign country, patent rights, licenses and privileges,
inventions, improvements
<PAGE>
Page 2
and processes, copyrights, trademarks and trade names, relating to or
useful in connection with any business of this corporation.
To acquire by purchase, subscription or otherwise, and to
receive, hold, own, guarantee, sell, assign, exchange, transfer, mortgage,
pledge or otherwise dispose of or deal in and with any of the shares of the
capital stock, or any voting trust certificates in respect of the shares of
capital stock, scrip, warrants, rights, bonds, debentures, notes, trust
receipts, and other securities, obligations, choses in action and evidences
of indebtedness or interest issued or created by any corporations, joint
stock companies, syndicates, associations, firms, trust or persons, public
or private, or by the government of the United States of America, or by any
foreign government, or by any state, territory, province, municipality or
other political subdivision or by any governmental agency, and as owner
thereof to possess and exercise all the rights, powers and privileges of
ownership, including the right to execute consents and vote thereon, and to
do any and all acts and things necessary or advisable for the preservation,
protection, improvement and enhancement in value thereof.
To borrow or raise money for any of the purposes of the
corporation and, from time to time without limit as to amount, to draw,
make, accept, endorse, execute and issue promissory notes, drafts, bills or
exchange, warrants, bonds, debentures and other negotiable or
non-negotiable instruments and evidences of indebtedness, or to secure the
payment of any thereof and of the interest thereon by mortgage upon or
pledge, conveyance or assignment in trust of the whole or any part of the
property of the corporation, whether at the time owned or thereafter
acquired, and to sell, pledge or otherwise dispose of such bonds or other
obligations of the corporation for its corporate purposes.
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire own, hold, improve, employ, use and
otherwise deal in and with real or personal property, or any interest
therein, wherever situated and to sell, convey, lease, exchange, transfer
or otherwise dispose of, or mortgage or pledge, all or any of the
corporation's property and assets, or any interest therein, wherever
situated.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other Law of
Delaware or by this certificate of incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conducts, promotion or attainment of the business or
purposes of the corporation.
The business and purposes specified in the foregoing clauses
shall, except where otherwise expressed, be in nowise limited or restricted
by reference to, or inference from, the terms of any other clause in this
certificate of incorporation, but the business and purposes specified in
each of the foregoing
<PAGE>
Page 3
clauses of this article shall be regarded as independent business and
purposes.
4. The total number of shares of stock which the corporation shall
have authority to issue is sixty million (60,000,000), of which fifty
million (50,000,000) shares are common stock, having a par value of one
cent ($0.01) per share, and ten million (10,000,000) shares are preferred
stock, having a par value of one cent ($0.01) per share. Preferred stock
may be issued in one or more series. To the fullest extent permitted by
law, the board of directors shall have the authority, by resolution, to
create and issue such series of preferred stock and to fix with respect to
any such series the number of shares of preferred stock comprising such
series and the powers, designations, preferences and rights (and the
qualifications, limitations and restrictions thereof) of the shares, of
such series including, without limitation, the following:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate of the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares
of that series;
(c) whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the board of directors
shall determine;
(e) whether or not the shares of such series shall be
redeemable, and, if so, the terms and conditions of such redemptions,
including the date or dates upon or after which they shall be redeemable,
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
(g) the rights of the shares of that series in the event of
voluntary liquidation, dissolution or winding up of the corporation, and
relative rights of priority, if any, of payments of such shares of that
series;
(h) any other relative rights, preferences and limitations of
that series.
<PAGE>
Page 4
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation;
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation;
To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish
any such reserve in the manner in which it was created;
By a majority or the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The by-laws may
provide that in the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in
the place of any such absent or disqualified member. Any such committee,
to the extent provided in the resolution of the board of directors, or in
the by-laws of the corporation shall have and may exercise all the powers
and authority of the board of directors in the management of the business
and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation;
and unless the resolution or by-laws, expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of the
property and assets of the corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or property
including shares of stock in, and/or other securities of, any other
corporation or corporations, as its board of directors shall deem expedient
and for the best interests of the corporation.
7. Elections of directors need not be by written ballot unless the
<PAGE>
Page 5
by-laws of the corporation shall so provide.
8. Meetings of stockholders may be held within or without the State
of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the board of directors or in the by-laws of the corporation.
9. The Corporation shall indemnify any and all persons who may serve
or who have served at any time as directors or officers, or who at the
request of the board of directors of the corporation may serve or at any
time have served as directors or officers of another corporation in which
the corporation at such time owned or may own shares of stock or of which
it was or may be a creditor, and their respective heirs, administrators,
successors, and assigns, against any and all expenses, including amounts
paid upon judgments, counsel fees, and amounts paid in settlement (before
or after suit is commenced), actually and necessarily incurred by such
persons in connection with the defense or settlement of any claim, action,
suit or proceeding in which they, or any of them, are made parties, or a
party, or which may be asserted against them or any of them, by reason of
being or having been directors or officers or a director or officer of the
corporation, or of such other corporation, except in relation to matters as
to which any such director or officer or former director or officer or
person shall be adjudged in any action, suit, or proceeding to be liable
for his own negligence or misconduct in the performance of this duty. Such
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, by-law, amendment, vote of
stockholders, or otherwise.
10. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
11. No director shall be personally liable to the corporation or any
stockholder for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director shall be
liable under Section 174 of Title 8 of the Delaware Code (relating to the
Delaware General Corporation Law) or any amendment thereto or successor
provision thereto, or shall be liable by reason that, in addition to any
and all other requirements for such liability, he (i) shall have breached
his duty of loyalty to the corporation or its stockholders, (ii) shall not
have acted in good faith or, in failing to act, shall not have acted in
good faith, (iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall have
acted in a manner involving intentional misconduct or a knowing violation
of law, or (iv) shall have derived an improper personal benefit. Neither
the amendment nor repeal of this Article 11, nor the adoption of any
provision of the certificate of
<PAGE>
Page 6
incorporation inconsistent with this Article 11, shall eliminate or reduce
the effect of this Article 11 in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article 11, would accrue
or arise prior to such amendment, repeal or adoption of an inconsistent
provision.
4. This Restated Certificate of Incorporation was duly adopted by the
Board of Directors in accordance with Section 245 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said U. S. Long Distance Corp. has caused this
Certificate to be signed by Parris H. Holmes, Jr., its Chairman of the Board of
Directors, and attested by W. Audie Long, its Secretary, this 24th day of May,
1994.
U. S. LONG DISTANCE CORP.
By: /S/ PARRIS H. HOLMES, JR.
----------------------------------
Parris H. Holmes, Jr.
Chairman of the Board of Directors
ATTEST:
By: /S/ W. AUDIE LONG
-------------------------
W. Audie Long, Secretary
<PAGE>
Page 1
* * * * *
BY-LAWS, AS AMENDED
* * * * *
U.S. LONG DISTANCE CORP.
ARTICLE I
OFFICES
1.01 The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
1.02 The corporation may also have offices at such other places, both
within and without the State of Delaware, as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.01 All meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the board of
directors, either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the
notice of the meeting. Meetings of stockholders for any other purpose may be
held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
2.02 Annual meetings of stockholders, commencing with the year 1988,
shall be held on the first Tuesday of February, if not a legal holiday, and
if a legal holiday, then on the next secular day following, at 10:00 a.m., or
at such other date and time as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a board of directors, and transact such other
business as may properly be brought before the meeting.
2.03 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten (10) nor more than sixty (60) days before the date of
the meeting.
<PAGE>
Page 2
2.04 The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (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, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
2.05 Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the certificate of incorporation,
may be called by the president and shall be called by the president or secretary
at the request in writing of a majority of the board of directors, or at the
request in writing of stockholders owning a majority in amount of the entire
capital stock of the corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
2.06 Written notice of a special meeting stating the place, date and
hour of the meeting, and the purpose or purposes for which the meeting is
called, shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
2.07 Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
2.08 The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting, until a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.09 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or represented
by proxy shall decide any question brought before such meeting, unless the
question is one
<PAGE>
Page 3
upon which by express provision of the statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision to such question.
2.10 Unless otherwise provided in the certificate of incorporation,
each stockholder shall at every meeting of the stockholders be entitled to
one vote in person or by proxy for each share of the capital stock having
voting power held by such stockholder, but no proxy shall be voted on after
three (3) years from its date, unless the proxy provides for a longer period.
2.11 Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may 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 outstanding stock having not less than
the minimum number 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. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
3.01 The number of directors which shall constitute the whole board
shall not be less than three nor more than fifteen. The first board shall
consist of three directors. Thereafter, within the limits above specified,
the number of directors shall be determined by resolution of the board of
directors or by the stockholders at the annual meeting. The directors shall
be classified with respect to the time for which they shall severally hold
office by dividing them into three classes, each consisting of 33-1/3% of the
whole number of the board of directors, one class to hold office initially
for a term expiring at the annual meeting of stockholders to be held in 1992,
another to hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1993, and another to hold office initially for a
time expiring at the annual meeting of stockholders to be held in 1994, with
members of each new class to hold office until their successors have been
duly elected and have qualified. At each annual meeting of the stockholders
of the corporation, the successors to the class of directors whose term
expires at the meeting shall be elected to hold office for a term expiring at
the annual meeting held in the third year following the term of their
election. Directors need not be stockholders.
3.02 When the number of directors is changed, any newly created
directorships or any increase in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as possible. When the
number of directors is increased by the board of directors and any newly created
directorships are filled by the board of directors, there shall be no
classification of the additional directors until the
<PAGE>
Page 4
next annual meeting of stockholders. Vacancies in newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director, and the director so chosen shall hold office
until the next annual election and until his successor is duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by statute.
If, at the time of filling any vacancy or any newly created directorship, the
directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
3.03 The business of the corporation shall be managed by or under the
direction of its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
these by-laws directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
3.04 The board of directors of the corporation may hold meetings, both
regular and special, either within or without the State of Delaware.
3.05 The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting, provided a
quorum shall be present. In the event of the failure of the stockholders to fix
the time or place of such first meeting of the newly elected board of directors,
or in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.06 Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
3.07 Special meetings of the board may be called by the president on
two days' notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director, in which case special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of the sole director.
<PAGE>
Page 5
3.08 At all meetings of the board a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be
the act of the board of directors, except as may be otherwise specifically
provided by statute or by the certificate of incorporation. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement of the meeting, until a quorum shall be present.
3.09 Unless otherwise restricted by the certificate of incorporation or
these by-laws, any action required or permitted to be taken at any meeting of
the board of directors or of any committee thereof may be taken without a
meeting if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
3.10 Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any committee designated by the board of directors, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
3.11 The board of directors may, by resolution passed by a majority
of the whole board of directors, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee.
In absence or disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of
<PAGE>
Page 6
any other class or classes or any other series of the same or any other class
or classes of stock of the corporation) adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and
unless the resolution or the certificate of incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock or to adopt a certificate of
ownership and merger. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
board of directors.
3.12 Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
3.13 Unless otherwise restricted by the certificate of incorporation or
these by-laws, the board of directors shall have the authority to fix the
compensation of directors. The 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.
REMOVAL OF DIRECTORS
3.14 Unless otherwise restricted by the certificate of incorporation or
these by-laws, any director or the entire board of directors may be removed,
with or without cause, by the holders of a majority of shares entitled to vote
at an election of directors.
ARTICLE IV
NOTICES
4.01 Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or stockholder, at his address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
4.02 Whenever any notice is required to be given under the provisions
of the statutes or of the certificate of incorporation or of these by-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after
<PAGE>
Page 7
the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
5.01 The board of directors shall elect a chief executive officer,
president and secretary, and it may, if it so determines, choose a chairman of
the board and a vice chairman of the board from among its members. The board of
directors may also choose one or more vice presidents, one or more assistant
secretaries, a treasurer and one or more assistant treasurers. Each such
officer shall hold office until the first meeting of the board of directors
after the annual meeting of stockholders next succeeding his election, and until
his successor is elected and qualified or until his earlier resignation or
removal. Any officer may resign at any time upon written notice to the
corporation. The board of directors may remove any officer with or without
cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number of
offices may be held by the same person. Any vacancy occurring in any office of
the corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the board of directors at any regular or
special meeting.
5.02 The officers of the corporation shall have such powers and duties
in the management of the corporation as may be prescribed in a resolution by the
board of directors and, to the extent not so provided, as generally pertain to
their respective offices, subject to the control of the board of directors. The
board of directors may require any officer, agent or employee to give security
for the faithful performance of his duties.
ARTICLE VI
CERTIFICATE FOR SHARES
6.01 The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or
in the name of the corporation by, the chairman or vice-chairman of the board
of directors, or the president or a vice-president and the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
6.02 Upon the face or back of each stock certificate issued to
represent any partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, shall be set
forth the total amount of the consideration to be paid therefor and the
amount paid thereon shall be stated.
6.03 If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series
<PAGE>
Page 8
thereof and the qualification, limitations or restrictions of such
preferences and/or rights, shall be set forth in full or summarized on the
face or back of the certificate which the corporation shall issue to
represent such class or series of stock, provided that, except as otherwise
provided in Section 202 of the General Corporation Law of Delaware, in lieu
of the foregoing requirements, there may be set forth on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests, the powers, designations, preferences
and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
6.04 Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Section 151, 156, 202(a) or 218(a) or a statement
that the corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
6.05 Any of or all the signatures on a certificate may be facsimile.
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.
LOST CERTIFICATES
6.06 The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates or
uncertificated shares, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate or certificates, or his representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
6.07 Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and
<PAGE>
Page 9
record the transaction upon its books. Upon receipt of proper transfer
instructions from the registered owner of uncertificated shares, such
uncertificated shares shall be cancelled and issuance of new equivalent
uncertificated shares or certificated shares shall be made to the person
entitled thereto and the transaction shall be recorded upon the books of the
corporation.
FIXING RECORD DATE
6.08 In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the board of directors may fix 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 directors and which record date:
(1) in the case of determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting; (2) in the
case of determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be more than ten
(10) days from the date upon which the resolution fixing the record date is
adopted by the board of directors; and (3) in the case of any other action,
shall not be more than sixty (60) days prior to such other action. If no
record date is fixed: (1) 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 the 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; (2) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the board of directors is
required by law, 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 in accordance with applicable law, or, if prior action by the
board of directors is required by law, shall be at the close of business on
the day on which the board of directors adopts the resolution taking such
prior action; and (3) the record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board
of directors adopts the resolution relating thereto. 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.
REGISTERED STOCKHOLDERS
6.09 The corporation shall be entitled to recognize the exclusive right
of a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or
<PAGE>
Page 10
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notices thereof, except
as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
7.01 Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
7.02 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
directors from time to time, in their absolute discretion, think 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 directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
7.03 The board of directors shall present at each annual meeting, and
at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
7.04 All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
board of directors may from time to time designate.
FISCAL YEAR
7.05 The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
7.06 The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or
<PAGE>
Page 11
reproduced or otherwise.
INDEMNIFICATION
7.07 The corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of Delaware.
ARTICLE VII
AMENDMENTS
8.01 These by-laws may be altered, amended or repealed or new by-laws
may be adopted by the stockholders or by the board of directors, when such
power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal by-laws is conferred upon the board of directors by
the certificate of incorporation, it shall not divest or limit the power of
the stockholders to adopt, amend or repeal by-laws.
<PAGE>
Page 1
SEE REVERSE FOR LEGEND
COMMON STOCK PAR VALUE $.01 PER SHARE
U.S. LONG DISTANCE CORP.
CONTINUED UNDER THE LAWS OF THE STATE OF DELAWARE
- ---------------
NUMBER
- --------- --------------------
B CUSIP 911912 20 2
- --------------- --------------------
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
This Certifies that
SPECIMEN ONLY
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, WITH A PAR VALUE OF $0.01 PER
SHARE OF
U.S. LONG DISTANCE CORP.
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate and
the shares represented hereby are issued and shall be held subject to all of
the terms, conditions and limitations of the Certificate of Incorporation and
the Bylaws of the Corporation, as restated or amended, or as same may be
restated or amended hereafter, to all of which the holder hereof by
acceptance hereof agrees and assents. This certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED /S/ PARRIS H. HOLMES, JR.
MONTREAL TRUST COMPANY OF CANADA VANCOUVER PRESIDENT
TRANSFER AGENT AND REGISTRAR (SEAL)
/S/ AUDIE LONG
<PAGE>
Page 2
By
---------------------------------------
SECRETARY
AUTHORIZED OFFICER
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE TRANSFERABLE AT THE MAIN OFFICES
OF MONTREAL TRUST COMPANY OF CANADA, VANCOUVER, B.C.
<PAGE>
Page 3
U.S. LONG DISTANCE CORP.
U.S. Long Distance Corp. will furnish to the record holder of this
certificate without charge on written request to such corporation at its
principal place of business a full statement of the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof which such corporation is authorized to
issue and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription of 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 --
TEN ENT -- as tenants by the entireties --------------------------
JT TEN -- as joint tenants with right (Cust) Custodian (Minor)
of survivorship and not as under Uniform Gift to
tenants in common Minors Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------------
- ---------------------------------------------
Please print or typewrite name and address including postal zip code of
assignee
Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE(S) TO THE
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY ------ -Registered Trademark-
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER
-------------------------------------
Signature(s) must be guaranteed by a
commercial bank or
<PAGE>
Page 4
trust company or a member firm of a major
stock exchange.
-------------------------------------
This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in an Agreement between U.S. Long Distance Corp. and U.S.
Trust Company of Texas, N.A., as Rights Agent, dated as of April 12, 1996, and
as amended from time to time (the "Agreement"), the terms of which are
incorporated herein by reference and a copy of which is on file at the principal
executive office of U.S. Trust company of Texas, N.A. Under certain
circumstances, as set forth in the Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate. U.S.
Trust Company of Texas, N.A. will mail to the holder of this certificate a copy
of the Agreement without charge promptly after receipt by it of a written
request therefor. Rights issued to or beneficially owned by a Person who is or
becomes an Acquiring Person or an Affiliate or Associate of such Acquiring
Person (as such terms are defined in the Agreement) or, under certain
circumstances, transferees thereof, will become void as provided in Section
11(a)(ii) of the Agreement and thereafter may not be transferred to any Person.
<PAGE>
Page 1
[U.S. Long Distance Logo]
August 21, 1996
VIA FACSIMILE 770-751-9082
Mr. Rodger L. Johnson
President
Communications Central, Inc.
1150 Northmeadow Parkway, Suite 118
Roswell, Georgia 30076
RE: TELECOMMUNICATIONS AGREEMENT
Dear Mr. Johnson:
This letter amends that certain Telecommunications Agreement dated January 11,
1995 (the "January 11 Agreement") by and between U. S. Long Distance, Inc.
("USLDI") and Communications Central, Inc. ("CCI"), as amended by the agreement
of February 23, 1996 (the "February 23 Agreement"), copies of which are attached
hereto as Exhibit "A" and incorporated herein for all purposes (collectively,
the "Agreement"), as follows:
1. Paragraph 2, of the January 11 Agreement, is hereby amended in its entirety
to read as follows:
"2. For the telecommunications services as set forth in (a) through (f)
and (h) above, CCI agrees to pay USLDI as follows:
(a) For services rendered by USLDI pursuant to subparagraphs 1(a)
through 1(h) above, $0.50 per completed automated call until
August 31, 1998;
(b) For services rendered by USLDI pursuant to subparagraphs 1(a)
through 1(h) above, $1.15 per completed live call until August
31, 1998;
(c) For services rendered by USLDI pursuant to subparagraph 1(h)
above, $0.08 per minute for origination charges, billed in
six-second increments and $0.06 per minute for termination
charges, billed in full minute increments;
<PAGE>
Page 2
Mr. Rodger Johnson
Communications Central, Inc.
August 21, 1996
Page 2
(d) In the event USLDI elects to utilize automated collect call
processing for any or all of the pay telephones under this
Agreement, $0.50 per completed automated collect call through
August 31, 1998; and
(e) Services above will not include "211" services. For such repair
and refund services (211), USLDI will charge $0.65 per call and
$.08 per origination."
2. Paragraph 3, of the January 11 Agreement, is hereby amended in its entirety
to read as follows:
"3. CCI must bill no fewer than 475,000 operator service calls per quarter
pursuant to the Agreement beginning August 1, 1996 to July 31, 1997
and 400,000 operator service per quarter calls from August 1, 1997 to
July 31, 1998. In the event CCI bills fewer than 475,000 operator
service calls per quarter for the first year and 400,000 operator
service calls per quarter for the second year, CCI shall promptly pay
USLDI $.70 for each call that is below the minimum."
3. Paragraph 4, of the January 11 Agreement, is hereby amended by substituting
the "August 31, 1998" for "December 31, 1997" as the expiration date of the
Agreement in the first sentence. The remaining provisions of Paragraph 4
are unchanged.
4. Paragraph 8, of the January 11 Agreement, is hereby deleted in its
entirety.
5. Paragraph 9, of the January 11 Agreement, is hereby deleted in its
entirety.
6. Paragraph 11 of the Agreement is hereby amended by adding the following
paragraph:
"The outstanding warrant to purchase 125,000 shares of the common stock of
U.S. Long Distance Corp. shall be adjusted in exercise price and number of
warrants granted as set forth in Article IV of the Distribution Agreement
by and between U.S. Long Distance Corp. and Billing Information Concepts
Corp. ("BICC"), a copy of such Article IV being attached here to as Exhibit
"D" and incorporated herein for all purposes, in order to prevent any
diminution in value of such warrants as a result of a the spin-off by the
Company of BICC. All of the foregoing adjustments made in respect of CCI's
warrant position shall be made in a manner and on terms consistent with
other adjustments made by U.S. Long Distance Corp. and BICC on behalf of
other similar warrant and option holders U.S. Long Distance Corp. agrees to
amend its warrant agreement with CCI to
<PAGE>
Page 3
Mr. Rodger Johnson
Communications Central, Inc.
August 21, 1996
Page 3
provide standard anti-dilution protections and adjustments in favor of CCI
in respect of any future merger, stock purchase, asset purchase,
combination, divestiture, spin-off or other similar transaction. Further,
U.S. Long Distance Corp. agrees to amend its Distribution Agreement with
BICC pursuant to Section 4.04 to provide the same anti-dilution features
pertaining to the BICC common stock. In addition, U.S. Long Distance Corp.
and BICC agree to register the shares of stock underlying the warrants
within thirty (30) days after the warrants vest under the Agreement."
7. A new Paragraph 13 is hereby added to the Agreement as follows:
"13. CCI agrees to enter into a Telecommunications Agreement whereby USLDI
shall provide dedicated and switched long distance services in
addition to the Origination and Termination minutes for their operator
service and 211 service calls, at the rates set forth in the schedules
attached hereto as Exhibit "B" and incorporated herein for all
purposes. Such agreement shall provide that CCI shall process no
fewer than 6,000,000 billable long distance minutes quarterly
beginning September 1, 1996 and ending August 31, 1997; 8,000,000
billable long distance minutes quarterly beginning September 1, 1997
and ending August 31, 1998; and, in the event CCI processes fewer than
the agreed minimum billable long distance minutes per quarter, CCI
shall promptly pay USLDI $0.03 for each long distance minute that is
below the minimum."
8. Notwithstanding any provision in the Agreement or this Amendment to the
contrary, CCI shall have the right, in its sole discretion and without
penalty, to terminate only the Operator Services portion of the Agreement
by giving USLDI thirty (30) days' written notice if:
(a) At any time during the term of the Agreement, the Federal
Communications Commission ("FCC") or any other regulatory agency
imposes regulations based on limiting charges for Interstate
operator-assisted calls to an amount up to and including thirty
percent (30%) above dominant or largest carrier rates, either as
a benchmark, rate ceiling or otherwise, pursuant to the Second Further
Notice of Proposed Rulemaking in FCC Docket No. 92-77 ("NPRM"), or
pursuant to any other applicable proceeding; and/or
(b) If the FCC imposes regulations that cause or have the effect of
causing USLD to change the branding associated with Interstate
operator assisted calls originating from CCI's telephones, such that
the branding incorporates specific language or rate elements in a
manner not universally
<PAGE>
Page 4
Mr. Rodger Johnson
Communications Central, Inc.
August 21, 1996
Page 4
imposed upon all Interexchange Carriers, or that cause delineation of
rates to allow for comparison between operator or payphone services
providers, CCI, upon such change, shall have the right to terminate
the Agreement
9. USLDI agrees that if, during the term of the Agreement or this Amendment,
it obtains any reductions or increases in its access charges, it shall pass
all such reductions through to CCI.
10. CCI shall have the right, upon fourteen (14) days' written notice, to audit
all records maintained by USLDI relating to the Agreement or this
Amendment.
11. The Commission Structure attached to the January 11th Agreement is hereby
amended in its entirety and is hereby replaced by the Commission Structure
attached herein as Exhibit "C" to this Agreement.
If the foregoing represents your agreement and understanding, please execute in
the space provided below and return by facsimile (210-979-0956) to the
undersigned, and I shall cause the appropriate documents to be executed and
forwarded to you.
Sincerely,
U. S. LONG DISTANCE CORP.
By: /S/ LARRY M. JAMES
--------------------
Larry James
President
U. S. LONG DISTANCE, INC. AGREED TO AND ACCEPTED
on this 30TH day of AUG., 1996:
By: /S/ STAN MASTERS COMMUNICATIONS CENTRAL, INC.
--------------------
Stan Masters
Senior Vice President
Sales/Customer Service By: /S/ RODGER L. JOHNSON
---------------------------------
Rodger L. Johnson
President
<PAGE>
Page 1
ADDENDUM NO. 3 TO
TELECOMMUNICATIONS SERVICES AGREEMENT
This Addendum No. 3 is made to that original Telecommunications Services
Agreement by and between U. S. LONG DISTANCE, INC. (the "Company") and PAYTEL
NORTHWEST, INC. (the "Customer") dated March 30, 1993, and as amended by
Addendum No. 1 on September 16, 1994, and as amended by Addendum No. 2 on August
23, 1995 (collectively the "Agreement"). The Agreement is hereby amended to
provide the following:
1. TERM.
The term of this Agreement shall commence on March 1, 1996, and shall
continue in full force and effect for a period of three (3) years from such
date, terminating on February 29, 1999, and shall be renewed automatically
for an additional one (1)-year period unless the Company or the Customer
provides sixty (60)-day written notice to the other of its intent to
terminate this Agreement at the end of the initial three (3)-year term.
2. Paragraph 12 of Addendum No. 2, modifying Paragraph 9 entitled ADDITIONAL
CONSIDERATION of the original Agreement, is hereby amended to read as
follows:
9. ADDITIONAL CONSIDERATION.
(a) LOAN TO CUSTOMER.
Pursuant to the terms of Addendum No. 2, the Company loaned to
the Customer $75,000. Such $75,000 loan shall now be evidenced
by the execution and delivery of the form of Promissory Note
attached hereto as Exhibit "A," calling for fifty-two (52) weekly
equal principal and interest payments with the first payment
commencing on March 1, 1996 and continuing each week thereafter
until paid in full. The Company has the right to offset the
principal and interest payments with commissions earned by, and
owned by the Company to, Customer.
(b) WARRANT TO CUSTOMER:
As long as the Customer is using the Company for no less than
eighty percent (80%) of its operator services requirements for
the entire three (3)-year term of this Agreement, the Company
shall cause its parent company, U. S. Long Distance Corp., a
Delaware corporation ("USLD"), to issue a Warrant Certificate
(the "Warrant")
<PAGE>
Page 2
allowing the Customer to purchase 100,000 shares of the common stock
of USLD at an exercise price of $12.50 per share. The Warrant shall
be in the form of the Warrant attached hereto as Exhibit "B."
Customer agrees to furnish to the Company quarterly its total
operator services traffic and its total operator services traffic
carried by the Company. The Company shall have reasonable audit
rights to confirm such reports. The Warrant shall be issued by the
Company on February 28, 1999, unless after March 1, 1996 and prior
to February 28, 1999, Customer has achieved an accumulated total of
1.7 million billable operator assisted calls over the Company's
network; in which case, upon Customer's attainment of such 1.7
million billable calls, the Company shall immediately issue the
Warrant. The Warrant must be exercised on or before March 31, 1999.
All of the other terms and conditions of Paragraph 12, of
Addendum No. 2, modifying Paragraph 9 of the original Agreement,
are held for naught.
3. All of the other terms and conditions of the Agreement, including Addendum
No. 1 and Addendum No. 2, are hereby ratified and confirmed in their
entirety.
AGREED TO and ACCEPTED on this _____ day of February, 1996.
U. S. LONG DISTANCE, INC. PAYTEL NORTHWEST, INC.
By: /s/ JOHN M. WELSON By: /s/ RON MCDOUGALL
------------------------------ -------------------------------
JOHN M. WELSH RON McDOUGALL
Vice President, Sales President
Date: 2/21/96 Date: 2/22/96
U. S. LONG DISTANCE CORP.
By: /s/ LARRY M. JAMES
------------------------------
LARRY M. JAMES
President
Date: 2/21/96
<PAGE>
AGREEMENT REGARDING VESTING AND
ADJUSTMENT OF STOCK OPTIONS
This Agreement is entered into on June 25, 1996, between Parris H.
Holmes, Jr. ("Employee"), U.S. Long Distance Corp., a Delaware corporation
(the "Company"), and Billing Information Concepts Corp., a Delaware
corporation ("Billing"), but effective as of the date of distribution of the
common stock of Billing to holders of the Company's common stock (the
"Distribution Date"). Since the effectiveness of this Agreement is expressly
contingent on the spinoff of Billing through its distribution to the
Company's stockholders, if such condition precedent does not occur as
anticipated by the parties hereto, this Agreement will be void AB INITIO, and
the prior agreement regarding vesting of stock options entered into between
the parties will remain in full force and effect.
WHEREAS, Employee has been granted and may hereafter be granted options
under the Company's 1990 Employee Stock Option Plan (as amended from time to
time, the "Option Plan") to acquire shares of common stock, $.01 par value,
of the Company; and
WHEREAS, Billing and Employee have entered into an Amended and Restated
Employment Agreement on June 25, 1996 to be effective as of the Distribution
Date (the "Employment Agreement"); and
WHEREAS, as contemplated in the Employment Agreement, the parties desire
that (i) options granted to Employee under the Option Plan ("Options") become
fully exercisable by Employee upon the Distribution Date, (ii) Options
granted prior to the Distribution Date be adjusted in exercise price and/or
number, as may be appropriately determined by the Company in good faith, to
prevent diminution in value of the Options granted to Employee prior to the
Distribution Date as a result of the spinoff of Billing, taking into
consideration options granted to Employee by a stock option plan to be
established by Billing (the "Billing Option Plan"), and (iii) that all
previously granted Options be exercisable until two years following the
Distribution Date, notwithstanding any employment requirement otherwise
required under the Option Plan; and
WHEREAS, in consideration of Employee's efforts in increasing the value
of Billing prior to the Distribution Date, and in order to prevent diminution
in value of Options previously granted to Employee, Billing desires to
establish the Billing Option Plan and to grant Employee options to purchase
shares of Billing's common stock ("Billing Options") under terms and
conditions substantially identical to Options previously granted to Employee
by the Company (without an employment requirement limiting the exercise
period, unless and until Employee becomes an employee of Billing), ratably
adjusted in good faith by Billing to ensure that following the Distribution
Date Employee will have Options and Billing Options which, taken in
aggregate, provide that same economic benefit to Employee as Options
previously granted to Employee prior to the Distribution Date;
<PAGE>
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, notwithstanding any provisions to the
contrary contained in resolutions granting or agreements governing Options
heretofore granted to Employee under the Option Plan, conditioned expressly
upon the distribution of the common stock of Billing to holders of the
Company's common stock as of the Distribution Date, then, in any such event,
immediately upon the Distribution Date, (i) all Options which have not lapsed
shall become fully vested and exercisable (if not already vested and
exercisable) by Employee for the remainder of the exercise period established
under the Option Plan, or two years following the Distribution Date,
whichever occurs later, (ii) the Company shall, in good faith, cause the
Options to be adjusted in exercise price or number so as to prevent any
diminution in the value of the Options as a result of the spinoff of Billing,
taking into consideration options granted to Employee by a stock option plan
to be established by Billing; and (iii) Billing shall cause to be granted to
Employee Billing Options determined by Billing, in good faith, in such amount
and at such exercise prices when, taken in aggregate with Options previously
granted to Employee and as subsequently adjusted as provided herein, prevent
any diminution in value of the Options previously granted to Employee prior
to the Distribution Date as a result of the spinoff of Billing, such Billing
Options to be exercisable at such time as originally provided for under the
Option Plan, without regard to any employment requirement of the Employee at
Billing (unless Employee transfers employment to Billing, in which case the
employment requirement for exercise shall be applicable from that date
forward).
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date indicated above.
COMPANY: U.S. LONG DISTANCE CORP.
By: /s/ LARRY M. JAMES
--------------------------------
Name: Larry M. James
BILLING: BILLING INFORMATION CONCEPTS CORP.
By: /s/ ALAN W. SALTZMAN
--------------------------------
Name: Alan W. Saltzman
EMPLOYEE: /s/ PARRIS H. HOLMES, JR.
-----------------------------------
PARRIS H. HOLMES, JR.
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
entered into this 1st day of November, 1993, but effective as of January 1,
1994 ("Effective Date"), by and between Larry M. James ("Employee") and U. S.
Long Distance Corp., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company and Employee are parties to an Employment Agreement
dated effective October 1, 1992 (the "Prior Agreement");
WHEREAS, the Company and Employee desire to amend and restate the terms
of such employment;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Prior Agreement
is hereby amended and restated in its entirety to read as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as President and Chief Operating Officer of the Company, and
Employee agrees to serve the Company in such capacities or in such other
capacities (subject to Employee's termination rights under Section 4.2) as
the Board of Directors of the Company may direct, all upon the terms and
subject to the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the Company,
acting through its Board of Directors, shall reasonably deem necessary to
discharge Employee's duties in such capacities. Employee may participate in
social, civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement. Employee
shall not engage in any other business activity during the term of this
Agreement without the prior written consent of the Company, other than the
passive management of employee's personal investments or activities which
would not materially detract from Employee's ability to perform his duties
under this Agreement.
<PAGE>
ARTICLE II
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the Effective Date and
continue for a period of two years. The term of this Agreement shall be
automatically extended on each two-year anniversary of this Agreement for an
additional two-year term unless, at least 30 days prior to the end of the
then effective two-year term, the Company shall give Employee written notice
of its election to terminate this Agreement as of the end of the then
effective two-year term. In the event the Company elects to so terminate
this Agreement, (a) the Company shall pay Employee, within 15 days of the
effective date of such termination, a lump-sum payment equal to (without
discounting to present value) two times his then effective annual base salary
under Section 3.1 hereof, and (b) certain outstanding stock options held by
Employee shall become fully vested and exercisable pursuant to the Agreement
Regarding Vesting of Stock Options attached hereto as EXHIBIT A. Payment of
such sum by the Company shall constitute Employee's full severance pay and
the Company shall have no further obligation to Employee arising out of such
termination. This Agreement is also subject to earlier termination as
hereinafter provided.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from Company an
annual base salary of $200,000 (before standard deductions) during the first
year of this Agreement. Employee's annual base salary shall be subject to
review and adjustment by the Compensation Committee of the Company (the
"Compensation Committee") on an annual basis, provided that any such
adjustment shall not result in a reduction in Employee's annual base salary
below $200,000 without Employee's consent. Employee's annual base salary
shall be payable at regular intervals in accordance with the prevailing
practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion
and without any obligation to do so, declare that Employee shall be entitled
to an annual incentive bonus (whether payable in cash, stock, stock rights or
other property) as the Compensation Committee shall determine. If any such
bonus is declared, the bonus shall be payable in accordance with the terms
prescribed by the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
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<PAGE>
(a) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that
may, from time to time, be provided by the Company to its executive officers.
(b) OTHER BENEFITS. Employee shall also be entitled to receive
any other benefits provided by the Company to all employees of Company as a
group, or all executive officers of the Company as a group, including any
profit sharing, 401(k) or retirement benefits.
(c) VACATION PAY. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and policy
of the Company.
(d) HOLIDAYS. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(e) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the
provisions of this Section 4.1, this Agreement may be terminated by the
Company without cause upon 30 days prior written notice thereof given to
Employee. In the event of termination pursuant to this Section 4.1, (a) the
Company shall pay Employee, within 15 days of the effective date of such
termination, a lump-sum payment equal to (without discounting to present
value) two times his then effective annual base salary under Section 3.1
hereof, and (b) certain outstanding stock options held by Employee shall
become fully vested and exercisable pursuant to the Agreement Regarding
Vesting of Stock Options attached hereto as EXHIBIT A. Payment of such sum by
the Company shall constitute Employee's full severance pay and the Company
shall have no further obligation to Employee arising out of such termination.
4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below). In the event of such voluntary termination for "good reason," (a)
the Company shall pay Employee, within 15 days of the effective date of such
termination, a lump-sum payment equal to (without discounting to present
value) two times his then effective annual base salary under Section 3.1
hereof, and (b) certain outstanding stock options held by Employee shall
become fully vested and exercisable pursuant to the Agreement Regarding
Vesting of Stock Options attached hereto as EXHIBIT A.
-3-
<PAGE>
For purposes of this Agreement, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal from the offices Employee holds on the date of this
Agreement or a material reduction in Employee's authority or responsibility,
including, without limitation, involuntary removal from the Board of
Directors, but not including termination of Employee for "cause," as defined
below; or
(b) The Company otherwise commits a material breach of this
Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination 30 days before the effective date of such termination and by
granting Employee at least 30 days to cure the cause. In the event the
employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned PRO RATA to the date of such termination with
no entitlement to any base salary continuation payments or benefits
continuation (except as specifically provided by the terms of an employee
benefit plan of the Company). Except as otherwise provided in this
Agreement, the determination of whether Employee shall be terminated for
"cause" shall be made by the Board of Directors of the Company, in the
reasonable exercise of its business judgment, and shall be limited to the
occurrence of the following events:
(a) Conviction of or a plea of NOLO CONTENDERE to the charge of a
felony (which, through lapse of time or otherwise, is not subject to appeal);
(b) Willful refusal without proper legal cause to perform, or
gross negligence in performing, Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for
sick leave or disability) for a period of 30 working days or more during any
period of 45 working days during the term of this Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions
of the position, with or without reasonable accommodation, on account of
illness, disability, or other reason whatsoever for a period of more than six
consecutive or nonconsecutive months in any
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<PAGE>
twelve-month period, this Agreement shall terminate effective upon such
incapacity, and Employee (or his legal representatives) shall be entitled
only to the base salary earned PRO RATA to the date of such termination with
no entitlement to any base salary continuation payments or benefits
continuation (except as specifically provided by the terms of an employee
benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation
to the Company. In the event of such voluntary termination other than for
"good reason" (as defined above), Employee shall be entitled to his base
salary earned PRO RATA to the date of his resignation, but no base salary
continuation payments or benefits continuation (except as specifically
provided by the terms of an employee benefit plan of the Company). On or
after the date the Company receives notice of Employee's resignation, the
Company may, at its option, pay Employee his base salary through the
effective date of his resignation and terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL. Notwithstanding anything
to the contrary contained herein, should Employee at any time within 12
months of the occurrence of a "change of control" (as defined below) cease to
be an employee of the Company (or its successor), by reason of (i)
termination by the Company (or its successor) other than for "cause"
(following a change of control, "cause" shall be limited to the conviction of
or a plea of NOLO CONTENDERE to the charge of a felony (which, through lapse
of time or otherwise, is not subject to appeal), or a material breach of
fiduciary duty to the Company through the misappropriation of Company funds
or property) or (ii) voluntary termination by Employee for "good reason upon
change of control" (as defined below), then in any such event, (a) the
Company shall pay Employee, within 15 days of the effective date of such
termination, a lump-sum payment equal to (without discounting to present
value) two times his then effective annual base salary under Section 3.1
hereof, and (b) certain outstanding stock options held by Employee shall
become fully vested and exercisable pursuant to the Agreement Regarding
Vesting of Stock Options attached hereto as EXHIBIT A.
As used in this Section, voluntary termination by Employee for
"good reason upon change of control" shall mean (i) removal of Employee from
the offices Employee holds on the date of this Agreement, (ii) a material
reduction in employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation
of the Company's headquarters from its then current location, or (iv) the
company otherwise commits a breach of this Agreement.
As used in this Agreement, a "change of control" shall be deemed to
have occurred if (i)(a) any "Person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than 30% of the combined
-5-
<PAGE>
voting power of the Company's then outstanding securities, or (ii) at any
time during the 24-month period after a tender offer, merger, consolidation,
sale of assets or contested election, or any combination of such
transactions, at least a majority of the Company's Board of Directors shall
cease to consist of "continuing directors" (meaning directors of the Company
who either were directors at prior to such transaction or who subsequently
became directors and whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least two-thirds of the
directors then still in office who were directors prior to such transaction),
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
that would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 60% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (iv) the stockholders of the Company
approve a plan of complete liquidation of the Company or an agreement of sale
or disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the provision of Section 7.9 to the contrary, the
Company shall pay any attorney's fees incurred by Employee in reasonably
seeking to enforce the terms of this Section 4.6.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu
of any other rights or remedies to which Employee or the Company may
otherwise be entitled at law, in equity or otherwise. It is also agreed
that, although the personnel policies and fringe benefit programs of the
Company may be unilaterally modified from time to time, the termination
provisions of this Agreement are not subject to modification, whether orally,
impliedly or in writing, unless any such modification is mutually agreed upon
and signed by the parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 NONDISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of
Directors, disclose or use for any purpose (except in the course of his
employment under this Agreement and in furtherance of the business of the
Company) confidential information or proprietary data of the Company (or any
of its subsidiaries), except as required by applicable law or legal process;
provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not
-6-
<PAGE>
otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company (or any of its
subsidiaries).
5.2 NONCOMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. Employee hereby
agrees that, during the term of this Agreement and for a period of eighteen
months thereafter, he shall not (except in the course of his employment under
this Agreement and in furtherance of the business of the Company (or any of
its subsidiaries)) (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business Segment")
that is directly competitive with any significant business of the Company in
one of its major commercial or geographic markets or (ii) hold an interest
(except as a holder of less than 5% interest in a publicly traded firm or
mutual funds, or as a minority stockholder or unitholder in a form not
publicly traded) in a company, partnership or firm with a Business Segment
that is directly competitive, without the prior written consent of the
Company.
5.3 VALIDITY OF NONCOMPETITION. The foregoing provisions of Section
5.2 shall not be held invalid because of the scope of the territory covered,
the actions restricted thereby, or the period of time such covenant is
operative. Any judgment of a court of competent jurisdiction may define the
maximum territory, the actions subject to and restricted by Section 5.2 and
the period of time during which such agreement is enforceable.
5.4 NONCOMPETITION COVENANTS INDEPENDENT. The covenants of the
Employee contained in Section 5.2 will be construed as independent of any
other provision in this Agreement; and the existence of any claim or cause of
action by the Employee against the Company will not constitute a defense to
the enforcement by the Company of said covenants. The Employee understands
that the covenants contained in Section 5.2 are essential elements of the
transaction contemplated by this Agreement and, but for the agreement of the
Employee to Section 5.2, the Company would not have agreed to enter into such
transaction. The Employee has been advised to consult with counsel in order
to be informed in all respects concerning the reasonableness and propriety of
Section 5.2 and its provisions with specific regard to the nature of the
business conducted by the Company and the Employee acknowledges that Section
5.2 and its provisions are reasonable in all respects.
5.5 REMEDIES. In the event of a breach or threatened breach by the
Employee of Section 5.2 or its provisions, the Company shall be entitled to a
temporary restraining order and an injunction restraining the Employee from
the commission of such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of money damages.
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<PAGE>
ARTICLE VI
ARBITRATION
Any controversy of any nature whatsoever, including but not limited to
tort claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served
upon the other, be submitted to and settled by arbitration in accordance with
the provisions of the Federal Arbitration Act, 9 U.S.C. Sections 1-15, as
amended. Each of the parties to this Agreement shall appoint one person as
an arbitrator to hear and determine such disputes, and if they should be
unable to agree, then the two arbitrators shall chose a third arbitrator from
a panel made up of experienced arbitrators selected pursuant to the
procedures of the American Arbitration Association (the "AAA") and, once
chosen, the third arbitrator's decision shall be final, binding and
conclusive upon the parties to this Agreement. Each party shall be
responsible for the fees and expenses of its arbitrator and the fees and
expenses of the third arbitrator shall be shared equally by the parties. The
terms of the commercial arbitration rules of AAA shall apply except to the
extent they conflict with the provisions of this paragraph. It is further
agreed that any of the parties hereto may petition the United States District
Court for the Western District of Texas, San Antonio Division, for a judgment
to be entered upon any award entered through such arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved
in writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to
enforce each and every provision hereof in accordance with its terms.
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
-8-
<PAGE>
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter into this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement, and that his execution and performance of this Agreement is
not a violation or breach of any other agreement between Employee and any
other person or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted
or prohibited, contractually or otherwise, from entering into and performing
this Agreement and that its execution and performance of this Agreement is
not a violation or breach of any other agreements between Company and any
other person or entity. The Company represents and warrants that this
Agreement is a legal, valid and binding agreement of the Company, enforceable
in accordance with its terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this
Agreement without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose
any obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate
Employee's employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or inequity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing
party shall be entitled to reasonable attorney's fees and all costs and
expenses of suit, including, without limitation, expert and accountant fees,
and such other relief which a court of competent jurisdiction may deem
appropriate.
7.10 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by either
personal delivery, overnight delivery, or first class mail, certified or
registered with return receipt requested, with postage or delivery charges
prepaid, and shall be deemed to have been duly given when
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<PAGE>
delivered personally, upon actual receipt, and on the next business day when
sent via overnight delivery, or three days after mailing first class,
certified or registered with return receipt requested, to the respective
persons named below:
If to the Company: Corporate Secretary
U. S. Long Distance Corp.
9311 San Pedro
San Antonio, Texas 78216
If to the Employee: Larry M. James
9311 San Pedro
San Antonio, Texas 78216
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: U. S. LONG DISTANCE CORP.
By /s/ PARRIS H. HOLMES, JR.
---------------------------------
Title Chairman of the Board & CEO
EMPLOYEE: /s/ LARRY M. JAMES
---------------------------------
Larry M. James
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<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT between U.S. Long Distance Corp., a Delaware corporation
(the "Company"), and Larry M. James (the "Employee"),
WITNESSETH:
WHEREAS, on November 1, 1993, the Company and the Employee executed that
certain employment agreement styled "Amended and Restated Employment
Agreement" (the "Agreement"); and
WHEREAS, the Company and the Employee retained the right in Section 7.2
of the Agreement to amend the Agreement in writing from time to time as may
be agreed to by the parties; and
WHEREAS, the Company and the Employee both desire to amend the Agreement
so as to extend the severance benefit that may be paid to the Employee in
certain circumstances;
NOW, THEREFORE, the parties hereto agree that the Agreement is
hereby amended, effective as of the date hereof, as follows:
1. The second paragraph of Section 4.6, TERMINATION FOLLOWING CHANGE
OF CONTROL, is hereby amended in its entirety to read as follows:
As used in this Section, voluntary termination by Employee for
"good reason upon change of control" shall mean (i) removal of Employee
from the offices Employee holds on the date of this Agreement, (ii) a
material reduction in Employee's authority or responsibility,
including, without limitation, involuntary removal from the Board of
Directors, (iii) relocation of the Company's headquarters from its then
current location, (iv) a reduction in Employee's compensation, or (v)
the Company otherwise commits a breach of this Agreement.
<PAGE>
2. All other terms and conditions of the Agreement are hereby
ratified in their entirety.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Agreement this 3rd day of January, 1995.
U.S. LONG DISTANCE CORP.
By: /s/ PARRIS H. HOLMES, JR.
----------------------------------
Title: Chairman of the Board and
Chief Executive Officer
COMPANY
/s/ LARRY M. JAMES
--------------------------------------
Larry M. James
EMPLOYEE
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<PAGE>
SECOND AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT between U.S. Long Distance Corp., a Delaware
corporation (the "Company"), and LARRY M. JAMES (the "Employee"),
WITNESSETH:
WHEREAS, on November 1, 1993, the Company and the Employee
executed that certain employment agreement styled "Amended and Restated
Employment Agreement" (the "Agreement"); and
WHEREAS, the Company and the Employee retained the right in
Section 7.2 of the Agreement to amend the Agreement from time to time;
and
WHEREAS, the Company, acting upon the recommendation of the
Compensation Committee of the Board of Directors, and the Employee both
desire to amend the Agreement to provide certain protections to the
Employee in the event his employment is terminated under certain
conditions following a change of corporate control of the Company;
NOW, THEREFORE, the parties hereto agree that the Agreement is
hereby amended, effective as of the date of execution hereof, as
follows:
1. Section 4.6, TERMINATION FOLLOWING CHANGE OF CONTROL, is
hereby amended in its entirety to read as follows:
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained
herein, should Employee at any time within 12 months of the occurrence
of a "change of control" (as defined below) cease to be an employee of
the Company (or its successor), by reason of (i) termination by the
Company (or its successor) other than for "cause" (following a
<PAGE>
change of control, "cause" shall be limited to the conviction of or a
plea of NOLO CONTENDERE to the charge of a felony which, through lapse
of time or otherwise, is not subject to appeal), or a material breach
of fiduciary duty to the Company through the misappropriation of
Company funds or property) or (ii) voluntary termination by Employee
for "good reason upon change of control" (as defined below), then in
any such event, (1) the Company shall pay Employee, within 45 days of
the severance of employment described in this Section 4.6, a lump-sum
payment equal to (without discounting to present value) two times his
then effective base salary under Section 3.1 hereof, and (2) certain
outstanding stock options held by Employee shall become fully vested
and exercisable pursuant to the Agreement Regarding Vesting of Stock
Options attached hereto as EXHIBIT A.
(b) Employee shall be entitled to the payment set forth in
(a) above, regardless of whether or not that payment, when aggregated
with all payments to Employee (whether pursuant to this Agreement or
any other agreement whatsoever) in connection with a change of control
as defined in this Section 4.6 exceeds in aggregate, the maximum amount
that could be paid to Employee, without triggering an excess parachute
payment under Section 280G(b) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the resulting excise tax under Section 4999
of the Code, (referred to herein as the "maximum payment amount").
(c) In determining the limitation determined under Section
280G of the Code, (i) no portion of the total payments which Employee
has waived in writing prior to the date of the payment of benefits
under this Agreement will be taken into account, (ii) no portion of the
total payments which nationally recognized tax counsel (whether through
consultation or retention of any actuary, consultant or other expert),
selected by the Company's independent auditors and acceptable to
Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code will be taken into account, (iii) no portion of
the total payments which Tax Counsel determines to be reasonable
compensation for services rendered within the meaning of Section
280G(b)(4) of the Code will be taken into account, and (iv) the value
of any non-cash benefit or any deferred payment or benefit included in
the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
(d) As used in this Section, voluntary termination by
Employee for "good reason upon change of control" shall mean (i)
removal of Employee from the offices Employee holds on the date of this
Agreement, (ii) a material reduction in Employee's authority or
responsibility, including, without limitation, involuntary removal from
the Board of Directors, (iii) relocation of the Company's headquarters
from its then current location, (iv) a reduction in Employee's
compensation, or (v) the Company otherwise commits a breach of this
Agreement.
-2-
<PAGE>
(e) As used in this Agreement, a "change of control" shall
be deemed to have occurred if (i) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 30% of the combined
voting power of the Company's then outstanding securities, or (ii) at
any time during the 24-month period after a tender offer, merger,
consolidation, sale of assets or contested election, or any combination
of such transactions, at least a majority of the Company's Board of
Directors shall cease to consist of "continuing directors" (meaning
directors of the Company who either were directors prior to such
transaction or who subsequently became directors and whose election, or
nomination for election by the Company's stockholders, was approved by
a vote of at least two-thirds of the directors then still in office who
were directors prior to such transaction), or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
at least 60% of the total voting power represented by the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement of sale or disposition by the Company of
all or substantially all of the Company's assets.
(f) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the
Company or any of its affiliates to or for the benefit of Employee, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (any such payments or distributions being individually
referred to herein as a "Payment," and any two or more of such payments or
distributions being referred to herein as "Payments"), would be subject to
the excise tax imposed by Section 4999 of the Code (such excise tax, together
with any interest thereon, any penalties, additions to tax, or additional
amounts with respect to such excise tax, and any interest in respect of such
penalties, additions to tax or additional amounts, being collectively
referred herein to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment or payments (individually referred to herein as
a "Gross-Up Payment" and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an amount such that after
payment by Employee of all taxes (as defined in paragraph (p) below) imposed
upon the Gross-Up Payment, Employee retains an amount of such Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(g) Subject to the provisions of paragraph (h) through (n) below,
any determination (individually, a "Determination") required to be made under
this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax
-3-
<PAGE>
Counsel shall provide detailed supporting legal authorities, calculations,
and documentation both to the Company and Employee within 15 business days of
the termination of Employee's employment, if applicable, or such other time
or times as is reasonably requested by the Company or Employee. If Tax
Counsel makes the initial Determination that no Excise Tax is payable by
Employee with respect to a Payment or Payments, it shall furnish Employee
with an opinion reasonably acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. Employee shall have
the right to dispute any Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect to such Determination.
The Gross-Up Payment, if any, as determined pursuant to such Determination
shall, at the Company's expense, be paid by the Company to Employee within
five business days of Employee's receipt of such Determination. The
existence of a Dispute shall not in any way affect Employee's right to
receive the Gross-Up Payment in accordance with such Determination. If there
is no Dispute, such Determination shall be binding, final and conclusive upon
the Company and Employee, subject in all respects, however, to the provisions
of paragraph (h) through (n) below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that
Gross-Up Payments (or portions thereof) which will not have been made by the
Company should have been made ("Underpayment"), and if upon any reasonable
written request from Employee or the Company to Tax Counsel, or upon Tax
Counsel's own initiative, Tax Counsel, at the Company's expense, thereafter
determines that Employee is required to make a payment of any Excise Tax or
any additional Excise Tax, as the case may be, Tax Counsel shall, at the
Company's expense, determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Employee resulting from any Final Determination (as defined
in paragraph (o) below) that any Payment is subject to the Excise Tax.
(i) If a party hereto receives any written or oral communication
with respect to any question, adjustment, assessment or pending or threatened
audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by Employee against the Company under this paragraph (i) ("Claim"),
including, but not limited to, a claim for indemnification of Employee by the
Company under paragraph (h) above, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee Claim"),
Employee shall take or cause to be taken such action in connection with
contesting such
-4-
<PAGE>
Employee Claim as the Company shall reasonably request in writing from time
to time, including the retention of counsel and experts as are reasonably
designated by the Company (it being understood and agreed by the parties
hereto that the terms of any such retention shall expressly provide that the
Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes
claimed is due from Employee, but in no event sooner than five calendar
days after the Company receives or delivers such Tax Claim Notice), the
Company shall have notified Employee in writing ("Election Notice")
that the Company does not dispute its obligations (including, but not
limited to, its indemnity obligations) under this Agreement and that
the Company elects to contest, and to control the defense or
prosecution of, such Employee Claim at the Company's sole risk and sole
cost and expense; and
(ii) the Company shall have advanced to Employee on an
interest-free basis, the total amount of the tax claimed in order for
Employee, at the Company's request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding
in, for example, United States Tax Court) and shall indemnify and hold
Employee harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse Employee for any and all
costs and expenses resulting from any such request by the Company and
shall indemnify and hold Employee harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such reimbursement.
(k) Subject to the provisions of paragraph (j) above, the Company
shall have the right to defend or prosecute, at the sole cost, expense and
risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by the Company
to a Final Determination; PROVIDED, HOWEVER, that (i) the Company shall not,
without Employee's prior written consent, enter into any compromise or
settlement of such Employee Claim that would adversely affect Employee, (ii)
any request from the Company to Employee regarding any extension of the
statute of limitations relating to assessment, payment, or collection of
taxes for the taxable year of Employee with respect to which the contested
issues involved in, and
-5-
<PAGE>
amount of, the Employee Claim relate is limited solely to such contested
issues and amount, and (iii) the Company's control of any contest or
proceeding shall be limited to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any
other taxing authority. So long as the Company is diligently defending or
prosecuting such Employee Claim, Employee shall provide or cause to be
provided to the Company any information reasonably requested by the Company
that relates to such Employee Claim, and shall otherwise cooperate with the
Company and its representatives in good faith in order to contest effectively
such Employee Claim. The Company shall keep Employee informed of all
developments and events relating to any such Employee Claim (including,
without limitation, providing to Employee copies of all written materials
pertaining to any such Employee Claim), and Employee or his authorized
representatives shall be entitled, at Employee's expense, to participate in
all conferences, meetings and proceedings relating to any such Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the
Company hereunder with respect to such tax claimed has been established by a
Final Determination, Employee shall promptly pay or cause to be paid to the
Company any refund actually received by, or actually credited to, Employee
with respect to such tax (together with any interest paid or credited thereon
by the taxing authority and any recovery of legal fees from such taxing
authority related thereto), except to the extent that any amounts are then
due and payable by the Company to Employee, whether under the provisions of
this Agreement or otherwise. If, after the receipt by Employee of an amount
advanced by the Company pursuant to paragraph (j)(ii) above, a determination
is made by the Internal Revenue Service or other appropriate taxing authority
that Employee shall not be entitled to any refund with respect to such tax
claimed and the Company does not notify Employee in writing of its intent to
contest such denial of refund prior to the expiration of thirty days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of any Gross-Up Payments and other payments
required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails to
deliver an Election Notice to Employee within the period provided in
paragraph (j)(i) above or, after delivery of such Election Notice, the
Company fails to comply with the provisions of paragraph (j)(ii) above and
(iii) and (k) above, then Employee shall at any time thereafter have the
right (but not the obligation), at his election and in his sole and absolute
discretion, to defend or prosecute, at the sole cost, expense and risk of the
Company, such Employee Claim. Employee shall have full control of such
defense or prosecution and such proceedings, including any settlement or
compromise thereof. If requested by Employee, the Company shall cooperate,
and shall cause its affiliates to cooperate, in good faith with Employee and
his authorized representatives in order to contest effectively such Employee
Claim. The Company may attend, but not participate in or control, any
-6-
<PAGE>
defense, prosecution, settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph (m) and shall bear its own
costs and expenses with respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee shall, from time to
time, be entitled to current payment, on a fully grossed-up after tax basis,
from the Company with respect to costs and expenses incurred by Employee in
connection with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph
(n), the Company shall pay, on a fully grossed-up after tax basis, to
Employee in immediately available funds the full amount of any taxes arising
or resulting from or incurred in connection with such Employee Claim that
have not theretofore been paid by the Company to Employee, together with the
costs and expenses, on a fully grossed-up after tax basis, incurred in
connection therewith that have not theretofore been paid by the Company to
Employee, within ten calendar days after such Final Determination. In the
case of any Employee Claim not covered by the preceding sentence, the Company
shall pay, on a fully grossed-up after tax basis, to Employee in immediately
available funds the full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim at least ten calendar days
before the date payment of such taxes is due from Employee, except where
payment of such taxes is sooner required under the provisions of this
paragraph (n), in which case payment of such taxes (and payment, on a fully
grossed-up after tax basis, of any costs and expenses required to be paid
under this paragraph (n) shall be made within the time and in the manner
otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final Determination"
shall mean (i) a decision, judgment, decree or other order by a court or
other tribunal with appropriate jurisdiction, which has become final and
non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not
limited to, a closing agreement under Section 7121 of the Code; (iii) any
disallowance of a claim for refund or credit in respect to an overpayment of
tax unless a suit is filed on a timely basis; or (iv) any final disposition
by reason of the expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and "taxes"
mean any and all taxes of any kind whatsoever (including, but not limited to,
any and all Excise Taxes, income taxes, and employment taxes), together with
any interest thereon, any penalties, additions to tax, or additional amounts
with respect to such taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by,
or is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately
-7-
<PAGE>
preceding sentence means the ownership, directly or indirectly, of 50% or
more of the voting securities of an entity or other person or possessing the
power to direct or cause the direction of the management and policies of such
entity or other person, whether through the ownership of voting securities,
by contract or otherwise.
(r) The Company shall defend, hold harmless, and indemnify Employee on
a fully grossed-up after tax basis from and against any and all costs and
expenses (including reasonable attorneys', accountants' and experts' fees and
expenses) incurred by Employee from time to time as a result of any contest
(regardless of the outcome) by the Company or others contesting the validity
or enforcement of, or liability under, any term or provision of this
Agreement, plus in each case interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement this 15 day of November, 1995.
U.S. LONG DISTANCE CORP.
By /s/ PARRIS H. HOLMES, JR.
----------------------------------
Title Chairman & CEO
COMPANY
/s/ LARRY M. JAMES
--------------------------------------
Larry M. James
EMPLOYEE
-8-
<PAGE>
AGREEMENT REGARDING VESTING AND
ADJUSTMENT OF STOCK OPTIONS
This Agreement is entered into on June 25, 1996, between Larry M. James
("Employee"), U.S. Long Distance Corp., a Delaware corporation (the
"Company"), and Billing Information Concepts Corp., a Delaware corporation
("Billing"), but effective as of the date of distribution of the common stock
of Billing to holders of the Company's common stock (the "Distribution
Date"). Since the effectiveness of this Agreement is expressly contingent on
the spinoff of Billing through its distribution to the Company's
stockholders, if such condition precedent does not occur as anticipated by
the parties hereto, this Agreement will be void AB INITIO, and the prior
agreement regarding vesting of stock options entered into between the parties
will remain in full force and effect.
WHEREAS, Employee has been granted and may hereafter be granted options
under the Company's 1990 Employee Stock Option Plan (as amended from time to
time, the "Option Plan") to acquire shares of common stock, $.01 par value,
of the Company; and
WHEREAS, Billing and Employee have entered into an Amended and Restated
Employment Agreement effective January 1, 1994 (the "Employment Agreement");
and
WHEREAS, as contemplated in the Employment Agreement, the parties desire
that (i) options granted to Employee under the Option Plan ("Options") become
fully exercisable by Employee upon the Distribution Date, (ii) Options
granted prior to the Distribution Date be adjusted in exercise price and/or
number, as may be appropriately determined by the Company in good faith, to
prevent diminution in value of the Options granted to Employee prior to the
Distribution Date as a result of the spinoff of Billing, taking into
consideration options granted to Employee by a stock option plan to be
established by Billing (the "Billing Option Plan"), and (iii) that all
previously granted Options be exercisable until two years following the
Distribution Date, notwithstanding any employment requirement otherwise
required under the Option Plan; and
WHEREAS, in consideration of Employee's efforts in increasing the value
of Billing prior to the Distribution Date, and in order to prevent diminution
in value of Options previously granted to Employee, Billing desires to
establish the Billing Option Plan and to grant Employee options to purchase
shares of Billing's common stock ("Billing Options") under terms and
conditions substantially identical to Options previously granted to Employee
by the Company (without an employment requirement limiting the exercise
period, unless and until Employee becomes an employee of Billing), ratably
adjusted in good faith by Billing to ensure that following the Distribution
Date Employee will have Options and Billing Options which, taken in
aggregate, provide that same economic benefit to Employee as Options
previously granted to Employee prior to the Distribution Date;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, notwithstanding any provisions to the
contrary contained in resolutions granting or agreements governing Options
heretofore granted to Employee under the Option
<PAGE>
Plan, conditioned expressly upon the distribution of the common stock of
Billing to holders of the Company's common stock as of the Distribution Date,
then, in any such event, immediately upon the Distribution Date, (i) all
Options which have not lapsed shall become fully vested and exercisable (if
not already vested and exercisable) by Employee for the remainder of the
exercise period established under the Option Plan, or two years following the
Distribution Date, whichever occurs later, (ii) the Company shall, in good
faith, cause the Options to be adjusted in exercise price or number so as to
prevent any diminution in the value of the Options as a result of the spinoff
of Billing, taking into consideration options granted to Employee by a stock
option plan to be established by Billing; and (iii) Billing shall cause to be
granted to Employee Billing Options determined by Billing, in good faith, in
such amount and at such exercise prices when, taken in aggregate with Options
previously granted to Employee and as subsequently adjusted as provided
herein, prevent any diminution in value of the Options previously granted to
Employee prior to the Distribution Date as a result of the spinoff of
Billing, such Billing Options to be exercisable at such time as originally
provided for under the Option Plan, without regard to any employment
requirement of the Employee at Billing (unless Employee transfers employment
to Billing, in which case the employment requirement for exercise shall be
applicable from that date forward).
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date indicated above.
COMPANY: U.S. LONG DISTANCE CORP.
By: /s/ AUDIE LONG
-------------------------------
Name: Audie Long
BILLING: BILLING INFORMATION CONCEPTS CORP.
By: /s/ PARRIS H. HOLMES, JR.
-------------------------------
Name: Parris H. Holmes, Jr.
EMPLOYEE: /s/ LARRY M. JAMES
----------------------------------
LARRY M. JAMES
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<PAGE>
Page 1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
entered into this 25th day of June, 1996, by and between W. Audie Long
("Employee"), U. S. Long Distance Corp., a Delaware corporation (the
"Company"), and Billing Information Concepts Corp., a Delaware corporation
("Billing"). Subject to the condition set forth below, this Agreement is to
be effective as of the distribution of the common stock of Billing to holders
of the Company's common stock ("Distribution Date"). Since the effectiveness
of this Agreement, is expressly contingent upon the spinoff of Billing
through its distribution to the Company's stockholders, if such condition
precedent does not occur as anticipated by the parties hereto, this Agreement
will be void AB INITIO, and the prior Amended and Restated Employment
Agreement will remain in full force and effect.
WITNESSETH:
WHEREAS, the Company and Employee are parties to an Amended and Restated
Employment Agreement dated effective January 14, 1994 (the "Prior Agreement");
and
WHEREAS, in anticipation of, but coincident with the spinoff of Billing,
the Company, Billing and Employee desire to amend and restate the terms of such
employment so as to clarify the ongoing terms of Employee's employment with the
Company, potential future employment with Billing and each party's duties and
obligations to the other following a spinoff of Billing;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and expressly
contingent upon the closing of the spinoff of Billing through the Distribution
Date, the Prior Agreement is hereby amended and restated in its entirety to read
as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, subject to Employee's
right to transfer his employment to Billing at the expiration of the initial
one-year term of this Agreement as set forth in Section 2.2, the Company
agrees to employ Employee as General Counsel, Senior Vice President and
Secretary of the Company, and Employee agrees to serve the Company in such
capacities or in such other capacities (subject to Employee's termination
rights under Section 4.2) as the Board of Directors of the Company may
direct, all upon the terms and subject to the conditions set forth in this
Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business
<PAGE>
Page 2
time, energy and skill to the affairs of the Company as the Company, acting
through its Board of Directors, shall reasonably deem necessary to discharge
Employee's duties in such capacities. Employee may participate in social,
civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement. Employee
shall not engage in any other business activity during the term of this
Agreement without the prior written consent of the Company, other than the
passive management of employee's personal investments or activities which
would not materially detract from Employee's ability to perform his duties
under this Agreement.
ARTICLE II
TERM OF EMPLOYMENT
2.1 GENERAL TERM OF EMPLOYMENT. The term of this Agreement shall commence
on the Distribution Date and continue for a period of one year. The term of
this Agreement shall be automatically extended on each one year anniversary
of this Agreement for an additional one-year term unless, at least 30 days
prior to the end of the then effective one-year term, the Company shall give
Employee written notice of its election to terminate this Agreement as of the
end of the then effective one-year term. In the event the Company elects to
so terminate this Agreement, the Company shall pay Employee, within 15 days
of the effective date of such termination, a lump-sum payment equal to
(without discounting to present value) one times' his then effective annual
base salary under Section 3.1 hereof and shall continue Employee's medical,
health and disability benefits for two years from such termination. Payment
of such sums and continuation of such medical benefits by the Company shall
constitute Employee's full severance pay and the Company shall have no
further obligation to Employee arising out of such termination. This
Agreement is also subject to earlier termination as hereinafter provided.
2.2 SUBSEQUENT TERM OF EMPLOYMENT. Notwithstanding the preceding
provisions of section 2.1, Employee may, at his sole discretion, at least 30
days prior to the end of the initial one-year term of this Agreement provide
written notice to the Company of his election to transfer his employment to
Billing at the end of the one-year term as Senior Vice President, General
Counsel and Secretary of Billing at an annual salary of $160,000. Said
employment with Billing, if so elected by Employee shall be under the
identical terms and conditions of his employment with the Company set forth
herein, substituting Billing for the Company for all obligations hereunder.
In addition, Billing shall honor Employee's tenure of employment with
Employer for all of Billing's Employee benefit programs.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered under
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this Agreement, Employee shall be entitled to receive from Company an annual
base salary of $150,000 (before standard deductions) during the first year of
this Agreement. Employee's annual base salary shall be subject to review and
adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $150,000 without
Employee's consent. Employee's annual base salary shall be payable at
regular intervals in accordance with the prevailing practice and policy of
the Company. In addition, upon the Distribution Date Employee shall be
entitled to a payment of $240,000 (before standard deductions).
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 VESTING AND ADJUSTMENT OF OPTIONS. All currently outstanding stock
options granted by the Company and held by Employee shall become fully vested
and exercisable pursuant to the Agreement Regarding Vesting and Adjustment of
Stock Options attached hereto as EXHIBIT A, upon the Distribution Date, all as
set forth in EXHIBIT A. In addition, all currently outstanding stock options
granted by Company and held by Employee prior to the Distribution Date shall be
adjusted in exercise price and/or number of options granted in order to prevent
any diminution in value of those options as a result of the Distribution Date,
taking into consideration options granted under a stock option plan established
by Billing. Company shall, prior to the Distribution Date cause Billing to
establish a stock option plan and to grant options to Employee so as to ratably
provide options to purchase Billing common stock ratably with Employee's option
to purchase shares of the Company's stock. Such determinations to be made by
Company and Billing shall be taken in good faith so as to prevent any diminution
in value of those options previously granted to Employee to purchase the
Company's stock and allowing for Employee's ability to participate in future
stock appreciation of Billing consistent with the opportunity to participate in
that appreciation existing prior to the Distribution Date.
3.4 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
(a) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that may,
from time to time, be provided by the Company to its executive officers.
(b) OTHER BENEFITS. Employee shall also be entitled to receive any
other benefits provided by the Company to all employees of Company as a group,
or all
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executive officers of the Company as a group, including any profit sharing,
401(k) or retirement benefits.
(c) VACATION PAY. Employee shall be entitled to an annual vacation
as determined in accordance with the prevailing practice and policy of the
Company.
(d) HOLIDAYS. Employee shall be entitled to holidays in accordance
with the prevailing practice and policy of the Company.
(e) REIMBURSEMENT OF EXPENSES. The Company shall reimburse Employee
for all expenses reasonably incurred by Employee on behalf of the Company in
accordance with the prevailing practice and policy of the Company.
(f) AUTOMOBILE. Employee shall have the right to continue to use the
Mitsubishi and shall have an option, exercisable within 90 days of termination,
to purchase such automobile at its net book value as shown on the Company's
records as of the date of termination.
(g) APARTMENT. Employer agrees to continue, at its expense, to
provide to Employee the apartment at Oak Well Farms.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the provisions
of this Section 4.1, this Agreement may be terminated by the Company without
cause upon 30 days prior written notice thereof given to Employee. In the event
of termination pursuant to this Section 4.1 during the initial one year term of
this Agreement, Employee shall immediately transfer his employment to Billing
under the terms and conditions set forth in Section 2.2, and no severance
payment or benefits of any kind shall be payable as a result of Employee's
employment being transferred to Billing except as set forth herein. In the
event of termination pursuant to this Section 4.1 subsequent to the end of the
initial one year term, (a) the Company shall pay Employee, within 15 days of the
effective date of such termination, a lump-sum payment equal to (without
discounting to present value) one times his then effective annual base salary
under Section 3.1 hereof, (b) Employee shall be entitled to all benefits under
Section 3.4 hereof, through the expiration of the two year term then in effect,
to the extent continuation of such benefits is not prohibited by application
state and/or federal law, and (c) any outstanding stock options to acquire
shares of the Company's common stock held by Employee not already fully vested
and exercisable pursuant to the Agreement Regarding Vesting and Adjustment of
Stock Options attached hereto as EXHIBIT A, shall become fully vested and
exercisable. Payment of such sum by the Company and two years continuation of
benefits provided under Section 3.4 shall constitute Employee's full severance
pay and the Company shall have no further obligation to Employee arising out of
such termination.
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4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below). In the event of such voluntary termination for "good reason," (a) the
Company shall pay Employee, within 15 days of the effective date of such
termination, a lump-sum payment equal to (without discounting to present value)
one times his then effective annual base salary under Section 3.1 hereof, (b)
the Company shall provide the continued benefit coverage described in Section
4.1, and (c) any outstanding stock options to acquire shares of the Company's
common stock held by Employee not already fully vested and exercisable pursuant
to the Agreement Regarding Vesting and Adjustment of Stock Options attached
hereto as EXHIBIT A, shall become fully vested and exercisable.
For purposes of this Agreement, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal from the offices Employee holds on the date of this
Agreement or a material reduction in Employee's authority or
responsibility, including, without limitation, involuntary
removal from the Board of Directors, but not including
termination of Employee for "cause," as defined below;
(b) Relocation of the Company's headquarters from Bexar County,
Texas;
(c) A reduction in the Employee's then effective base salary under
Section 3.1; or
(d) The Company otherwise commits a material breach of this
Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate this
Agreement at any time if such termination is for "cause" (as defined below), by
delivering to Employee written notice describing the cause of termination 30
days before the effective date of such termination and by granting Employee at
least 30 days to cure the cause. In the event the employment of Employee is
terminated for "cause," Employee shall be entitled only to the base salary
earned PRO RATA to the date of such termination with no entitlement to any base
salary continuation payments or benefits continuation (except as specifically
provided by the terms of an employee benefit plan of the Company). Except as
otherwise provided in this Agreement, the determination of whether Employee
shall be terminated for "cause" shall be made by the Board of Directors of the
Company, in the reasonable exercise of its business judgment, and shall be
limited to the occurrence of the following events:
(a) Conviction of or a plea of NOLO CONTENDERE to the charge of a
felony (which, through lapse of time or otherwise, is not subject
to appeal);
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(b) Willful refusal without proper legal cause to perform, or gross
negligence in performing, Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company through the
misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than for
sick leave or disability) for a period of 30 working days or more
during any period of 45 working days during the term of this
Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions of
the position, with or without reasonable accommodation, on account of illness,
disability, or other reason whatsoever for a period of more than six consecutive
or nonconsecutive months in any twelve-month period, this Agreement shall
terminate effective upon such incapacity, and Employee (or his legal
representatives) shall be entitled only to the base salary earned PRO RATA to
the date of such termination with no entitlement to any base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation to
the Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary earned
PRO RATA to the date of his resignation, but no base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company). On or after the date the Company
receives notice of Employee's resignation, the Company may, at its option, pay
Employee his base salary through the effective date of his resignation and
terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein, should
Employee at any time within 12 months of the occurrence of a "change of control"
(as defined below) cease to be an employee of the Company (or its successor), by
reason of (i) termination by the Company (or its successor) other than for
"cause" (following a change of control, "cause" shall be limited to the
conviction of or a plea of NOLO CONTENDERE to the charge of a felony which,
through lapse of time or otherwise, is not subject to appeal), or a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), then in any such event, (1) the
Company shall pay Employee, within 45 days of the severance of
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employment described in this Section 4.6, a lump-sum payment equal to
(without discounting to present value) one times his then effective base
salary under Section 3.1 hereof, and (2) certain outstanding stock options
held by Employee shall become fully vested and exercisable pursuant to the
Agreement Regarding Vesting of Stock Options attached hereto as EXHIBIT A.
In addition, Company shall continue all benefits under Section 3.4 hereof,
through the expiration of the two year term then in effect, to the extent
continuation of such benefits is not prohibited by applicable state and/or
federal law.
(b) Employee shall also be entitled to an additional payment, to the
extent all payments to Employee (whether pursuant to this Agreement or any other
agreement whatsoever) in connection with a change of control as defined in this
Section 4.6 do not exceed in aggregate, the maximum amount that could be paid to
Employee, without triggering an excess parachute payment under Section 280G(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the resulting
excise tax under Section 4999 of the Code, (referred to herein as the "maximum
payment amount") equal to an amount, which when added to the amounts payable to
the Employee under paragraph (a) equals the maximum payment amount; it being the
express intention of the parties that Employee in all cases (whether through
this Agreement or any other agreement whatsoever) receive the maximum payment
amount in connection with a change of control without creating an excess
parachute payment. If such a payment is required under this paragraph (b) in
addition to the amounts set forth in paragraph (a) above, it shall be paid at
the time and in the manner set forth under paragraph (a) above.
(c) In determining the amount to be paid to Employee under this
Section 4.6, as well as the limitation determined under Section 280G of the
Code, (i) no portion of the total payments which Employee has waived in writing
prior to the date of the payment of benefits under this Agreement will be taken
into account, (ii) no portion of the total payments which nationally recognized
tax counsel (whether through consultation or retention of any actuary,
consultant or other expert), selected by the Company's independent auditors and
acceptable to Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account, (iii) no portion of the total payments which
Tax Counsel determines to be reasonable compensation for services rendered
within the meaning of Section 280G(b)(4) of the Code will be taken into account,
and (iv) the value of any non-cash benefit or any deferred payment or benefit
included in the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
(d) As used in this Section, voluntary termination by Employee for
"good reason upon change of control" shall mean (i) removal of Employee from the
offices Employee holds on the date of this Agreement, (ii) a material reduction
in Employee's authority or responsibility, including, without limitation,
involuntary removal from the Board of Directors, (iii) relocation of the
Company's headquarters from Bexar County, Texas, (iv) a reduction in Employee's
then effective base salary under Section
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3.1, or (v) the Company otherwise commits a breach of this Agreement.
(e) As used in this Agreement, a "change of control" shall be deemed
to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than 30% of the combined voting power of the Company's then outstanding
securities, or (ii) at any time during the 24-month period after a tender offer,
merger, consolidation, sale of assets or contested election, or any combination
of such transactions, at least a majority of the Company's Board of Directors
shall cease to consist of "continuing directors" (meaning directors of the
Company who either were directors prior to such transaction or who subsequently
became directors and whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then still in office who were directors prior to such transaction), or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation that would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 60% of the
total voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
(iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement of sale or disposition by the Company of all or
substantially all of the Company's assets.
(f) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
or any of its affiliates to or for the benefit of Employee, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (any such payments or distributions being individually referred to
herein as a "Payment," and any two or more of such payments or distributions
being referred to herein as "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties, additions to tax
or additional amounts, being collectively referred herein to as the "Excise
Tax"), then Employee shall be entitled to receive an additional payment or
payments (individually referred to herein as a "Gross-Up Payment" and any two or
more of such additional payments being referred to herein as "Gross-Up
Payments") in an amount such that after payment by Employee of all taxes (as
defined in paragraph (p) below) imposed upon the Gross-Up Payment, Employee
retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(g) Subject to the provisions of paragraph (h) through (n) below, any
determination (individually, a "Determination") required to be made under this
Section 4.6, including whether a Gross-Up Payment is required and the amount of
such Gross-Up Payment, shall initially be made, at the Company's expense, by Tax
Counsel.
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Tax Counsel shall provide detailed supporting legal authorities,
calculations, and documentation both to the Company and Employee within 15
business days of the termination of Employee's employment, if applicable, or
such other time or times as is reasonably requested by the Company or
Employee. If Tax Counsel makes the initial Determination that no Excise Tax
is payable by Employee with respect to a Payment or Payments, it shall
furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute")
within 15 business days after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any, as determined pursuant
to such Determination shall, at the Company's expense, be paid by the Company
to Employee within five business days of Employee's receipt of such
Determination. The existence of a Dispute shall not in any way affect
Employee's right to receive the Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such Determination shall be binding,
final and conclusive upon the Company and Employee, subject in all respects,
however, to the provisions of paragraph (h) through (n) below. As a result
of the uncertainty in the application of Sections 4999 and 280G of the Code,
it is possible that Gross-Up Payments (or portions thereof) which will not
have been made by the Company should have been made ("Underpayment"), and if
upon any reasonable written request from Employee or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the Company's
expense, thereafter determines that Employee is required to make a payment of
any Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel
shall, at the Company's expense, determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify Employee
on a fully grossed-up after tax basis from and against any and all claims,
losses, liabilities, obligations, damages, impositions, assessments, demands,
judgements, settlements, costs and expenses (including reasonable attorneys',
accountants', and experts' fees and expenses) with respect to any tax liability
of Employee resulting from any Final Determination (as defined in paragraph (o)
below) that any Payment is subject to the Excise Tax.
(i) If a party hereto receives any written or oral communication with
respect to any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by Employee
against the Company under this paragraph (i) ("Claim"), including, but not
limited to, a claim for indemnification of Employee by the Company under
paragraph (h) above, then such party shall promptly notify the other party
hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee Claim"),
Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to
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time, including the retention of counsel and experts as are reasonably
designated by the Company (it being understood and agreed by the parties
hereto that the terms of any such retention shall expressly provide that the
Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes claimed
is due from Employee, but in no event sooner than five calendar days after
the Company receives or delivers such Tax Claim Notice), the Company shall
have notified Employee in writing ("Election Notice") that the Company does
not dispute its obligations (including, but not limited to, its indemnity
obligations) under this Agreement and that the Company elects to contest,
and to control the defense or prosecution of, such Employee Claim at the
Company's sole risk and sole cost and expense; and
(ii) the Company shall have advanced to Employee on an interest-
free basis, the total amount of the tax claimed in order for Employee, at
the Company's request, to pay or cause to be paid the tax claimed, file a
claim for refund of such tax and, subject to the provisions of the last
sentence of paragraph (l) below, sue for a refund of such tax if such claim
for refund is disallowed by the appropriate taxing authority (it being
understood and agreed by the parties hereto that the Company shall only be
entitled to sue for a refund and the Company shall not be entitled to
initiate any proceeding in, for example, United States Tax Court) and shall
indemnify and hold Employee harmless, on a fully grossed-up after tax
basis, from any tax imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and
(iii) the Company shall reimburse Employee for any and all
costs and expenses resulting from any such request by the Company and shall
indemnify and hold Employee harmless, on fully grossed-up after-tax basis,
from any tax imposed as a result of such reimbursement.
(k) Subject to the provisions of paragraph (j) above, the Company
shall have the right to defend or prosecute, at the sole cost, expense and risk
of the Company, such Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted diligently by the Company to a Final
Determination; PROVIDED, HOWEVER, that (i) the Company shall not, without
Employee's prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect Employee, (ii) any request from
the Company to Employee regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the taxable year of
Employee with respect to which the contested issues involved in, and amount of,
the Employee Claim relate is limited solely to such contested issues and amount,
and (iii) the Company's control of any contest or
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proceeding shall be limited to issues with respect to the Employee Claim and
Employee shall be entitled to settle or contest, in his sole and absolute
discretion, any other issue raised by the Internal Revenue Service or any
other taxing authority. So long as the Company is diligently defending or
prosecuting such Employee Claim, Employee shall provide or cause to be
provided to the Company any information reasonably requested by the Company
that relates to such Employee Claim, and shall otherwise cooperate with the
Company and its representatives in good faith in order to contest effectively
such Employee Claim. The Company shall keep Employee informed of all
developments and events relating to any such Employee Claim (including,
without limitation, providing to Employee copies of all written materials
pertaining to any such Employee Claim), and Employee or his authorized
representatives shall be entitled, at Employee's expense, to participate in
all conferences, meetings and proceedings relating to any such Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails to
deliver an Election Notice to Employee within the period provided in paragraph
(j)(i) above or, after delivery of such Election Notice, the Company fails to
comply with the provisions of paragraph (j)(ii) above and (iii) and (k) above,
then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof. If requested by
Employee, the Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with Employee and his authorized representatives in
order to contest effectively such Employee Claim. The Company may attend, but
not participate in or control, any defense, prosecution, settlement or
compromise of any Employee Claim controlled by Employee pursuant to this
paragraph (m) and shall bear its own
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costs and expenses with respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee shall, from time to
time, be entitled to current payment, on a fully grossed-up after tax basis,
from the Company with respect to costs and expenses incurred by Employee in
connection with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or prosecuted
to a Final Determination pursuant to the terms of this paragraph (n), the
Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final Determination"
shall mean (i) a decision, judgment, decree or other order by a court or
other tribunal with appropriate jurisdiction, which has become final and
non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not
limited to, a closing agreement under Section 7121 of the Code; (iii) any
disallowance of a claim for refund or credit in respect to an overpayment of
tax unless a suit is filed on a timely basis; or (iv) any final disposition
by reason of the expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and "taxes" mean
any and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties, additions
to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or
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more of the voting securities of an entity or other person or possessing the
power to direct or cause the direction of the management and policies of such
entity or other person, whether through the ownership of voting securities,
by contract or otherwise.
(r) The Company shall defend, hold harmless, and indemnify Employee on a
fully grossed-up after tax basis from and against any and all costs and expenses
(including reasonable attorneys', accountants' and experts' fees and expenses)
incurred by Employee from time to time as a result of any contest (regardless of
the outcome) by the Company or others contesting the validity or enforcement of,
or liability under, any term or provision of this Agreement, plus in each case
interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of
the Code.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions of
this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 NONDISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information, proprietary data or trade secrets of the Company (or any of its
subsidiaries), including but not limited to customer, business planning or
business strategy information, except as required by applicable law or legal
process; provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries). All documents which Employee prepared
or which may have been provided or made available to Employee in the course of
work for the Company shall be deemed the exclusive property of the Company and
shall remain in the Company's possession. Upon the termination of Employee's
employment with the Company, regardless of the reason for such termination,
Employee shall promptly deliver to the Company all materials of a confidential
nature relating to the business of the Company (or any of its subsidiaries)
which are within Employee's possession or control.
<PAGE>
Page 14
5.2 NONCOMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. For this reason
and in consideration of the benefits of this Agreement, specifically including
but not limited to applicable termination pay provisions, as well as
confidential/proprietary/trade secret information provided to Employee, Employee
hereby agrees that, during the term of this Agreement and for a period of
eighteen months thereafter, he shall not (except in the course of his employment
under this Agreement and in furtherance of the business of the Company (or any
of its subsidiaries)) (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business Segment")
that is directly competitive with any significant business of the Company in one
of its major commercial or geographic markets or (ii) hold an interest (except
as a holder of less than 5% interest in a publicly traded firm or mutual funds,
or as a minority stockholder or unitholder in a form not publicly traded) in a
company, partnership or firm with a Business Segment that is directly
competitive, without the prior written consent of the Company.
5.3 VALIDITY OF NONCOMPETITION. The foregoing provisions of Section 5.2
shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NONCOMPETITION COVENANTS INDEPENDENT. The covenants of the Employee
contained in Section 5.2 will be construed as independent of any other provision
in this Agreement; and the existence of any claim or cause of action by the
Employee against the Company will not constitute a defense to the enforcement by
the Company of said covenants. The Employee understands that the covenants
contained in Section 5.2 are essential elements of the transaction contemplated
by this Agreement and, but for the agreement of the Employee to Section 5.2, the
Company would not have agreed to enter into such transaction. The Employee has
been advised to consult with counsel in order to be informed in all respects
concerning the reasonableness and propriety of Section 5.2 and its provisions
with specific regard to the nature of the business conducted by the Company and
the Employee acknowledges that Section 5.2 and its provisions are reasonable in
all respects.
5.5 COOPERATION. In the event of termination, and regardless of the
reason for such termination, Employee agrees to cooperate with the Company and
its representatives by responding to questions, attending meetings, depositions,
administrative proceedings and court hearings, executing documents and
cooperating with the Company and its legal counsel with respect to issues,
claims, litigation or administrative proceedings of which Employee has personal
or corporate knowledge. Employee further agrees to maintain in strict
confidence any information or knowledge Employee has regarding current or future
claims, litigation or administrative proceedings involving the Company (or any
of its subsidiaries). Employee agrees that any communication with a party
adverse to the Company, or with a representative,
<PAGE>
Page 15
agent or counsel for such adverse party, relating to any claim, litigation or
administrative proceeding, shall be solely and exclusively through counsel
for the Company.
5.6 REMEDIES. In the event of a breach or threatened breach by the
Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall
be entitled to a temporary restraining order and an injunctive restraining the
Employee from the commission of such breach. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with issues
of nondisclosure, noncompetition and cooperation, with respect to which the
Company reserves the right to petition a court directly for injunction or other
relief, any controversy of any nature whatsoever, including but not limited to
tort claims or contract disputes, between the parties to this Agreement or
between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. Sections 1-15, as amended.
Each of the parties to this Agreement shall appoint one person as an arbitrator
to hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other agreements between the
parties which may have related to the subject matter contained in this
Agreement.
<PAGE>
Page 16
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or waiver
of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under it,
and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that he
is free to enter in to this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that it is
free to enter into this Agreement and to perform each of the terms and covenants
of it. Company represents and warrants that it is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement and
that its execution and performance of this Agreement is not a violation or
breach of any other agreements between Company and any other person or entity.
The Company represents and warrants that this Agreement is a legal, valid and
binding agreement of the Company, enforceable in accordance with its terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to
<PAGE>
Page 17
enforce or interpret the terms of this Agreement or any obligation owing
thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such
other relief which a court of competent jurisdiction may deem appropriate.
7.10 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal delivery,
overnight delivery, or first class mail, certified or registered with return
receipt requested, with postage or delivery charges prepaid, and shall be deemed
to have been duly given when delivered personally, upon actual receipt, and on
the next business day when sent via overnight delivery, or three days after
mailing first class, certified or registered with return receipt requested, to
the respective persons named below:
If to the Company: Corporate Secretary
U. S. Long Distance Corp.
9311 San Pedro
San Antonio, Texas 78216
If to Billing: Corporate Secretary
Billing Information Concepts Corp.
9311 San Pedro
San Antonio, Texas 78216
If to the Employee: W. Audie Long
9311 San Pedro
San Antonio, Texas 78216
<PAGE>
Page 18
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year indicated above.
COMPANY: U. S. LONG DISTANCE CORP.
By /S/ LARRY M. JAMES
----------------------------------
Title President & COO
BILLING: BILLING INFORMATION CONCEPTS CORP.
By /S/ ALAN W. SALTZMAN
----------------------------------
Title President & COO
EMPLOYEE: /S/ AUDIE LONG
------------------------------------
W. Audie Long
<PAGE>
Page 19
AGREEMENT REGARDING VESTING AND
ADJUSTMENT OF STOCK OPTIONS
This Agreement is entered into on June 25, 1996, between W. Audie Long
("Employee"), U.S. Long Distance Corp., a Delaware corporation (the "Company"),
and Billing Information Concepts Corp., a Delaware corporation ("Billing"), but
effective as of the date of distribution of the common stock of Billing to
holders of the Company's common stock (the "Distribution Date"). Since the
effectiveness of this Agreement is expressly contingent on the spinoff of
Billing through its distribution to the Company's stockholders, if such
condition precedent does not occur as anticipated by the parties hereto, this
Agreement will be void AB INITIO, and the prior agreement regarding vesting of
stock options entered into between the parties will remain in full force and
effect.
WHEREAS, Employee has been granted and may hereafter be granted options
under the Company's 1990 Employee Stock Option Plan (as amended from time to
time, the "Option Plan") to acquire shares of common stock, $.01 par value, of
the Company; and
WHEREAS, Billing and Employee have entered into an Amended and Restated
Employment Agreement on June 25, 1996 to be effective as of the Distribution
Date (the "Employment Agreement"); and
WHEREAS, as contemplated in the Employment Agreement, the parties desire
that (i) options granted to Employee under the Option Plan ("Options") become
fully exercisable by Employee upon the Distribution Date, (ii) Options granted
prior to the Distribution Date be adjusted in exercise price and/or number, as
may be appropriately determined by the Company in good faith, to prevent
diminution in value of the Options granted to Employee prior to the Distribution
Date as a result of the spinoff of Billing, taking into consideration options
granted to Employee by a stock option plan to be established by Billing (the
"Billing Option Plan"), and (iii) that all previously granted Options be
exercisable until two years following the Distribution Date, notwithstanding any
employment requirement otherwise required under the Option Plan; and
WHEREAS, in consideration of Employee's efforts in increasing the value of
Billing prior to the Distribution Date, and in order to prevent diminution in
value of Options previously granted to Employee, Billing desires to establish
the Billing Option Plan and to grant Employee options to purchase shares of
Billing's common stock ("Billing Options") under terms and conditions
substantially identical to Options previously granted to Employee by the Company
(without an employment requirement limiting the exercise period, unless and
until Employee becomes an employee of Billing), ratably adjusted in good faith
by Billing to ensure that following the Distribution Date Employee will have
Options and Billing Options which, taken in aggregate, provide that same
economic benefit to Employee as Options previously granted to Employee prior to
the Distribution Date;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
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Page 20
which are hereby acknowledged, notwithstanding any provisions to the contrary
contained in resolutions granting or agreements governing Options heretofore
granted to Employee under the Option Plan, conditioned expressly upon the
distribution of the common stock of Billing to holders of the Company's common
stock as of the Distribution Date, then, in any such event, immediately upon the
Distribution Date, (i) all Options which have not lapsed shall become fully
vested and exercisable (if not already vested and exercisable) by Employee for
the remainder of the exercise period established under the Option Plan, or two
years following the Distribution Date, whichever occurs later, (ii) the Company
shall, in good faith, cause the Options to be adjusted in exercise price or
number so as to prevent any diminution in the value of the Options as a result
of the spinoff of Billing, taking into consideration options granted to Employee
by a stock option plan to be established by Billing; and (iii) Billing shall
cause to be granted to Employee Billing Options determined by Billing, in good
faith, in such amount and at such exercise prices when, taken in aggregate with
Options previously granted to Employee and as subsequently adjusted as provided
herein, prevent any diminution in value of the Options previously granted to
Employee prior to the Distribution Date as a result of the spinoff of Billing,
such Billing Options to be exercisable at such time as originally provided for
under the Option Plan, without regard to any employment requirement of the
Employee at Billing (unless Employee transfers employment to Billing, in which
case the employment requirement for exercise shall be applicable from that date
forward).
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date indicated above.
COMPANY: U.S. LONG DISTANCE CORP.
By: /S/ LARRY M. JAMES
---------------------------------
Name: Larry M. James
BILLING: BILLING INFORMATION CONCEPTS CORP.
By: /S/ PARRIS H. HOLMES, JR.
---------------------------------
Name: Parris H. Holmes, Jr.
EMPLOYEE: /S/ AUDIE LONG
------------------------------------
W. AUDIE LONG
<PAGE>
Page 1
U.S. LONG DISTANCE CORP.
1990 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1990 Stock Option Plan (hereinafter
called the "Plan") is to further the success of U.S. Long Distance Corp., a
Delaware corporation (hereinafter called the "Company"), and certain of its
affiliates by making available Common Stock of the Company for purchase by
certain officers and employees of the Company and its affiliates, and thus to
provide an additional incentive to such individuals to continue in the
service of the Company or its affiliates and to give them a greater interest
as shareholders in the success of the Company. Subject to compliance with
the provisions of the Plan and the Internal Revenue Code of 1986, as amended,
Incentive Stock Options are authorized by Section 422A of the Code and stock
options which do not qualify under Section 422A of the Code are authorized
and may be granted under the Plan.
2. DEFINITIONS. As used in this Plan the following terms shall have the
meanings indicated as follows:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means the Committee administering the Plan described
in Paragraph 3 hereof.
(d) "Common Stock" means the Company's Common Stock, par value $.01
per share.
(e) "Date of Grant" means the date on which an option is granted under
a written option agreement executed by the Company and a Participant pursuant
to the Plan.
(f) "Disinterested Person" means a "disinterested person" in Rule 16b-3
promulgated under the Exchange Act or any successor provision.
(g) "Effective Date" means the effective date of this Plan specified in
Paragraph 13 hereof.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as it may
be amended from time to time.
(i) "Incentive Stock Option" means an option qualifying under Section
422A of the Code.
<PAGE>
Page 2
(j) "Parent" means a parent corporation of the Company as defined in
Section 425(e) of the Code.
(k) "Participants" means the employees and officers of the Company, its
Subsidiaries and its Parents and those directors of the Company who are also
employees of the Company or its subsidiaries.
(l) "Subsidiary" means a subsidiary corporation of the Company as
defined in Section 425(f) of the Code.
3. ADMINISTRATION OF THE PLAN. The Board of Directors of the Company
shall appoint a committee (the "Committee") comprised of two directors to
administer the Plan. Only directors who are Disinterested Persons shall be
eligible to serve as members of the Committee. The Committee shall report
all action taken by it to the Board, which shall review and ratify or approve
those actions that are by law required to be so reviewed and ratified or
approved by the Board. The Committee shall have full and final authority in
its discretion, subject to the provisions of the Plan, to determine the
Participants to whom, and the time or times at which, options shall be
granted and the number of shares and purchase price of Common Stock covered
by each option; to construe and interpret the Plan and any agreements made
pursuant to the Plan; to determine the terms and provisions (which need not
be identical or consistent with respect to each Participant) of the
respective option agreements and any agreement ancillary thereto including,
but without limitation, terms covering the payment of the option price; and
to make all other determinations and to take all other actions deemed
necessary or advisable for the proper administration of the Plan. All such
actions and determinations shall be conclusively binding for all purposes and
upon all persons.
4. OPTIONS AUTHORIZED. The options granted under this Plan may be
Incentive Stock Options or stock options that do not qualify as Incentive
Stock Options (sometimes referred to herein as "nonqualified options" or
"nonqualified stock options"). The Committee shall have the full power and
authority to determine which options shall be nonqualified stock options and
which shall be Incentive Stock Options; to grant only Incentive Stock Options
or, alternatively, only nonqualified stock options; and to, in its sole
discretion, grant to the holder of an outstanding option, in exchange for the
surrender and cancellation of such option, a new option having a purchase
price lower than that provided in the option so surrendered and cancelled and
containing such other terms and conditions as the Committee may prescribe in
accordance with the provisions of the Plan. Under no circumstances may
nonqualified stock options be granted where the exercise of such nonqualified
stock options may affect the exercise of Incentive Stock Options granted
pursuant to the Plan. No options may be granted under the Plan prior to the
Effective Date. In addition to any other limitations set forth herein, (1)
no Participant shall receive any grant of options, whether Incentive Stock
Options or nonqualified stock options, exercisable for more than one hundred
fifty thousand (150,000) shares of Common Stock during any one fiscal year of
the Company and (2) the aggregate fair market value (determined in accordance
with Paragraph 7(a) of the Plan as of the time the option is granted) of the
stock with respect
<PAGE>
Page 3
to which Incentive Stock Options are exercisable for the first time by a
Participant in any calendar year (under all plans of the Company and of any
Parent or Subsidiary) shall not exceed $100,000.
5. COMMON STOCK SUBJECT TO OPTIONS. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of options
shall not exceed Three Million, Nine Hundred Sixty-Six Thousand, Six Hundred
Sixty-Six (3,966,666), subject to adjustment under the provisions of
Paragraph 8. The shares of Common Stock to be issued upon the exercise of
options may be authorized but unissued shares, or shares issued and
reacquired by the Company. In the event any option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full,
the shares subject to such option shall again be available for options to be
granted under the Plan, except that shares for which relinquished options (or
portions thereof) are exercisable shall not again be available for options
under the Plan.
6. PARTICIPANTS. Except as hereinafter provided, options may be granted
under the Plan to any Participant. In determining the Participants to whom
options shall be granted and the number of shares to be covered by such
option, the Committee may take into account the nature of the services
rendered by the respective Participants, their present and potential
contributions to the Company's success and such other factors as the
Committee in its discretion shall deem relevant. A participant who has been
granted an option under the Plan may be granted an additional option or
options under the Plan, in the Committee's discretion.
7. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the
Plan shall be evidenced by a written agreement executed by the Company and
the applicable Participant and shall contain such terms and be in such form
as the Committee may from time to time approve, subject to the following
limitations and conditions:
(a) OPTION PRICE. The option price per share with respect to each
option shall be determined by the Committee, but shall in no instance be
less than the par value of the shares subject to the option. In addition,
the option price per share with respect to Incentive Stock Options granted
hereunder shall in no instance be less than the fair market value of the
shares subject to the option as determined by the Committee. For the
purposes of this Paragraph 7(a), fair market value shall be, where
applicable, the closing price of the Common Stock on the Date of Grant as
reported on the Vancouver Stock Exchange or other national securities
exchange on which the Common Stock may be traded. If the stock is not
listed on a national securities exchange but is publicly traded on any
securities exchange or in the over the counter market, the Committee shall
determine the fair market value based on the closing prices or the bid and
ask prices on any such exchange or market. If the Common Stock was not
traded on the Date of Grant, the nearest preceding date on which there was
a trade shall be substituted. Notwithstanding the foregoing, however, fair
market value shall be determined consistent with Code Section 422A(b)(4) or
<PAGE>
Page 4
any successor provisions. The Committee may permit the option purchase
price to be payable by transfer to the Company of Common Stock owned by the
option holder with a fair market value at the time of the exercise equal to
the option purchase price.
(b) PERIOD OF OPTION. The expiration date of each option shall be
fixed by the Committee but, notwithstanding any provision of the Plan to
the contrary, such expiration date shall not be more than ten (10) years
from the Date of Grant.
(c) VESTING OF SHAREHOLDER RIGHTS. Neither the optionee nor his
successor in interest shall have any of the rights of a shareholder of the
Company until the shares relating to the option hereunder are issued by the
Company and are properly delivered to such optionee, or successor.
(d) EXERCISE OF OPTION. Each option shall be exercisable from time
to time (but not less than six (6) months after the Date of Grant) over
such period and upon such terms and conditions as the Committee shall
determine, but not at any time as to less than twenty-five (25) shares
unless the remaining shares which have become so purchasable are less than
twenty-five (25) shares. After the death of the optionee, an option may be
exercised as provided in Paragraph 15 hereof.
(e) NONTRANSFERABILITY OF OPTION. No option shall be transferable or
assignable by an optionee, other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order and each
option shall be exercisable, during the optionee's lifetime, only by him or
her or, during periods of legal disability, by his or her legal
representative. No option shall be subject to execution, attachment, or
similar process.
(f) DISQUALIFYING DISPOSITION. The option agreement evidencing any
Incentive Stock Options granted under this Plan shall provide that if the
optionee makes a disposition, within the meaning of Section 425(c) of the
Code and regulations promulgated thereunder, of any share or shares of
Common Stock issued to him or her pursuant to exercise of the option within
the two-year period commencing on the day after the Date of Grant of such
option or within the one-year period commencing on the day after the date
of issuance of the share or shares to him or her pursuant to the exercise
of such option, he or she shall, within ten (10) days of such disposition
date, notify the Company of the sales price or other value ascribed to or
used to measure the disposition of the share or shares thereof and
immediately deliver to the Company any amount of federal income tax
withholding required by law.
(g) LIMITATION ON GRANTS TO CERTAIN SHAREHOLDERS. An incentive Stock
Option may be granted to a Participant only if such Participant, at the
time the option is granted, does not own, after application of the
attribution rules of Code
<PAGE>
Page 5
Section 425, stock possessing more than 10% of the total combined voting
power of all classes of Common Stock of the Company or of its Parent or
Subsidiary. The preceding restrictions shall not apply if at the time
the option is granted the option price is at least 110% of the fair
market value (as defined in Paragraph 7(a) above) of the Common Stock
subject to the option and such option by its terms is not exercisable
after the expiration of five (5) years from the Date of Grant.
(h) CONSISTENCY WITH CODE. Notwithstanding any other provision in
this Plan to the contrary, the provisions of all agreements granting
incentive stock options pursuant to the Plan shall not violate the
requirements of the Code applicable to the Incentive Stock Options
authorized hereunder.
8. ADJUSTMENTS. The Committee, in its discretion, may make such
adjustments in the option price and the number of shares covered by
outstanding options that are required to prevent any dilution or enlargement
of the rights of the holders of such options that would otherwise result from
any reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, issuance of rights or any other
change in the capital structure of the Company. The Committee, in its
discretion, may also make such adjustments in the aggregate number of shares
that may be the subject of options which are appropriate to reflect any
transaction or event described in the preceding sentence.
9. RESTRICTION OF ISSUING SHARES. The exercise of each option shall be
subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any
shares otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the consent or approval of any
regulatory body, is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in any such event, such exercise shall not be effective unless
such withholding, listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
10. USE OF PROCEEDS. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of options granted under the Plan
shall be added to the Company's general funds and used for general corporate
purposes.
11. AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN. The Board may at any
time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board may deem advisable in order that the options granted
thereunder may conform to any changes in the law or in any other respect that
the Board may deem to be in the best interests of the Company; provided,
however, that without approval by the shareholders of the Company voting the
proper percentage of its voting power, no such amendment shall make any
change in the Plan for which shareholder approval is required of the Company
in order to comply with (i) Rule 16b-3, as amended,
<PAGE>
Page 6
promulgated under the Exchange Act, (ii) the Code or regulatory provisions
dealing with Incentive Stock Options, (iii) any rules for listed companies
promulgated by any national stock exchange on which the Company's stock is
traded or (iv) any other applicable rule or law. Unless sooner terminated
hereunder, the Plan shall terminate ten (10) years after the Effective Date.
No option may be granted during any suspension or after the termination of
the Plan. Except as provided in Paragraph 12, no amendment, suspension, or
termination of the Plan shall, without an optionee's consent, impair or
negate any of the rights or obligations under any option theretofore granted
to such optionee under the Plan.
12. TAX WITHHOLDING. The Committee may, in its sole discretion, (a)
require an optionee to remit to the Company a cash amount sufficient to
satisfy, in whole or in part, any federal, state or local withholding tax
requirements prior to the delivery of any certificate for shares pursuant to
the exercise of an option hereunder; or (b) satisfy such withholding
requirements through another lawful method.
13. EFFECTIVE DATE OF PLAN. This Plan shall become effective on the date
(the "Effective Date") of the last to occur of (i) the adoption of the Plan
by the Board and (ii) the approval, within twelve (12) months of such
adoption, by a majority (or such other proportion as may be required by state
law) of the outstanding voting shares of the Company, voted either in person
or by proxy, at a duly held stockholders meeting.
14. TERMINATION OF EMPLOYMENT. In the event of the retirement (with the
written consent of the Company) or other termination of the employment of an
employee to whom an option has been granted under the Plan, other than (a) a
termination that is either (i) for cause or (ii) voluntary on the part of the
employee and without the written consent of the Company, or (b) a termination
by reason of death, the employee may (unless otherwise provided in his option
agreement) exercise his option at any time within three (3) months after such
retirement or other termination of employment (or within one (1) year after
termination of employment due to disability within the meaning of Code
Section 422A(c)(7)), or within such other time as the Committee shall
authorize, but in no event after ten (10) years from the date of granting
thereof (or such lesser period as may be specified in the stock option
agreement), but only to the extent of the number of shares for which his
options were exercisable by him at the date of the termination of his
employment. In the event of the termination of the employment of an employee
to whom an option has been granted under the Plan that is either (i) for
cause or (ii) voluntary on the part of the employee and without the written
consent of the Company, any option held by him under the Plan, to the extent
not previously exercised, shall forthwith terminate on the date of such
termination of employment. Options granted under the Plan shall not be
affected by any change of employment so long as the holder continues to be an
employee of the Company, a Subsidiary or a Parent. The option agreement may
contain such provisions as the Committee shall approve with respect to the
effect of approved leaves of absence. Nothing in the Plan or in any option
granted pursuant to the Plan shall confer on any individual any right to
continue in the employ of the Company or any of its Subsidiaries or Parents
or interfere in any way with the right of the Company or any of its
<PAGE>
Page 7
Subsidiaries or Parents to terminate his employment at any time.
15. DEATH OF HOLDER OF OPTION. In the event an employee to whom an
option has been granted under the Plan dies during, or within three (3)
months after the termination of, his employment by the Company or a
Subsidiary or Parent, such option (unless it shall have been previously
terminated pursuant to the provisions of the Plan or unless otherwise
provided in his option agreement) may be exercised (to the extent of the
entire number of shares covered by the option whether or not purchasable by
the employee at the date of his death) by the executor or administrator of
the optionee's estate or by the person or persons to whom the optionee shall
have transferred such option by will or by the laws of descent and
distribution, at any time within a period of one (1) year after his death,
but not after the exercise termination date set forth in the relevant stock
option agreement.
16. LOANS TO ASSIST IN EXERCISE OF OPTIONS. If approved by the Board,
the Company or any Parent or Subsidiary may lend money or guarantee loans by
third parties to an individual to finance the exercise of any option granted
under the Plan to carry Common Stock thereby acquired. No such loans to
finance the exercise of an Incentive Stock Option shall have an interest rate
or other terms that would cause any part of the principal amount to be
characterized as interest for purposes of the Code.
17. RULE 16b-3 PLAN. This Plan is intended and has been drafted to
comply in all respects with Rule 16b-3, as amended, under the Exchange Act.
If any provision of this Plan does not comply with Rule 16b-3, as amended,
this Plan shall be automatically amended to comply with Rule 16b-3, as
amended.
<PAGE>
LOAN AND SECURITY AGREEMENT Number: 2882
- --------------------------------------------------------------------------------
Name of Debtor : U. S. Long Distance Corp.
Address : 9311 San Pedro
San Antonio, Texas 78216
Name of Secured Party : Charter Financial, Inc.
Address : 153 E. 53rd Street, 55th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
Quantity DESCRIPTION OF PERSONAL PROPERTY (Show: Manufacturer, Model No.,
Serial No., Other Identification)
- --------------------------------------------------------------------------------
Various equipment as more fully described on the attached Schedule "A"
annexed hereto and made a part hereof.
- --------------------------------------------------------------------------------
Location of Equipments: SEE ATTACHED SCHEDULE "A" FOR EQUIPMENT LOCATIONS
- --------------------------------------------------------------------------------
SCHEDULE OF OBLIGATIONS
- --------------------------------------------------------------------------------
Loan Amount ("Unpaid Cash Price Balance") $2,001,977.78
Documentation Fees $ 2,000.00
Interest ("Finance Charge") $ 531,642.22
Time Balance $2,533,620.00
Term of Loan 60 MONTHS
Number of Payments Sixty (60)
Payments Payable MONTHLY
Amount of Each Payment: $ 42,227.00
Debtor agrees to pay the Time Balance to Secured Party in sixty (60)
installments commencing on September 1, 1996 and continuing on the 1st day of
each month thereafter until and including August 1, 2001. The first installment
shall be in the amount of $42,227.00, the next fifty-eight (58) installments
shall each be in the amount of $42,227.00 and the last installment shall be in
the amount of $42,227.00.
- --------------------------------------------------------------------------------
ADDITIONAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Grant of Security Interest. Debtor hereby grants to Secured Party a
security interest in the personal property described above (hereinafter with all
renewals, substitutions and replacements and all parts, repairs, improvements,
additions and accessories incorporated therein or affixed thereto referred to as
the "Equipment"), together with any and all proceeds thereof and any and all
insurance policies and proceeds with respect thereto.
<PAGE>
2. Obligations Secured. The aforesaid security interest is granted by
Debtor as security for (a) the payment of the Time Balance (as set forth in the
Schedule of Obligations) and the payment and performance of all other
indebtedness and obligations now or hereafter owing by Debtor to Secured Party,
of any and every kind and description hereunder, and any and all renewals and
extensions of the foregoing, and all interest, fees, charges, expenses and
attorneys' fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the "Liabilities") and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description, howsoever arising or evidenced
(all of which indebtedness and obligations are hereinafter referred to as the
"Other Liabilities"). Subject to Paragraph 15, any nonpayment of any
installment or other amounts due hereunder shall result in the obligation on the
part of Debtor promptly to pay also an amount equal to five per cent (5%), (or
the maximum rate permitted by law, whichever is less) of the installment or
other amounts overdue.
3. Warranties. DEBTOR ACKNOWLEDGES THAT SECURED PARTY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR
PURPOSE. Secured Party shall not be liable to Debtor for any loss, damage or
expense of any kind or nature caused, directly or indirectly, by any Equipment
secured hereunder or the use or maintenance thereof or the failure of operation
thereof, or the repair, service or adjustment thereof, or by any delay or
failure to provide any such maintenance, repairs, service or adjustment, or by
any interruption of service or loss of use thereof or for any loss of business
howsoever caused. The Equipment shall be shipped directly to Debtor by the
supplier thereof and Debtor agrees to accept such delivery. No defect or
unfitness of the Equipment, nor any failure or delay on the part of the
manufacturer or the shipper of the Equipment to deliver the Equipment or any
part thereof to Debtor, shall relieve Debtor of the obligation to pay the Time
Balance or any other obligation under this Agreement. Secured Party shall have
no obligation under this Agreement in respect of the Equipment and shall have no
obligation to install, erect, test, adjust or service the Equipment. Secured
Party agrees, so long as there shall not have occurred or be continuing any
Event of Default hereunder or event which with lapse of time or notice, or both,
might become an Event of Default hereunder, that Secured Party will permit
Debtor to enforce in Debtor's own name at Debtor's sole expense any supplier's
or manufacturer's warranty or agreement in respect of the Equipment to the
extent that such warranty or agreement is assignable.
4. Assignment. This Agreement shall be assignable by Secured Party, and
by its assigns, without the consent of Debtor, but Debtor shall not be obligated
to any assignee except upon written notice of such assignment from Secured Party
or such assignee. The obligation of Debtor to pay and perform the Liabilities
to such assignee shall be absolute and unconditional and shall not be affected
by any circumstance whatsoever, and such payments shall be made without
interruption or abatement notwithstanding any event or circumstance whatsoever,
including, without limitation, the late delivery, non-delivery, destruction or
damage of or to the Equipment, the deprivation or limitation of the use of the
Equipment, the bankruptcy or insolvency of Secured Party or Debtor or any
disaffirmance of this Agreement by or on behalf of Debtor and notwithstanding
any defense, set-off, recoupment or counterclaim or any other right whatsoever,
whether by reason of breach of this Agreement or of any warranty in respect of
the Equipment or otherwise which Debtor may now or hereafter have against
Secured Party, and whether any such event shall be by reason of any act or
omission of Secured Party (including, without limitation, any negligence of
Secured Party) or otherwise; provided, however, that nothing herein contained
shall affect any right of Debtor to enforce against Secured Party any claim
which Debtor may have against Secured Party in any manner other than by
abatement, attachment or recoupment of,
<PAGE>
interference with, or set-off, counterclaim or defense against, the
aforementioned payments to be made to such assignee. Debtor's undertaking
herein to pay and perform the Liabilities to an assignee of Secured Party
shall constitute a direct, independent and unconditional obligation of Debtor
to said assignee. Said assignee shall have no obligations under this
Agreement or in respect of the Equipment and shall have no obligation to
install, erect, test, adjust or service the Equipment. Debtor also
acknowledges and agrees that any assignee of Secured Party's interest in this
Agreement shall have the right to exercise all rights, privileges and remedies
(either in its own name or in the name of Secured Party) which by the terms of
this Agreement are permitted to be exercised by Secured Party.
5. Damage to or Loss of the Equipment; Requisition. Debtor assumes and
shall bear the entire risk of loss or damage to the Equipment from any and every
cause, whatsoever. No loss or damage to the Equipment or any part thereof shall
affect any obligation of Debtor with respect to the Liabilities and this
Agreement, which shall continue in full force and effect. Debtor shall advise
Secured Party in writing promptly of any item of Equipment lost or damaged and
of the circumstances and extent of such damage. If the Equipment is totally
destroyed, irreparably damaged, lost, stolen or title thereto shall be
requisitioned or taken by any governmental authority under the power of eminent
domain or otherwise, Debtor shall, at the option of Secured Party, replace the
same with like equipment in good repair, condition and working order, or pay to
Secured Party all Liabilities due and to become due, less the net amount of the
recovery, if any, actually received by Secured Party from insurance or otherwise
for such destruction, damage, loss, theft, requisition or taking. Whenever the
Equipment is destroyed or damaged and, in the sole discretion of Secured Party,
such destruction or damage can be repaired, Debtor shall, at its expense,
promptly effect such repairs as Secured Party shall deem necessary for
compliance with clause (a) of paragraph 7 below. Any proceeds of insurance
received by Secured Party with respect to such reparable damage to the Equipment
shall, at the election of Secured Party, be applied either to the repair of the
Equipment by payment by Secured Party directly to the party completing the
repairs, or to the reimbursement of Debtor for the cost of such repairs;
provided, however, that Secured Party shall have no obligation to make such
payment or any part thereof until receipt of such evidence as Secured Party
shall deem satisfactory that such repairs have been completed and further
provided that Secured Party may apply such proceeds to the payment of any of the
Liabilities or the Other Liabilities due if at the time such proceeds are
received by Secured Party there shall have occurred and be continuing any Event
of Default hereunder or any event which with lapse of time or notice, or both,
would become an Event of Default. Debtor shall, when and as requested by
Secured Party, undertake, by litigation or otherwise, in Debtor's name, the
collection of any claim against any person for such destruction, damage, loss,
theft, requisition or taking, but Secured Party shall not be obligated to
undertake, by litigation or otherwise, the collection of any claim against any
person for such destruction, damage, loss, theft, requisition or taking.
6. Representations and Warranties of Debtor. Debtor represents and
warrants that: it has the right, power and authority to enter into and carry
out the terms and provisions of this Agreement; this Agreement constitutes a
valid obligation of the Debtor and is enforceable in accordance with its terms;
and entering into this Agreement and carrying out its terms and provisions will
not violate the terms or constitute a breach of any other agreement to which
Debtor is a party.
<PAGE>
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the Equipment
to be kept in good condition and use the Equipment only in the manner for which
it was designed and intended so as to subject it only to ordinary wear and tear
and cause to be made all needed and proper repairs, renewals and replacements
thereto; (b) maintain at all times property damage, fire, theft and
comprehensive insurance for the full replacement value of the Equipment, with
loss payable provisions in favor of Secured Party and any assignee of Secured
Party as the interests may appear, and maintain public liability insurance in
amounts satisfactory to Secured Party, naming Secured Party and any assignee of
Secured Party as insureds with all of said insurance and loss payable provisions
to be in form, substance and amount and written by companies approved by Secured
Party, and deliver the policies therefor, or duplicates thereof, to Secured
Party; (c) pay or reimburse Secured Party for any and all taxes, assessments and
other governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon) levied or based upon or
with respect to the Equipment, the Liabilities or this Agreement or upon the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment, or upon any
receipts or earnings arising therefrom, or for titling or registering the
Equipment, or upon the income or other proceeds received with respect to the
Equipment or this Agreement provided, however, that Debtor shall pay taxes on or
measured by the net income of Secured Party and franchise taxes of Secured Party
only to the extent that such net income taxes or franchise taxes are levied or
assessed in lieu of any other taxes, assessments or other governmental charges
hereinabove described; (d) pay all shipping and delivery charges and other
expenses incurred in connection with the Equipment and pay all lawful claims,
whether for labor, materials, supplies, rents or services, which might or could
if unpaid become a lien on the Equipment; (e) comply with all governmental laws,
regulations, requirements and rules, all instructions and warranty requirements
of Secured Party or the manufacturer of the Equipment, and with the conditions
and requirements of all policies of insurance with respect to the Equipment and
this Agreement; (f) mark and identify the Equipment with all information and in
such manner as Secured Party may request from time to time and replace promptly
any such marking or identification which are removed, defaced or destroyed; (g)
at any and all times during business hours, grant to Secured Party free access
to enter upon the premises wherein the Equipment shall be located and permit
Secured Party to inspect the Equipment; (h) reimburse Secured Party for all
charges, costs and expenses (including attorneys' fees) incurred by Secured
Party in defending or protecting its interests in the Equipment, in the
attempted enforcement or enforcement of the provisions of this Agreement or in
the attempted collection or collection of any of the Liabilities; (i) indemnify
and hold any assignee of Secured Party, and Secured Party, harmless from and
against all claims, losses, liabilities, damages, judgments, suits, and all
legal proceedings, and any and all costs and expenses in connection therewith
(including attorneys' fees) arising out of or in any manner connected with the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment or with this
Agreement, including, without limitation, claims for injury to or death of
persons and for damage to property, and give Secured Party prompt notice of any
such claim or liability, provided, however, that the foregoing shall not affect
or impair any warranty made by Secured Party; and (j) maintain a system of
accounts established and administered in accordance with generally accepted
accounting principles and practices consistently applied, and, within thirty
(30) days after the end of each fiscal quarter, deliver to Secured Party a
balance sheet as at the end of such quarter and statement of operations for such
quarter, and, within one hundred and twenty (120) days after the end of each
fiscal year, deliver to Secured Party a balance sheet as at the end of such year
and statement of operations for such year, in each case prepared in accordance
with generally accepted accounting principles and practices consistently applied
and certified by Debtor's chief financial officer as fairly presenting the
financial position and results of operation of Debtor, and, in the case of year
end financial statements, certified by an independent accounting firm acceptable
to Secured Party.
<PAGE>
8. Negative Covenants of Debtor. Debtor shall not (a) create, incur,
assume or suffer to exist any mortgage, lien, pledge or other encumbrance or
attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor's interests hereunder; (b) make any
changes or alterations in or to the Equipment except as necessary for compliance
with clause (a) of paragraph 7 above; (c) permit the name of any person,
association or corporation other than Secured Party to be placed on the
Equipment as a designation that might be interpreted as a claim of interest in
the Equipment; (d) part with possession or control of or suffer or allow to pass
out of its possession or control any of the Equipment or change the location of
the Equipment or any part thereof from the location shown above; (e) assign or
in any way dispose of all or any part of its rights or obligations under this
Agreement or enter into any lease of all or any part of the Equipment; or (f)
change its name or address from that set forth above unless it shall have given
Secured Party no less than thirty (30) days prior written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part thereof
may now be, or hereafter become, in any manner affixed or attached to, or
imbedded in, or permanently resting upon, real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor will
obtain and deliver to Secured Party waivers of interest or liens in recordable
form, satisfactory to Secured Party, from all persons claiming any interest in
the real property on which such item of Equipment is installed or located.
10. Events of Default and Remedies. If any one or more of the following
events ("Events of Default") shall occur:
(a) Debtor shall fail to make any payment in respect of the Liabilities
when due; or
(b) any certification, statement, representation, warranty or financial
report or statement heretofore or hereafter furnished by or on behalf of Debtor
or any guarantor of any or all of the Liabilities proves to have been false in
any material respect at the time as of which the facts therein set forth were
stated or certified or has omitted any material contingent or unliquidated
liability or claim against Debtor or any such guarantor; or
(c) Debtor or any guarantor of any or all of the Liabilities shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by it hereunder or under any guaranty agreement; or
(d) Debtor or any guarantor of any or all of the Liabilities shall be in
breach of or in default in the payment and performance of any obligation
relating to any of the Other Liabilities; or
(e) Debtor or any guarantor of any or all of the Liabilities shall cease
doing business as a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as they become due,
file a petition commencing a voluntary case under any chapter of Title 11 of the
United States Code entitled "Bankruptcy" (the "Bankruptcy Code"), be adjudicated
an insolvent, file a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law, rule or regulation or file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, consent to the filing of such a petition or acquiescence in
the
<PAGE>
appointment of a trustee, receiver or liquidator of it or of all or any part
of its assets or properties, or take any action looking to its dissolution or
liquidation; or
(f) an order for relief against Debtor or any guarantor of any or all of
the Liabilities shall have been entered under any chapter of the Bankruptcy Code
or a decree or order by a court having jurisdiction in the premises shall have
been entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Debtor or any guarantor of any or all of the Liabilities under any present or
future statute, law, rule or regulation, or within thirty (30) days after the
appointment without Debtor's or such guarantor's consent or acquiescence of any
trustee, receiver or liquidator of it or such guarantor or of all or any part of
its or such guarantor's assets and properties, such appointment shall not be
vacated, or an order, judgment or decree shall be entered against Debtor or such
guarantor by a court of competent jurisdiction and shall continue in effect for
any period of ten (10) consecutive days without a stay of execution, or any
execution or writ or process shall be issued under any action or proceeding
against Debtor whereby the Equipment or its use may be taken or restrained; or
(g) Debtor or any guarantor of any or all of the Liabilities shall suffer
an adverse material change in its financial condition as compared to such
condition as at the date hereof, and as a result of such change in condition
Secured Party deems itself or any of the Equipment to be insecure;
then and in any such event, Secured Party may, at the sole discretion of Secured
Party, without notice or demand and without limitation of any rights and
remedies of Secured Party under the Uniform Commercial Code, take any one or
more of the following steps:
(1) Declare all of the Time Balance to be due and payable, whereupon the
same shall forthwith mature and become due and payable as provided for in
paragraph 15 below, provided, however, upon the occurrence of any of the events
specified in subparagraphs (e) and (f) above, all sums as specified in this
clause (1) shall immediately be due and payable without notice to Debtor (the
date on which Secured Party declares all of the Time Balance to be due and
payable is hereinafter referred to as the "Declaration Date");
(2) proceed to protect and enforce its rights by suit in equity, action at
law or other appropriate proceedings, whether for the specific performance of
any agreement contained herein, or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any other right, power or
remedy granted hereby or by law, equity or otherwise; and
(3) at any time and from time to time, with or without judicial process
and the aid or assistance of others, enter upon any premises wherein any of the
Equipment may be located and, without resistance or interference by Debtor, take
possession of the Equipment on any such premises, and require Debtor to assemble
and make available to Secured Party at the expense of Debtor any part or all of
the Equipment at any place or time designated by Secured Party; and remove any
part or all of the Equipment from any premises wherein the same may be located
for the purpose of effecting the sale or other disposition thereof; and sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
or all of the Equipment in its then condition or following any commercially
reasonable preparation or processing, at public or private sale or proceedings,
by one or more contracts, in one or more parcels, at the same or different
times, with or without having the Equipment at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s) and
time(s) and to such persons, firms or corporations as Secured Party shall deem
best, all without demand for
<PAGE>
performance or any notice or advertisement whatsoever, except that Debtor
shall be given five (5) business days' written notice of the place and time of
any public sale or of the time after which any private sale or other intended
disposition is to be made, which notice Debtor hereby agrees shall be deemed
reasonable notice thereof. If any of the Equipment is sold by Secured Party
upon credit or for future delivery, Secured Party shall not be liable for the
failure of the purchaser to pay for same and in such event Secured Party may
resell such Equipment. Secured Party may buy any part or all of the Equipment
at any public sale and if any part or all of the Equipment is of a type
customarily sold in a recognized market or which is the subject of widely
distributed standard price quotations Secured Party may buy at private sale
and may make payment therefor by application of all or a part of the
Liabilities and of all or a part of any Other Liabilities. Any personalty in
or attached to the Equipment when repossessed may be held by Secured Party
without any liability arising with respect thereto, and any and all claims in
connection with such personalty shall be deemed to have been waived unless
notice of such claim is made by certified or registered mail upon Secured
Party within three business days after repossession.
Secured Party shall apply the cash proceeds from any sale or other disposition
of the Equipment first, to the reasonable expenses of re-taking, holding,
preparing for sale, selling, leasing and the like, and to reasonable attorneys'
fees and other expenses which are to be paid or reimbursed to Secured Party
pursuant hereto, and second, to all outstanding portions of the Liabilities and
to any Other Liabilities in such order as Secured Party may elect, and third,
any surplus to Debtor, subject to any duty of Secured Party imposed by law to
the holder of any subordinate security interest in the Equipment known to
Secured Party; provided however, that Debtor shall remain liable with respect to
unpaid portions of the Liabilities owing by it and will pay Secured Party on
demand any deficiency remaining with interest as provided for in paragraph 15
below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails to
perform or comply with any of its agreements contained herein Secured Party may
perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in paragraph
15 below, shall be deemed a part of the Liabilities and shall be payable by
Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party for the
purpose of protecting the interests of Secured Party in the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any assignee
of Secured Party are each authorized to the extent permitted by applicable law
to file one or more Uniform Commercial Code financing statements disclosing any
security interest in the Equipment without the signature of Debtor or signed by
Secured Party or any assignee of Secured Party as attorney-in-fact for Debtor.
Debtor will pay all costs of filing any financing, continuation or termination
statements with respect to this Agreement, including, without limitation, any
documentary stamp taxes relating thereto. Debtor will do whatever may be
necessary to have a statement of the interest of Secured Party and of any
assignee of Secured Party in the Equipment noted on any certificate of title
relating to the Equipment and will deposit said certificate with Secured Party
or such assignee. Debtor shall execute and deliver to Secured Party, upon
request, such other instruments and assurances as Secured Party deems necessary
or advisable for the implementation, effectuation, confirmation or perfection of
this Agreement and any rights of Secured Party hereunder.
<PAGE>
13. Non-Waiver; Etc. No course of dealing by Secured Party or Debtor or
any delay or omission on the part of Secured Party in exercising any rights
hereunder shall operate as a waiver of any rights of Secured Party. No waiver
or consent shall be binding upon Secured Party unless it is in writing and
signed by Secured Party. A waiver on any one occasion shall not be construed as
a bar to or a waiver of any right and/or remedy on any future occasion. To the
extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of, and covenants not to assert against Secured Party, any valuation,
inquisition, stay, appraisement, extension or redemption laws now existing or
which may hereafter exist which, but for this provision, might be applicable to
any sale or other disposition made under the judgment, order or decree of any
court or under the powers of sale and other disposition conferred by this
Agreement or otherwise. Debtor hereby waives any right to a jury trial with
respect to any matter arising under or in connection with this Agreement.
14. Entire Agreement; Severability; Etc. This Agreement constitutes the
entire agreement between Secured Party and Debtor and all conversations,
agreements and representations relating to this Agreement or to the Equipment
are integrated herein. If any provision hereof or any remedy herein provided
for shall be invalid under any applicable law, such provision or remedy shall be
inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof. Neither
this Agreement nor any term hereof may be changed, discharged, terminated or
waived except in an instrument in writing signed by the party against which
enforcement of the change, discharge, termination or waiver is sought. This
Agreement shall in all respects be governed by and construed in accordance with
the internal laws of the State of New York, including all matters of
construction, validity and performance, and shall be deemed a purchase money
security agreement within the meaning of the Uniform Commercial Code. The
captions in this Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. This Agreement shall
inure to the benefit of and be binding upon Secured Party and Debtor and their
respective successors and assigns, subject, however, to the limitations set
forth in this Agreement with respect to Debtor's assignment hereof. No right or
remedy referred to in this Agreement is intended to be exclusive but each shall
be cumulative and in addition to any other right or remedy referred to in this
Agreement or otherwise available to Secured Party at law or in equity, and shall
be in addition to the provisions contained in any instrument referred to herein
and any instrument supplemental hereto. Debtor shall be liable for all costs
and expenses, including attorneys' fees and disbursements, incurred by reason of
the occurrence of any Event of Default or the exercise of Secured Party's
remedies with respect thereto. Time is of the essence with respect to this
Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment payments of
the Time Balance as set forth in the Schedule of Obligations, the Debtor may not
prepay the Time Balance, in whole or in part, at any time. In the event Secured
Party declares all of the Time Balance to be due and payable pursuant to clause
(1) of paragraph 10 above, Debtor shall pay to Secured Party an amount equal to
the sum of (a) all accrued and unpaid amounts as of the Declaration Date plus
interest thereon, and (b) the present value of all future installments set forth
in this Agreement over the remaining unexpired term of this Agreement discounted
to present value using a discount rate of six percent (6%), provided that the
amount of the Finance Charge earned by Secured Party computed as aforesaid shall
not exceed the highest amount permitted by applicable law. The Time Balance as
reduced to present value in accordance with the preceding sentence shall bear
interest from and after the Declaration Date, and all other Liabilities due and
payable under the Agreement (including past due installments) shall bear
interest from and after their respective due dates, at the lesser of 1.5% per
month or the highest rate permitted by applicable law, provided, however, that
Debtor shall have no obligation to pay any interest on interest except to the
extent permitted by applicable law.
<PAGE>
16. Consent to Jurisdiction. Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. Any such
action or proceeding will be maintained in the United States District Court for
the Southern District of New York or in any court of the State of New York
located in the County of New York and Debtor waives any objections based upon
venue or forum non conveniens in connection with any such action or proceeding.
Debtor consents that process in any such action or proceeding may be served upon
it by registered mail directed to Debtor at its address set forth at the head of
this Agreement or in any other manner permitted by applicable law or rules of
court. Debtor hereby irrevocably appoints Secretary of State of the State of
New York as its agent to receive service of process in any such action or
proceeding.
17. Notices. Notice hereunder shall be deemed given if served personally
or by certified or registered mail, return receipt requested, to Secured Party
and Debtor at their respective addresses set forth at the head of this
Agreement. Any party hereto may from to time by written notice to the other
change the address to which notices are to be sent to such party. A copy of any
notice sent by Debtor to Secured Party shall be concurrently sent by Debtor to
any assignee of Secured Party of which Debtor has notice.
The Debtor agrees to all the provisions set forth above. This Agreement is
executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT OF A SIGNED
TRUE COPY OF THIS AGREEMENT.
Accepted on August 30, 1996 Date August 29, 1996
CHARTER FINANCIAL, INC. U. S. LONG DISTANCE CORP. (Debtor)
(Secured Party) ----------------------------------
(Signature of Proprietor or name of
Corporation or Partnership)
By /s/ STUART ABRAMSON, VP By /s/ PHIL STORIN
------------------------------ -------------------------------
Its Vice President Its Sr. VP & CFO
------------------------------ -------------------------------
(Title of Officer) (if Corporation, President or Vice
President should sign and give
official title; if Partnership,
state partner)
<PAGE>
LOAN AND SECURITY AGREEMENT Number: 2883
- --------------------------------------------------------------------------------
Name of Debtor : U. S. Long Distance Corp.
Address : 9311 San Pedro
San Antonio, Texas 78216
Name of Secured Party : Charter Financial, Inc.
Address : 153 E. 53rd Street, 55th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
Quantity DESCRIPTION OF PERSONAL PROPERTY
(Show: Manufacturer, Model No., Serial No., Other Identification)
- --------------------------------------------------------------------------------
Various equipment as more fully described on the attached Schedule "A"
annexed hereto and made a part hereof.
- --------------------------------------------------------------------------------
Location of Equipments: SEE ATTACHED SCHEDULE "A" FOR EQUIPMENT LOCATIONS
- --------------------------------------------------------------------------------
SCHEDULE OF OBLIGATIONS
- --------------------------------------------------------------------------------
Loan Amount ("Unpaid Cash Price Balance") $531,714.80
Documentation Fees $ 500.00
Interest ("Finance Charge") $141,185.20
Time Balance $672,900.00
Term of Loan 60 MONTHS
Number of Payments Sixty (60)
Payments Payable MONTHLY
Amount of Each Payment: $ 11,215.00
Debtor agrees to pay the Time Balance to Secured Party in sixty (60)
installments commencing on September 1, 1996 and continuing on the 1st day of
each month thereafter until and including August 1, 2001. The first installment
shall be in the amount of $11,215.00, the next fifty-eight (58) installments
shall each be in the amount of $11,215.00 and the last installment shall be in
the amount of $11,215.00.
- --------------------------------------------------------------------------------
ADDITIONAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Grant of Security Interest. Debtor hereby grants to Secured Party
a security interest in the personal property described above (hereinafter
with all renewals, substitutions and replacements and all parts, repairs,
improvements, additions and accessories incorporated therein or affixed
thereto referred to as the "Equipment"), together with any and all proceeds
thereof and any and all insurance policies and proceeds with respect thereto.
<PAGE>
2. Obligations Secured. The aforesaid security interest is granted by
Debtor as security for (a) the payment of the Time Balance (as set forth in the
Schedule of Obligations) and the payment and performance of all other
indebtedness and obligations now or hereafter owing by Debtor to Secured Party,
of any and every kind and description hereunder, and any and all renewals and
extensions of the foregoing, and all interest, fees, charges, expenses and
attorneys' fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the "Liabilities") and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description, howsoever arising or evidenced
(all of which indebtedness and obligations are hereinafter referred to as the
"Other Liabilities"). Subject to Paragraph 15, any nonpayment of any
installment or other amounts due hereunder shall result in the obligation on the
part of Debtor promptly to pay also an amount equal to five per cent (5%), (or
the maximum rate permitted by law, whichever is less) of the installment or
other amounts overdue.
3. Warranties. DEBTOR ACKNOWLEDGES THAT SECURED PARTY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT OF THE EQUIPMENT, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE. Secured Party shall not be liable to Debtor for any
loss, damage or expense of any kind or nature caused, directly or indirectly,
by any Equipment secured hereunder or the use or maintenance thereof or the
failure of operation thereof. or the repair, service or adjustment thereof,
or by any delay or failure to provide any such maintenance. repairs, service
or adjustment, or by any interruption of service or loss of use thereof or
for any loss of business howsoever caused. The Equipment shall be shipped
directly to Debtor by the supplier thereof and Debtor agrees to accept such
delivery. No defect or unfitness of the Equipment, nor any failure or delay
on the part of the manufacturer or the shipper of the Equipment to deliver
the Equipment or any part thereof to Debtor, shall relieve Debtor of the
obligation to pay the Time Balance or any other obligation under this
Agreement. Secured Party shall have no obligation under this Agreement in
respect of the Equipment and shall have no obligation to install, erect,
test, adjust or service the Equipment. Secured Party agrees, so long as
there shall not have occurred or be continuing any Event of Default hereunder
or event which with lapse of time or notice. or both. might become an Event
of Default hereunder, that Secured Party will permit Debtor to enforce in
Debtor's own name at Debtor's sole expense any supplier's or manufacturer's
warranty or agreement in respect of the Equipment to the extent that such
warranty or agreement is assignable.
4. Assignment. This Agreement shall be assignable by Secured Party, and
by its assigns, without the consent of Debtor, but Debtor shall not be obligated
to any assignee except upon written notice of such assignment from Secured Party
or such assignee. The obligation of Debtor to pay and perform the Liabilities
to such assignee shall be absolute and unconditional and shall not be affected
by any circumstance whatsoever, and such payments shall be made without
interruption or abatement notwithstanding any event or circumstance whatsoever,
including, without limitation, the late delivery, non-delivery, destruction or
damage of or to the Equipment, the deprivation or limitation of the use of the
Equipment, the bankruptcy or insolvency of Secured Party or Debtor or any
disaffirmance of this Agreement by or on behalf of Debtor and notwithstanding
any defense, set-off, recoupment or counterclaim or any other right whatsoever,
whether by reason of breach of this Agreement or of any warranty in respect of
the Equipment or otherwise which Debtor may now or hereafter have against
Secured Parry, and whether any such event shall be by reason of any act or
omission of Secured Party (including, without limitation, any negligence of
Secured Party) or otherwise; provided, however, that nothing herein contained
shall affect any right of Debtor to enforce against Secured Party any claim
which Debtor may have against Secured Party in any manner other than by
abatement, attachment or recoupment of,
<PAGE>
interference with, or set-off, counterclaim or defense against, the
aforementioned payments to be made to such assignee. Debtor's undertaking
herein to pay and perform the Liabilities to an assignee of Secured Party
shall constitute a direct, independent and unconditional obligation of Debtor
to said assignee. Said assignee shall have no obligations under this
Agreement or in respect of the Equipment and shall have no obligation to
install, erect, test, adjust or service the Equipment. Debtor also
acknowledges and agrees that any assignee of Secured Party's interest in this
Agreement shall have the right to exercise all rights, privileges and
remedies (either in its own name or in the name of Secured Party) which by
the terms of this Agreement are permitted to be exercised by Secured Party.
5. Damage to or Loss of the Equipment; Requisition. Debtor assumes and
shall bear the entire risk of loss or damage to the Equipment from any and
every cause, whatsoever. No loss or damage to the Equipment or any part
thereof shall affect any obligation of Debtor with respect to the Liabilities
and this Agreement, which shall continue in full force and effect. Debtor
shall advise Secured Party in writing promptly of any item of Equipment lost
or damaged and of the circumstances and extent of such damage. If the
Equipment is totally destroyed, irreparably damaged, lost, stolen or title
thereto shall be requisitioned or taken by any governmental authority under
the power of eminent domain or otherwise, Debtor shall, at the option of
Secured Party, replace the same with like equipment in good repair, condition
and working order, or pay to Secured Party all Liabilities due and to become
due, less the net amount of the recovery, if any, actually received by
Secured Party from insurance or otherwise for such destruction, damage, loss,
theft, requisition or taking. Whenever the Equipment is destroyed or damaged
and, in the sole discretion of Secured Party, such destruction or damage can
be repaired, Debtor shall, at its expense, promptly effect such repairs as
Secured Party shall deem necessary for compliance with clause (a) of
paragraph 7 below. Any proceeds of insurance received by Secured Party with
respect to such reparable damage to the Equipment shall, at the election of
Secured Party, be applied either to the repair of the Equipment by payment by
Secured Party directly to the party completing the repairs, or to the
reimbursement of Debtor for the cost of such repairs; provided, however, that
Secured Party shall have no obligation to make such payment or any part
thereof until receipt of such evidence as Secured Party shall deem
satisfactory that such repairs have been completed and further provided that
Secured Party may apply such proceeds to the payment of any of the
Liabilities or the Other Liabilities due if at the time such proceeds are
received by Secured Party there shall have occurred and be continuing any
Event of Default hereunder or any event which with lapse of time or notice,
or both, would become an Event of Default. Debtor shall, when and as
requested by Secured Party, undertake, by litigation or otherwise, in
Debtor's name, the collection of any claim against any person for such
destruction, damage, loss, theft, requisition or taking, but Secured Party
shall not be obligated to undertake, by litigation or otherwise, the
collection of any claim against any person for such destruction, damage,
loss, theft, requisition or taking.
6. Representations and Warranties of Debtor. Debtor represents and
warrants that: it has the right, power and authority to enter into and carry
out the terms and provisions of this Agreement; this Agreement constitutes a
valid obligation of the Debtor and is enforceable in accordance with its
terms; and entering into this Agreement and carrying out its terms and
provisions will not violate the terms or constitute a breach of any other
agreement to which Debtor is a party.
<PAGE>
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the
Equipment to be kept in good condition and use the Equipment only in the
manner for which it was designed and intended so as to subject it only to
ordinary wear and tear and cause to be made all needed and proper repairs,
renewals and replacements thereto; (b) maintain at all times property damage,
fire, theft and comprehensive insurance for the full replacement value of the
Equipment, with loss payable provisions in favor of Secured Party and any
assignee of Secured Party as the interests may appear, and maintain public
liability insurance in amounts satisfactory to Secured Party, naming Secured
Party and any assignee of Secured Party as insureds with all of said
insurance and loss payable provisions to be in form, substance and amount and
written by companies approved by Secured Party, and deliver the policies
therefor, or duplicates thereof, to Secured Party; (c) pay or reimburse
Secured Party for any and all taxes, assessments and other governmental
charges of whatever kind or character, however designated (together with any
penalties, fines or interest thereon) levied or based upon or with respect to
the Equipment, the Liabilities or this Agreement or upon the manufacture,
purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment, or upon
any receipts or earnings arising therefrom, or for titling or registering the
Equipment, or upon the income or other proceeds received with respect to the
Equipment or this Agreement provided, however, that Debtor shall pay taxes on
or measured by the net income of Secured Party and franchise taxes of Secured
Party only to the extent that such net income taxes or franchise taxes are
levied or assessed in lieu of any other taxes, assessments or other
governmental charges hereinabove described; (d) pay all shipping and delivery
charges and other expenses incurred in connection with the Equipment and pay
all lawful claims, whether for labor, materials, supplies, rents or services,
which might or could if unpaid become a lien on the Equipment; (e) comply
with all governmental laws, regulations, requirements and rules, all
instructions and warranty requirements of Secured Party or the manufacturer
of the Equipment, and with the conditions and requirements of all policies of
insurance with respect to the Equipment and this Agreement; (f) mark and
identify the Equipment with all information and in such manner as Secured
Party may request from time to time and replace promptly any such marking or
identification which are removed, defaced or destroyed; (g) at any and all
times during business hours, grant to Secured Party free access to enter upon
the premises wherein the Equipment shall be located and permit Secured Party
to inspect the Equipment; (h) reimburse Secured Party for all charges, costs
and expenses (including attorneys' fees) incurred by Secured Party in
defending or protecting its interests in the Equipment, in the attempted
enforcement or enforcement of the provisions of this Agreement or in the
attempted collection or collection of any of the Liabilities; (i) indemnify
and hold any assignee of Secured Party, and Secured Party, harmless from and
against all claims, losses, liabilities, damages, judgments, suits, and all
legal proceedings, and any and all costs and expenses in connection therewith
(including attorneys' fees) arising out of or in any manner connected with
the manufacture, purchase, ownership, delivery, possession, use, storage,
operation, maintenance, repair, return or other disposition of the Equipment
or with this Agreement, including, without limitation, claims for injury to
or death of persons and for damage to property, and give Secured Party prompt
notice of any such claim or liability, provided, however, that the foregoing
shall not affect or impair any warranty made by Secured Party; and (j)
maintain a system of accounts established and administered in accordance with
generally accepted accounting principles and practices consistently applied,
and, within thirty (30) days after the end of each fiscal quarter, deliver to
Secured Party a balance sheet as at the end of such quarter and statement of
operations for such quarter, and, within one hundred and twenty (120) days
after the end of each fiscal year, deliver to Secured Party a balance sheet
as at the end of such year and statement of operations for such year, in each
case prepared in accordance with generally accepted accounting principles and
practices consistently applied and certified by Debtor's chief financial
officer as fairly presenting the financial position and results of operation
of Debtor, and, in the case of year end financial statements, certified by an
independent accounting firm acceptable to Secured Party.
<PAGE>
8. Negative Covenants of Debtor. Debtor shall not (a) create, incur,
assume or suffer to exist any mortgage, lien, pledge or other encumbrance or
attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor's interests hereunder; (b) make any
changes or alterations in or to the Equipment except as necessary for compliance
with clause (a) of paragraph 7 above; (c) permit the name of any person,
association or corporation other than Secured Party to be placed on the
Equipment as a designation that might be interpreted as a claim of interest in
the Equipment; (d) part with possession or control of or suffer or allow to pass
out of its possession or control any of the Equipment or change the location of
the Equipment or any part thereof from the location shown above; (e) assign or
in any way dispose of all or any part of its rights or obligations under this
Agreement or enter into any lease of all or any part of the Equipment; or (f)
change its name or address from that set forth above unless it shall have given
Secured Party no less than thirty (30) days prior written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part thereof
may now be, or hereafter become, in any manner affixed or attached to, or
imbedded in, or permanently resting upon, real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor will
obtain and deliver to Secured Party waivers of interest or liens in recordable
form, satisfactory to Secured Party, from all persons claiming any interest in
the real property on which such item of Equipment is installed or located.
10. Events of Default and Remedies. If any one or more of the following
events ("Events of Default") shall occur:
(a) Debtor shall fail to make any payment in respect of the Liabilities
when due; or
(b) any certification, statement, representation, warranty or financial
report or statement heretofore or hereafter furnished by or on behalf of Debtor
or any guarantor of any or all of the Liabilities proves to have been false in
any material respect at the time as of which the facts therein set forth were
stated or certified or has omitted any material contingent or unliquidated
liability or claim against Debtor or any such guarantor; or
(c) Debtor or any guarantor of any or all of the Liabilities shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by it hereunder or under any guaranty agreement; or
(d) Debtor or any guarantor of any or all of the Liabilities shall be in
breach of or in default in the payment and performance of any obligation
relating to any of the Other Liabilities; or
(e) Debtor or any guarantor of any or all of the Liabilities shall cease
doing business as a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as they become due,
file a petition commencing a voluntary case under any chapter of Title 11 of the
United States Code entitled "Bankruptcy" (the "Bankruptcy Code"), be adjudicated
an insolvent, file a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law, rule or regulation or file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, consent to the filing of such a petition or acquiescence in
the
<PAGE>
appointment of a trustee, receiver or liquidator of it or of all or any part
of its assets or properties, or take any action looking to its dissolution or
liquidation; or
(f) an order for relief against Debtor or any guarantor of any or all of
the Liabilities shall have been entered under any chapter of the Bankruptcy Code
or a decree or order by a court having jurisdiction in the premises shall have
been entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Debtor or any guarantor of any or all of the Liabilities under any present or
future statute, law, rule or regulation, or within thirty (30) days after the
appointment without Debtor's or such guarantor's consent or acquiescence of any
trustee, receiver or liquidator of it or such guarantor or of all or any part of
its or such guarantor's assets and properties, such appointment shall not be
vacated, or an order, judgment or decree shall be entered against Debtor or such
guarantor by a court of competent jurisdiction and shall continue in effect for
any period of ten (10) consecutive days without a stay of execution, or any
execution or writ or process shall be issued under any action or proceeding
against Debtor whereby the Equipment or its use may be taken or restrained; or
(g) Debtor or any guarantor of any or all of the Liabilities shall suffer
an adverse material change in its financial condition as compared to such
condition as at the date hereof, and as a result of such change in condition
Secured Party deems itself or any of the Equipment to be insecure;
then and in any such event, Secured Party may, at the sole discretion of Secured
Party, without notice or demand and without limitation of any rights and
remedies of Secured Party under the Uniform Commercial Code, take any one or
more of the following steps:
(1) Declare all of the Time Balance to be due and payable, whereupon the
same shall forthwith mature and become due and payable as provided for in
paragraph 15 below, provided, however, upon the occurrence of any of the events
specified in subparagraphs (e) and (f) above, all sums as specified in this
clause (1) shall immediately be due and payable without notice to Debtor (the
date on which Secured Party declares all of the Time Balance to be due and
payable is hereinafter referred to as the "Declaration Date");
(2) proceed to protect and enforce its rights by suit in equity, action at
law or other appropriate proceedings, whether for the specific performance of
any agreement contained herein, or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any other right, power or
remedy granted hereby or by law, equity or otherwise; and
(3) at any time and from time to time, with or without judicial process
and the aid or assistance of others, enter upon any premises wherein any of the
Equipment may be located and, without resistance or interference by Debtor, take
possession of the Equipment on any such premises, and require Debtor to assemble
and make available to Secured Party at the expense of Debtor any part or all of
the Equipment at any place or time designated by Secured Party; and remove any
part or all of the Equipment from any premises wherein the same may be located
for the purpose of effecting the sale or other disposition thereof; and sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
or all of the Equipment in its then condition or following any commercially
reasonable preparation or processing, at public or private sale or proceedings,
by one or more contracts, in one or more parcels, at the same or different
times, with or without having the Equipment at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s) and
time(s) and to such persons, firms or corporations as Secured Party shall deem
best, all without demand for
<PAGE>
performance or any notice or advertisement whatsoever, except that Debtor
shall be given five (5) business days' written notice of the place and time
of any public sale or of the time after which any private sale or other
intended disposition is to be made, which notice Debtor hereby agrees shall
be deemed reasonable notice thereof. If any of the Equipment is sold by
Secured Party upon credit or for future delivery, Secured Party shall not be
liable for the failure of the purchaser to pay for same and in such event
Secured Party may resell such Equipment. Secured Party may buy any part or
all of the Equipment at any public sale and if any part or all of the
Equipment is of a type customarily sold in a recognized market or which is
the subject of widely distributed standard price quotations Secured Party may
buy at private sale and may make payment therefor by application of all or a
part of the Liabilities and of all or a part of any Other Liabilities. Any
personalty in or attached to the Equipment when repossessed may be held by
Secured Party without any liability arising with respect thereto, and any and
all claims in connection with such personalty shall be deemed to have been
waived unless notice of such claim is made by certified or registered mail
upon Secured Party within three business days after repossession.
Secured Party shall apply the cash proceeds from any sale or other
disposition of the Equipment first, to the reasonable expenses of re-taking,
holding, preparing for sale, selling, leasing and the like, and to reasonable
attorneys' fees and other expenses which are to be paid or reimbursed to
Secured Party pursuant hereto, and second, to all outstanding portions of the
Liabilities and to any Other Liabilities in such order as Secured Party may
elect, and third, any surplus to Debtor, subject to any duty of Secured Party
imposed by law to the holder of any subordinate security interest in the
Equipment known to Secured Party; provided however, that Debtor shall remain
liable with respect to unpaid portions of the Liabilities owing by it and
will pay Secured Party on demand any deficiency remaining with interest as
provided for in paragraph 15 below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails to
perform or comply with any of its agreements contained herein Secured Party may
perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in paragraph
15 below, shall be deemed a part of the Liabilities and shall be payable by
Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party for the
purpose of protecting the interests of Secured Party in the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any assignee
of Secured Party are each authorized to the extent permitted by applicable law
to file one or more Uniform Commercial Code financing statements disclosing any
security interest in the Equipment without the signature of Debtor or signed by
Secured Party or any assignee of Secured Party as attorney-in-fact for Debtor.
Debtor will pay all costs of filing any financing, continuation or termination
statements with respect to this Agreement, including, without limitation, any
documentary stamp taxes relating thereto. Debtor will do whatever may be
necessary to have a statement of the interest of Secured Party and of any
assignee of Secured Party in the Equipment noted on any certificate of title
relating to the Equipment and will deposit said certificate with Secured Party
or such assignee. Debtor shall execute and deliver to Secured Party, upon
request, such other instruments and assurances as Secured Party deems necessary
or advisable for the implementation, effectuation, confirmation or perfection of
this Agreement and any rights of Secured Party hereunder.
<PAGE>
13. Non-Waiver; Etc. No course of dealing by Secured Party or Debtor or
any delay or omission on the part of Secured Party in exercising any rights
hereunder shall operate as a waiver of any rights of Secured Party. No waiver
or consent shall be binding upon Secured Party unless it is in writing and
signed by Secured Party. A waiver on any one occasion shall not be construed as
a bar to or a waiver of any right and/or remedy on any future occasion. To the
extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of, and covenants not to assert against Secured Party, any valuation,
inquisition, stay, appraisement, extension or redemption laws now existing or
which may hereafter exist which, but for this provision, might be applicable to
any sale or other disposition made under the judgment, order or decree of any
court or under the powers of sale and other disposition conferred by this
Agreement or otherwise. Debtor hereby waives any right to a jury trial with
respect to any matter arising under or in connection with this Agreement.
14. Entire Agreement; Severability; Etc. This Agreement constitutes
the entire agreement between Secured Party and Debtor and all conversations,
agreements and representations relating to this Agreement or to the Equipment
are integrated herein. If any provision hereof or any remedy herein provided
for shall be invalid under any applicable law, such provision or remedy shall
be inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof.
Neither this Agreement nor any term hereof may be changed, discharged,
terminated or waived except in an instrument in writing signed by the party
against which enforcement of the change, discharge, termination or waiver is
sought. This Agreement shall in all respects be governed by and construed in
accordance with the internal laws of the State of New York, including all
matters of construction, validity and performance, and shall be deemed a
purchase money security agreement within the meaning of the Uniform
Commercial Code. The captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. This Agreement shall inure to the benefit of and be binding upon
Secured Party and Debtor and their respective successors and assigns,
subject, however, to the limitations set forth in this Agreement with respect
to Debtor's assignment hereof. No right or remedy referred to in this
Agreement is intended to be exclusive but each shall be cumulative and in
addition to any other right or remedy referred to in this Agreement or
otherwise available to Secured Party at law or in equity, and shall be in
addition to the provisions contained in any instrument referred to herein and
any instrument supplemental hereto. Debtor shall be liable for all costs and
expenses, including attorneys' fees and disbursements, incurred by reason of
the occurrence of any Event of Default or the exercise of Secured Party's
remedies with respect thereto. Time is of the essence with respect to this
Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment payments
of the Time Balance as set forth in the Schedule of Obligations, the Debtor
may not prepay the Time Balance, in whole or in part, at any time. In the
event Secured Party declares all of the Time Balance to be due and payable
pursuant to clause (1) of paragraph 10 above, Debtor shall pay to Secured
Party an amount equal to the sum of (a) all accrued and unpaid amounts as of
the Declaration Date plus interest thereon, and (b) the present value of all
future installments set forth in this Agreement over the remaining unexpired
term of this Agreement discounted to present value using a discount rate of
six percent (6%), provided that the amount of the Finance Charge earned by
Secured Party computed as aforesaid shall not exceed the highest amount
permitted by applicable law. The Time Balance as reduced to present value in
accordance with the preceding sentence shall bear interest from and after the
Declaration Date, and all other Liabilities due and payable under the
Agreement (including past due installments) shall bear interest from and
after their respective due dates, at the lesser of 1.5% per month or the
highest rate permitted by applicable law, provided, however, that Debtor
shall have no obligation to pay any interest on interest except to the extent
permitted by applicable law.
<PAGE>
16. Consent to Jurisdiction. Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. Any such
action or proceeding will be maintained in the United States District Court for
the Southern District of New York or in any court of the State of New York
located in the County of New York and Debtor waives any objections based upon
venue or forum non conveniens in connection with any such action or proceeding.
Debtor consents that process in any such action or proceeding may be served upon
it by registered mail directed to Debtor at its address set forth at the head of
this Agreement or in any other manner permitted by applicable law or rules of
court. Debtor hereby irrevocably appoints Secretary of State of the State of
New York as its agent to receive service of process in any such action or
proceeding.
17. Notices. Notice hereunder shall be deemed given if served personally
or by certified or registered mail, return receipt requested, to Secured Party
and Debtor at their respective addresses set forth at the head of this
Agreement. Any party hereto may from to time by written notice to the other
change the address to which notices are to be sent to such party. A copy of any
notice sent by Debtor to Secured Party shall be concurrently sent by Debtor to
any assignee of Secured Party of which Debtor has notice.
The Debtor agrees to all the provisions set forth above. This Agreement is
executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT OF A SIGNED
TRUE COPY OF THIS AGREEMENT.
Accepted on August 30, 1996 Date August 29, 1996
CHARTER FINANCIAL, INC. U. S. LONG DISTANCE CORP. (Debtor)
(Secured Party) -----------------------------------
(Signature of Proprietor or name of
Corporation or Partnership)
By /s/ STUART ABRAMSON, VP By /s/ PHIL STORIN
------------------------- --------------------------------
Its Vice President Its Sr. VP & CFO
-------------------------- -------------------------------
(Title of Officer) (if Corporation, President or Vice
President should sign and give
official title; if Partnership,
state partner)
<PAGE>
RIDER TO LOAN AND SECURITY AGREEMENT NO. 2883 DATED AUGUST 29, 1996
(the "AGREEMENT") BETWEEN U.S. LONG DISTANCE CORP. AS DEBTOR AND
CHARTER FINANCIAL, INC. AS SECURED PARTY
It shall be an Event of Default under the Agreement if at any time during the
term of the Agreement Debtor fails to be in compliance with any of the
following:
(i) Debtor's cash flow coverage at each fiscal year shall be 1.25:1 or
better;
(ii) Debtor's Net Worth at each fiscal year end shall be $30 million or
greater; and
(iii) Debtor's debt to Tangible Net Worth ratio at each fiscal year end
shall be 2.5:1 or less.
As used herein:
Cash Flow Coverage means the ratio of (x) the sum of income,
depreciation expense and amortization expense (and for fiscal year
1996, restructuring expense and spin off charges) to (y), the sum of
current maturities of obligations under capital leases and current
maturities of loans, notes and other debts payable;
Tangible Net Worth means (x) the sum of shareholders equity and the
balance due under the subordinated note(s) payable to shareholders,
less (y) Intangible Assets;
Intangible Assets means the sum of all accounts receivable from
affiliates, good will and all other intangible assets.
In the event that Debtor fails to be in compliance with any of the provisions
set forth hereinabove, Debtor may cure the Event of Default resulting from
such failure by delivering to Secured Party no later than ninety (90) days
following the end of the fiscal year to which such failure applies, a letter
of credit in an amount equal to the then present value all remaining payments
due under the Agreement, computed using a discount rate of six percent (6%),
which letter of credit shall be substantially in the form annexed hereto as
exhibit 1, and issued by a bank acceptable to Secured Party (the "LC"). It
shall be an Event of Default under the Agreement if Debtor fails to deliver
such LC within ninety (90) days after the end of such fiscal year or if at
any time prior to the end of the term of the Agreement the LC is not in full
force and effect or Secured Party receives notice that the LC will not be
replaced or renewed.
This rider shall be deemed to be an indivisible part of and supplement to
the Agreement.
U. S. LONG DISTANCE CORP. CHARTER FINANCIAL, INC.
By: /s/ PHIL STORIN By: /s/ STUART ABRAMSON
------------------------- --------------------------
Title: Sr. VP & CFO Title: Vice President
---------------------- -----------------------
Date: 11/12/96 Date:
----------------------- ------------------------
<PAGE>
LOAN AND SECURITY AGREEMENT Number: 2884
- --------------------------------------------------------------------------------
Name of Debtor : U. S. Long Distance Corp.
Address : 9311 San Pedro
San Antonio, Texas 78216
Name of Secured Party : Charter Financial, Inc.
Address : 153 E. 53rd Street, 55th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
Quantity DESCRIPTION OF PERSONAL PROPERTY
(Show: Manufacturer, Model No., Serial No., Other Identification)
- --------------------------------------------------------------------------------
Various equipment as more fully described on the attached Schedule "A"
annexed hereto and made a part hereof.
- --------------------------------------------------------------------------------
Location of Equipments: SEE ATTACHED SCHEDULE "A" FOR EQUIPMENT LOCATIONS
- --------------------------------------------------------------------------------
SCHEDULE OF OBLIGATIONS
- --------------------------------------------------------------------------------
Loan Amount ("Unpaid Cash Price Balance") $538,084.12
Documentation Fees $ 500.00
Interest ("Finance Charge") $142,655.88
Time Balance $680,940.00
Term of Loan 60 MONTHS
Number of Payments Sixty (60)
Payments Payable MONTHLY
Amount of Each Payment: $ 11,349.00
Debtor agrees to pay the Time Balance to Secured Party in sixty (60)
installments commencing on September 1, 1996 and continuing on the 1st day of
each month thereafter until and including August 1, 2001. The first installment
shall be in the amount of $11,349.00, the next fifty-eight (58) installments
shall each be in the amount of $11,349.00 and the last installment shall be in
the amount of $11,349.00.
- --------------------------------------------------------------------------------
ADDITIONAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Grant of Security Interest. Debtor hereby grants to Secured Party a
security interest in the personal property described above (hereinafter with all
renewals, substitutions and replacements and all parts, repairs, improvements,
additions and accessories incorporated therein or affixed thereto referred to as
the "Equipment"), together with any and all proceeds thereof and any and all
insurance policies and proceeds with respect thereto.
<PAGE>
2. Obligations Secured. The aforesaid security interest is granted by
Debtor as security for (a) the payment of the Time Balance (as set forth in the
Schedule of Obligations) and the payment and performance of all other
indebtedness and obligations now or hereafter owing by Debtor to Secured Party,
of any and every kind and description hereunder, and any and all renewals and
extensions of the foregoing, and all interest, fees, charges, expenses and
attorneys' fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the "Liabilities") and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description, howsoever arising or evidenced
(all of which indebtedness and obligations are hereinafter referred to as the
"Other Liabilities"). Subject to Paragraph 15, any nonpayment of any
installment or other amounts due hereunder shall result in the obligation on the
part of Debtor promptly to pay also an amount equal to five per cent (5%), (or
the maximum rate permitted by law, whichever is less) of the installment or
other amounts overdue.
3. Warranties. DEBTOR ACKNOWLEDGES THAT SECURED PARTY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR
PURPOSE. Secured Party shall not be liable to Debtor for any loss, damage or
expense of any kind or nature caused, directly or indirectly, by any Equipment
secured hereunder or the use or maintenance thereof or the failure of operation
thereof, or the repair, service or adjustment thereof, or by any delay or
failure to provide any such maintenance, repairs, service or adjustment, or by
any interruption of service or loss of use thereof or for any loss of business
howsoever caused. The Equipment shall be shipped directly to Debtor by the
supplier thereof and Debtor agrees to accept such delivery. No defect or
unfitness of the Equipment, nor any failure or delay on the part of the
manufacturer or the shipper of the Equipment to deliver the Equipment or any
part thereof to Debtor, shall relieve Debtor of the obligation to pay the Time
Balance or any other obligation under this Agreement. Secured Party shall have
no obligation under this Agreement in respect of the Equipment and shall have no
obligation to install, erect, test, adjust or service the Equipment. Secured
Party agrees, so long as there shall not have occurred or be continuing any
Event of Default hereunder or event which with lapse of time or notice, or both,
might become an Event of Default hereunder, that Secured Party will permit
Debtor to enforce in Debtor's own name at Debtor's sole expense any supplier's
or manufacturer's warranty or agreement in respect of the Equipment to the
extent that such warranty or agreement is assignable.
4. Assignment. This Agreement shall be assignable by Secured Party, and
by its assigns, without the consent of Debtor, but Debtor shall not be obligated
to any assignee except upon written notice of such assignment from Secured Party
or such assignee. The obligation of Debtor to pay and perform the Liabilities
to such assignee shall be absolute and unconditional and shall not be affected
by any circumstance whatsoever, and such payments shall be made without
interruption or abatement notwithstanding any event or circumstance whatsoever,
including, without limitation, the late delivery, non-delivery, destruction or
damage of or to the Equipment, the deprivation or limitation of the use of the
Equipment, the bankruptcy or insolvency of Secured Party or Debtor or any
disaffirmance of this Agreement by or on behalf of Debtor and notwithstanding
any defense, set-off, recoupment or counterclaim or any other right whatsoever,
whether by reason of breach of this Agreement or of any warranty in respect of
the Equipment or otherwise which Debtor may now or hereafter have against
Secured Party, and whether any such event shall be by reason of any act or
omission of Secured Party (including, without limitation, any negligence of
Secured Party) or otherwise; provided, however, that nothing herein contained
shall affect any right of Debtor to enforce against Secured Party any claim
which Debtor may have against Secured Party in any manner other than by
abatement, attachment or recoupment of,
<PAGE>
interference with, or set-off, counterclaim or defense against, the
aforementioned payments to be made to such assignee. Debtor's undertaking
herein to pay and perform the Liabilities to an assignee of Secured Party
shall constitute a direct, independent and unconditional obligation of Debtor
to said assignee. Said assignee shall have no obligations under this
Agreement or in respect of the Equipment and shall have no obligation to
install, erect, test, adjust or service the Equipment. Debtor also
acknowledges and agrees that any assignee of Secured Party's interest in this
Agreement shall have the right to exercise all rights, privileges and
remedies (either in its own name or in the name of Secured Party) which by
the terms of this Agreement are permitted to be exercised by Secured Party.
5. Damage to or Loss of the Equipment; Requisition. Debtor assumes and
shall bear the entire risk of loss or damage to the Equipment from any and every
cause, whatsoever. No loss or damage to the Equipment or any part thereof shall
affect any obligation of Debtor with respect to the Liabilities and this
Agreement, which shall continue in full force and effect. Debtor shall advise
Secured Party in writing promptly of any item of Equipment lost or damaged and
of the circumstances and extent of such damage. If the Equipment is totally
destroyed, irreparably damaged, lost, stolen or title thereto shall be
requisitioned or taken by any governmental authority under the power of eminent
domain or otherwise, Debtor shall, at the option of Secured Party, replace the
same with like equipment in good repair, condition and working order, or pay to
Secured Party all Liabilities due and to become due, less the net amount of the
recovery, if any, actually received by Secured Party from insurance or otherwise
for such destruction, damage, loss, theft, requisition or taking. Whenever the
Equipment is destroyed or damaged and, in the sole discretion of Secured Party,
such destruction or damage can be repaired, Debtor shall, at its expense,
promptly effect such repairs as Secured Party shall deem necessary for
compliance with clause (a) of paragraph 7 below. Any proceeds of insurance
received by Secured Party with respect to such reparable damage to the Equipment
shall, at the election of Secured Party, be applied either to the repair of the
Equipment by payment by Secured Party directly to the party completing the
repairs, or to the reimbursement of Debtor for the cost of such repairs;
provided, however, that Secured Party shall have no obligation to make such
payment or any part thereof until receipt of such evidence as Secured Party
shall deem satisfactory that such repairs have been completed and further
provided that Secured Party may apply such proceeds to the payment of any of the
Liabilities or the Other Liabilities due if at the time such proceeds are
received by Secured Party there shall have occurred and be continuing any Event
of Default hereunder or any event which with lapse of time or notice, or both,
would become an Event of Default. Debtor shall, when and as requested by
Secured Party, undertake, by litigation or otherwise, in Debtor's name, the
collection of any claim against any person for such destruction, damage, loss,
theft, requisition or taking, but Secured Party shall not be obligated to
undertake, by litigation or otherwise, the collection of any claim against any
person for such destruction, damage, loss, theft, requisition or taking.
6. Representations and Warranties of Debtor. Debtor represents and
warrants that: it has the right, power and authority to enter into and carry
out the terms and provisions of this Agreement; this Agreement constitutes a
valid obligation of the Debtor and is enforceable in accordance with its terms;
and entering into this Agreement and carrying out its terms and provisions will
not violate the terms or constitute a breach of any other agreement to which
Debtor is a party.
<PAGE>
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the Equipment
to be kept in good condition and use the Equipment only in the manner for which
it was designed and intended so as to subject it only to ordinary wear and tear
and cause to be made all needed and proper repairs, renewals and replacements
thereto; (b) maintain at all times property damage, fire, theft and
comprehensive insurance for the full replacement value of the Equipment, with
loss payable provisions in favor of Secured Party and any assignee of Secured
Party as the interests may appear, and maintain public liability insurance in
amounts satisfactory to Secured Party, naming Secured Party and any assignee of
Secured Party as insureds with all of said insurance and loss payable provisions
to be in form, substance and amount and written by companies approved by Secured
Party, and deliver the policies therefor, or duplicates thereof, to Secured
Party; (c) pay or reimburse Secured Party for any and all taxes, assessments and
other governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon) levied or based upon or
with respect to the Equipment, the Liabilities or this Agreement or upon the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment, or upon any
receipts or earnings arising therefrom, or for titling or registering the
Equipment, or upon the income or other proceeds received with respect to the
Equipment or this Agreement provided, however, that Debtor shall pay taxes on or
measured by the net income of Secured Party and franchise taxes of Secured Party
only to the extent that such net income taxes or franchise taxes are levied or
assessed in lieu of any other taxes, assessments or other governmental charges
hereinabove described; (d) pay all shipping and delivery charges and other
expenses incurred in connection with the Equipment and pay all lawful claims,
whether for labor, materials, supplies, rents or services, which might or could
if unpaid become a lien on the Equipment; (e) comply with all governmental laws,
regulations, requirements and rules, all instructions and warranty requirements
of Secured Party or the manufacturer of the Equipment, and with the conditions
and requirements of all policies of insurance with respect to the Equipment and
this Agreement; (f) mark and identify the Equipment with all information and in
such manner as Secured Party may request from time to time and replace promptly
any such marking or identification which are removed, defaced or destroyed; (g)
at any and all times during business hours, grant to Secured Party free access
to enter upon the premises wherein the Equipment shall be located and permit
Secured Party to inspect the Equipment; (h) reimburse Secured Party for all
charges, costs and expenses (including attorneys' fees) incurred by Secured
Party in defending or protecting its interests in the Equipment, in the
attempted enforcement or enforcement of the provisions of this Agreement or in
the attempted collection or collection of any of the Liabilities; (i) indemnify
and hold any assignee of Secured Party, and Secured Party, harmless from and
against all claims, losses, liabilities, damages, judgments, suits, and all
legal proceedings, and any and all costs and expenses in connection therewith
(including attorneys' fees) arising out of or in any manner connected with the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment or with this
Agreement, including, without limitation, claims for injury to or death of
persons and for damage to property, and give Secured Party prompt notice of any
such claim or liability, provided, however, that the foregoing shall not affect
or impair any warranty made by Secured Party; and (j) maintain a system of
accounts established and administered in accordance with generally accepted
accounting principles and practices consistently applied, and, within thirty
(30) days after the end of each fiscal quarter, deliver to Secured Party a
balance sheet as at the end of such quarter and statement of operations for such
quarter, and, within one hundred and twenty (120) days after the end of each
fiscal year, deliver to Secured Party a balance sheet as at the end of such year
and statement of operations for such year, in each case prepared in accordance
with generally accepted accounting principles and practices consistently applied
and certified by Debtor's chief financial officer as fairly presenting the
financial position and results of operation of Debtor, and, in the case of year
end financial statements, certified by an independent accounting firm acceptable
to Secured Party.
<PAGE>
8. Negative Covenants of Debtor. Debtor shall not (a) create, incur,
assume or suffer to exist any mortgage, lien, pledge or other encumbrance or
attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor's interests hereunder; (b) make any
changes or alterations in or to the Equipment except as necessary for compliance
with clause (a) of paragraph 7 above; (c) permit the name of any person,
association or corporation other than Secured Party to be placed on the
Equipment as a designation that might be interpreted as a claim of interest in
the Equipment; (d) part with possession or control of or suffer or allow to pass
out of its possession or control any of the Equipment or change the location of
the Equipment or any part thereof from the location shown above; (e) assign or
in any way dispose of all or any part of its rights or obligations under this
Agreement or enter into any lease of all or any part of the Equipment; or (f)
change its name or address from that set forth above unless it shall have given
Secured Party no less than thirty (30) days prior written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part thereof
may now be, or hereafter become, in any manner affixed or attached to, or
imbedded in, or permanently resting upon, real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor will
obtain and deliver to Secured Party waivers of interest or liens in recordable
form, satisfactory to Secured Party, from all persons claiming any interest in
the real property on which such item of Equipment is installed or located.
10. Events of Default and Remedies. If any one or more of the following
events ("Events of Default") shall occur:
(a) Debtor shall fail to make any payment in respect of the Liabilities
when due; or
(b) any certification, statement, representation, warranty or financial
report or statement heretofore or hereafter furnished by or on behalf of Debtor
or any guarantor of any or all of the Liabilities proves to have been false in
any material respect at the time as of which the facts therein set forth were
stated or certified or has omitted any material contingent or unliquidated
liability or claim against Debtor or any such guarantor; or
(c) Debtor or any guarantor of any or all of the Liabilities shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by it hereunder or under any guaranty agreement; or
(d) Debtor or any guarantor of any or all of the Liabilities shall be in
breach of or in default in the payment and performance of any obligation
relating to any of the Other Liabilities; or
(e) Debtor or any guarantor of any or all of the Liabilities shall cease
doing business as a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as they become due,
file a petition commencing a voluntary case under any chapter of Title 11 of the
United States Code entitled "Bankruptcy" (the "Bankruptcy Code"), be adjudicated
an insolvent, file a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law, rule or regulation or file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, consent to the filing of such a petition or acquiescence in
the
<PAGE>
appointment of a trustee, receiver or liquidator of it or of all or any part
of its assets or properties, or take any action looking to its dissolution or
liquidation; or
(f) an order for relief against Debtor or any guarantor of any or all of
the Liabilities shall have been entered under any chapter of the Bankruptcy Code
or a decree or order by a court having jurisdiction in the premises shall have
been entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Debtor or any guarantor of any or all of the Liabilities under any present or
future statute, law, rule or regulation, or within thirty (30) days after the
appointment without Debtor's or such guarantor's consent or acquiescence of any
trustee, receiver or liquidator of it or such guarantor or of all or any part of
its or such guarantor's assets and properties, such appointment shall not be
vacated, or an order, judgment or decree shall be entered against Debtor or such
guarantor by a court of competent jurisdiction and shall continue in effect for
any period of ten (10) consecutive days without a stay of execution, or any
execution or writ or process shall be issued under any action or proceeding
against Debtor whereby the Equipment or its use may be taken or restrained; or
(g) Debtor or any guarantor of any or all of the Liabilities shall suffer
an adverse material change in its financial condition as compared to such
condition as at the date hereof, and as a result of such change in condition
Secured Party deems itself or any of the Equipment to be insecure;
then and in any such event, Secured Party may, at the sole discretion of Secured
Party, without notice or demand and without limitation of any rights and
remedies of Secured Party under the Uniform Commercial Code, take any one or
more of the following steps:
(1) Declare all of the Time Balance to be due and payable, whereupon the
same shall forthwith mature and become due and payable as provided for in
paragraph 15 below, provided, however, upon the occurrence of any of the events
specified in subparagraphs (e) and (f) above, all sums as specified in this
clause (1) shall immediately be due and payable without notice to Debtor (the
date on which Secured Party declares all of the Time Balance to be due and
payable is hereinafter referred to as the "Declaration Date");
(2) proceed to protect and enforce its rights by suit in equity, action at
law or other appropriate proceedings, whether for the specific performance of
any agreement contained herein, or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any other right, power or
remedy granted hereby or by law, equity or otherwise; and
(3) at any time and from time to time, with or without judicial process
and the aid or assistance of others, enter upon any premises wherein any of the
Equipment may be located and, without resistance or interference by Debtor, take
possession of the Equipment on any such premises, and require Debtor to assemble
and make available to Secured Party at the expense of Debtor any part or all of
the Equipment at any place or time designated by Secured Party; and remove any
part or all of the Equipment from any premises wherein the same may be located
for the purpose of effecting the sale or other disposition thereof; and sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
or all of the Equipment in its then condition or following any commercially
reasonable preparation or processing, at public or private sale or proceedings,
by one or more contracts, in one or more parcels, at the same or different
times, with or without having the Equipment at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s) and
time(s) and to such persons, firms or corporations as Secured Party shall deem
best, all without demand for
<PAGE>
performance or any notice or advertisement whatsoever, except that Debtor
shall be given five (5) business days' written notice of the place and time
of any public sale or of the time after which any private sale or other
intended disposition is to be made, which notice Debtor hereby agrees shall
be deemed reasonable notice thereof. If any of the Equipment is sold by
Secured Party upon credit or for future delivery, Secured Party shall not be
liable for the failure of the purchaser to pay for same and in such event
Secured Party may resell such Equipment. Secured Party may buy any part or
all of the Equipment at any public sale and if any part or all of the
Equipment is of a type customarily sold in a recognized market or which is
the subject of widely distributed standard price quotations Secured Party may
buy at private sale and may make payment therefor by application of all or a
part of the Liabilities and of all or a part of any Other Liabilities. Any
personalty in or attached to the Equipment when repossessed may be held by
Secured Party without any liability arising with respect thereto, and any and
all claims in connection with such personalty shall be deemed to have been
waived unless notice of such claim is made by certified or registered mail
upon Secured Party within three business days after repossession.
Secured Party shall apply the cash proceeds from any sale or other disposition
of the Equipment first, to the reasonable expenses of re-taking, holding,
preparing for sale, selling, leasing and the like, and to reasonable attorneys'
fees and other expenses which are to be paid or reimbursed to Secured Party
pursuant hereto, and second, to all outstanding portions of the Liabilities and
to any Other Liabilities in such order as Secured Party may elect, and third,
any surplus to Debtor, subject to any duty of Secured Party imposed by law to
the holder of any subordinate security interest in the Equipment known to
Secured Party; provided however, that Debtor shall remain liable with respect to
unpaid portions of the Liabilities owing by it and will pay Secured Party on
demand any deficiency remaining with interest as provided for in paragraph 15
below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails to
perform or comply with any of its agreements contained herein Secured Party may
perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in paragraph
15 below, shall be deemed a part of the Liabilities and shall be payable by
Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party for the
purpose of protecting the interests of Secured Party in the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any assignee
of Secured Party are each authorized to the extent permitted by applicable law
to file one or more Uniform Commercial Code financing statements disclosing any
security interest in the Equipment without the signature of Debtor or signed by
Secured Party or any assignee of Secured Party as attorney-in-fact for Debtor.
Debtor will pay all costs of filing any financing, continuation or termination
statements with respect to this Agreement, including, without limitation, any
documentary stamp taxes relating thereto. Debtor will do whatever may be
necessary to have a statement of the interest of Secured Party and of any
assignee of Secured Party in the Equipment noted on any certificate of title
relating to the Equipment and will deposit said certificate with Secured Party
or such assignee. Debtor shall execute and deliver to Secured Party, upon
request, such other instruments and assurances as Secured Party deems necessary
or advisable for the implementation, effectuation, confirmation or perfection of
this Agreement and any rights of Secured Party hereunder.
<PAGE>
13. Non-Waiver; Etc. No course of dealing by Secured Party or Debtor or
any delay or omission on the part of Secured Party in exercising any rights
hereunder shall operate as a waiver of any rights of Secured Party. No waiver
or consent shall be binding upon Secured Party unless it is in writing and
signed by Secured Party. A waiver on any one occasion shall not be construed as
a bar to or a waiver of any right and/or remedy on any future occasion. To the
extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of, and covenants not to assert against Secured Party, any valuation,
inquisition, stay, appraisement, extension or redemption laws now existing or
which may hereafter exist which, but for this provision, might be applicable to
any sale or other disposition made under the judgment, order or decree of any
court or under the powers of sale and other disposition conferred by this
Agreement or otherwise. Debtor hereby waives any right to a jury trial with
respect to any matter arising under or in connection with this Agreement.
14. Entire Agreement; Severability; Etc. This Agreement constitutes the
entire agreement between Secured Party and Debtor and all conversations,
agreements and representations relating to this Agreement or to the Equipment
are integrated herein. If any provision hereof or any remedy herein provided
for shall be invalid under any applicable law, such provision or remedy shall be
inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof. Neither
this Agreement nor any term hereof may be changed, discharged, terminated or
waived except in an instrument in writing signed by the party against which
enforcement of the change, discharge, termination or waiver is sought. This
Agreement shall in all respects be governed by and construed in accordance with
the internal laws of the State of New York, including all matters of
construction, validity and performance, and shall be deemed a purchase money
security agreement within the meaning of the Uniform Commercial Code. The
captions in this Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. This Agreement shall
inure to the benefit of and be binding upon Secured Party and Debtor and their
respective successors and assigns, subject, however, to the limitations set
forth in this Agreement with respect to Debtor's assignment hereof. No right or
remedy referred to in this Agreement is intended to be exclusive but each shall
be cumulative and in addition to any other right or remedy referred to in this
Agreement or otherwise available to Secured Party at law or in equity, and shall
be in addition to the provisions contained in any instrument referred to herein
and any instrument supplemental hereto. Debtor shall be liable for all costs
and expenses, including attorneys' fees and disbursements, incurred by reason of
the occurrence of any Event of Default or the exercise of Secured Party's
remedies with respect thereto. Time is of the essence with respect to this
Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment payments of
the Time Balance as set forth in the Schedule of Obligations, the Debtor may not
prepay the Time Balance, in whole or in part, at any time. In the event Secured
Party declares all of the Time Balance to be due and payable pursuant to clause
(1) of paragraph 10 above, Debtor shall pay to Secured Party an amount equal to
the sum of (a) all accrued and unpaid amounts as of the Declaration Date plus
interest thereon, and (b) the present value of all future installments set forth
in this Agreement over the remaining unexpired term of this Agreement discounted
to present value using a discount rate of six percent (6%), provided that the
amount of the Finance Charge earned by Secured Party computed as aforesaid shall
not exceed the highest amount permitted by applicable law. The Time Balance as
reduced to present value in accordance with the preceding sentence shall bear
interest from and after the Declaration Date, and all other Liabilities due and
payable under the Agreement (including past due installments) shall bear
interest from and after their respective due dates, at the lesser of 1.5% per
month or the highest rate permitted by applicable law, provided, however, that
Debtor shall have no obligation to pay any interest on interest except to the
extent permitted by applicable law.
<PAGE>
16. Consent to Jurisdiction. Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. Any such
action or proceeding will be maintained in the United States District Court for
the Southern District of New York or in any court of the State of New York
located in the County of New York and Debtor waives any objections based upon
venue or forum non conveniens in connection with any such action or proceeding.
Debtor consents that process in any such action or proceeding may be served upon
it by registered mail directed to Debtor at its address set forth at the head of
this Agreement or in any other manner permitted by applicable law or rules of
court. Debtor hereby irrevocably appoints Secretary of State of the State of
New York as its agent to receive service of process in any such action or
proceeding.
17. Notices. Notice hereunder shall be deemed given if served personally
or by certified or registered mail, return receipt requested, to Secured Party
and Debtor at their respective addresses set forth at the head of this
Agreement. Any party hereto may from to time by written notice to the other
change the address to which notices are to be sent to such party. A copy of any
notice sent by Debtor to Secured Party shall be concurrently sent by Debtor to
any assignee of Secured Party of which Debtor has notice.
The Debtor agrees to all the provisions set forth above. This Agreement is
executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT OF A SIGNED
TRUE COPY OF THIS AGREEMENT.
Accepted on August 30, 1996 Date August 29, 1996
CHARTER FINANCIAL, INC. U. S. LONG DISTANCE CORP. (Debtor)
(Secured Party) -----------------------------------
(Signature of Proprietor or name of
Corporation or Partnership)
By /s/ STUART ABRAMSON, VP By /s/ PHIL STORIN
------------------------- --------------------------------
Its Vice President Its Sr. VP & CFO
-------------------------- -------------------------------
(Title of Officer) (if Corporation, President or Vice
President should sign and give
official title; if Partnership,
state partner)
<PAGE>
RIDER TO LOAN AND SECURITY AGREEMENT NO. 2884 DATED AUGUST 29, 1996
(the "AGREEMENT") BETWEEN U.S. LONG DISTANCE CORP. AS DEBTOR AND
CHARTER FINANCIAL, INC. AS SECURED PARTY
It shall be an Event of Default under the Agreement if at any time during the
term of the Agreement Debtor fails to be in compliance with any of the
following:
(i) Debtor's cash flow coverage at each fiscal year shall be 1.25:1 or
better;
(ii) Debtor's Net Worth at each fiscal year end shall be $30 million or
greater; and
(iii) Debtor's debt to Tangible Net Worth ratio at each fiscal year end
shall be 2.5:1 or less.
As used herein:
Cash Flow Coverage means the ratio of (x) the sum of income, depreciation
expense and amortization expense (and for fiscal year 1996, restructuring
expense and spin off charges) to (y), the sum of current maturities of
obligations under capital leases and current maturities of loans, notes and
other debts payable;
Tangible Net Worth means (x) the sum of shareholders equity and the
balance due under the subordinated note(s) payable to shareholders, less
(y) Intangible Assets;
Intangible Assets means the sum of all accounts receivable from affiliates,
good will and all other intangible assets.
In the event that Debtor fails to be in compliance with any of the provisions
set forth hereinabove, Debtor may cure the Event of Default resulting from
such failure by delivering to Secured Party no later than ninety (90) days
following the end of the fiscal year to which such failure applies, a letter
of credit in an amount equal to the then present value all remaining payments
due under the Agreement, computed using a discount rate of six percent (6%),
which letter of credit shall be substantially in the form annexed hereto as
exhibit 1, and issued by a bank acceptable to Secured Party (the "LC"). It
shall be an Event of Default under the Agreement if Debtor fails to deliver
such LC within ninety (90) days after the end of such fiscal year or if at
any time prior to the end of the term of the Agreement the LC is not in full
force and effect or Secured Party receives notice that the LC will not be
replaced or renewed.
This rider shall be deemed to be an indivisible part of and supplement to
the Agreement.
U. S. LONG DISTANCE CORP. CHARTER FINANCIAL, INC.
By: /s/ PHIL STORIN By: /s/ STUART ABRAMSON
------------------------- --------------------------
Title: Sr. VP & CFO Title: Vice President
---------------------- -----------------------
Date: 11/12/96 Date:
----------------------- ------------------------
<PAGE>
LOAN AND SECURITY AGREEMENT Number: 2885
- --------------------------------------------------------------------------------
Name of Debtor : U. S. Long Distance Corp.
Address : 9311 San Pedro
San Antonio, Texas 78216
Name of Secured Party : Charter Financial, Inc.
Address : 153 E. 53rd Street, 55th Floor
New York, New York 10022
- --------------------------------------------------------------------------------
Quantity DESCRIPTION OF PERSONAL PROPERTY
(Show: Manufacturer, Model No., Serial No., Other Identification)
- --------------------------------------------------------------------------------
Various equipment as more fully described on the attached Schedule "A"
annexed hereto and made a part hereof.
- --------------------------------------------------------------------------------
Location of Equipments: SEE ATTACHED SCHEDULE "A" FOR EQUIPMENT LOCATIONS
- --------------------------------------------------------------------------------
SCHEDULE OF OBLIGATIONS
- --------------------------------------------------------------------------------
Loan Amount ("Unpaid Cash Price Balance") $428,223.25
Documentation Fees $ 500.00
Interest ("Finance Charge") $113,816.75
Time Balance $542,040.00
Term of Loan 60 MONTHS
Number of Payments Sixty (60)
Payments Payable MONTHLY
Amount of Each Payment: $ 9,034.00
Debtor agrees to pay the Time Balance to Secured Party in sixty (60)
installments commencing on September 1, 1996 and continuing on the 1st day of
each month thereafter until and including August 1, 2001. The first installment
shall be in the amount of $9,034.00, the next fifty-eight (58) installments
shall each be in the amount of $9,034.00 and the last installment shall be in
the amount of $9,034.00.
- --------------------------------------------------------------------------------
ADDITIONAL TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. Grant of Security Interest. Debtor hereby grants to Secured Party a
security interest in the personal property described above (hereinafter with all
renewals, substitutions and replacements and all parts, repairs, improvements,
additions and accessories incorporated therein or affixed thereto referred to as
the "Equipment"), together with any and all proceeds thereof and any and all
insurance policies and proceeds with respect thereto.
<PAGE>
2. Obligations Secured. The aforesaid security interest is granted by
Debtor as security for (a) the payment of the Time Balance (as set forth in the
Schedule of Obligations) and the payment and performance of all other
indebtedness and obligations now or hereafter owing by Debtor to Secured Party,
of any and every kind and description hereunder, and any and all renewals and
extensions of the foregoing, and all interest, fees, charges, expenses and
attorneys' fees accruing or incurred in connection with any of the foregoing
(all of which Time Balance, indebtedness and obligations are hereinafter
referred to as the "Liabilities") and (b) the payment and performance of all
other indebtedness and obligations now or hereafter owing by Debtor to Secured
Party, of any and every kind and description, howsoever arising or evidenced
(all of which indebtedness and obligations are hereinafter referred to as the
"Other Liabilities"). Subject to Paragraph 15, any nonpayment of any
installment or other amounts due hereunder shall result in the obligation on the
part of Debtor promptly to pay also an amount equal to five per cent (5%), (or
the maximum rate permitted by law, whichever is less) of the installment or
other amounts overdue.
3. Warranties. DEBTOR ACKNOWLEDGES THAT SECURED PARTY MAKES NO
WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR
PURPOSE. Secured Party shall not be liable to Debtor for any loss, damage or
expense of any kind or nature caused, directly or indirectly, by any Equipment
secured hereunder or the use or maintenance thereof or the failure of operation
thereof, or the repair, service or adjustment thereof, or by any delay or
failure to provide any such maintenance, repairs, service or adjustment, or by
any interruption of service or loss of use thereof or for any loss of business
howsoever caused. The Equipment shall be shipped directly to Debtor by the
supplier thereof and Debtor agrees to accept such delivery. No defect or
unfitness of the Equipment, nor any failure or delay on the part of the
manufacturer or the shipper of the Equipment to deliver the Equipment or any
part thereof to Debtor, shall relieve Debtor of the obligation to pay the Time
Balance or any other obligation under this Agreement. Secured Party shall have
no obligation under this Agreement in respect of the Equipment and shall have no
obligation to install, erect, test, adjust or service the Equipment. Secured
Party agrees, so long as there shall not have occurred or be continuing any
Event of Default hereunder or event which with lapse of time or notice, or both,
might become an Event of Default hereunder, that Secured Party will permit
Debtor to enforce in Debtor's own name at Debtor's sole expense any supplier's
or manufacturer's warranty or agreement in respect of the Equipment to the
extent that such warranty or agreement is assignable.
4. Assignment. This Agreement shall be assignable by Secured Party, and
by its assigns, without the consent of Debtor, but Debtor shall not be obligated
to any assignee except upon written notice of such assignment from Secured Party
or such assignee. The obligation of Debtor to pay and perform the Liabilities
to such assignee shall be absolute and unconditional and shall not be affected
by any circumstance whatsoever, and such payments shall be made without
interruption or abatement notwithstanding any event or circumstance whatsoever,
including, without limitation, the late delivery, non-delivery, destruction or
damage of or to the Equipment, the deprivation or limitation of the use of the
Equipment, the bankruptcy or insolvency of Secured Party or Debtor or any
disaffirmance of this Agreement by or on behalf of Debtor and notwithstanding
any defense, set-off, recoupment or counterclaim or any other right whatsoever,
whether by reason of breach of this Agreement or of any warranty in respect of
the Equipment or otherwise which Debtor may now or hereafter have against
Secured Party, and whether any such event shall be by reason of any act or
omission of Secured Party (including, without limitation, any negligence of
Secured Party) or otherwise; provided, however, that nothing herein contained
shall affect any right of Debtor to enforce against Secured Party any claim
which
<PAGE>
Debtor may have against Secured Party in any manner other than by abatement,
attachment or recoupment of, interference with, or set-off, counterclaim or
defense against, the aforementioned payments to be made to such assignee.
Debtor's undertaking herein to pay and perform the Liabilities to an assignee
of Secured Party shall constitute a direct, independent and unconditional
obligation of Debtor to said assignee. Said assignee shall have no
obligations under this Agreement or in respect of the Equipment and shall
have no obligation to install, erect, test, adjust or service the Equipment.
Debtor also acknowledges and agrees that any assignee of Secured Party's
interest in this Agreement shall have the right to exercise all rights,
privileges and remedies (either in its own name or in the name of Secured
Party) which by the terms of this Agreement are permitted to be exercised by
Secured Party.
5. Damage to or Loss of the Equipment; Requisition. Debtor assumes and
shall bear the entire risk of loss or damage to the Equipment from any and every
cause, whatsoever. No loss or damage to the Equipment or any part thereof shall
affect any obligation of Debtor with respect to the Liabilities and this
Agreement, which shall continue in full force and effect. Debtor shall advise
Secured Party in writing promptly of any item of Equipment lost or damaged and
of the circumstances and extent of such damage. If the Equipment is totally
destroyed, irreparably damaged, lost, stolen or title thereto shall be
requisitioned or taken by any governmental authority under the power of eminent
domain or otherwise, Debtor shall, at the option of Secured Party, replace the
same with like equipment in good repair, condition and working order, or pay to
Secured Party all Liabilities due and to become due, less the net amount of the
recovery, if any, actually received by Secured Party from insurance or otherwise
for such destruction, damage, loss, theft, requisition or taking. Whenever the
Equipment is destroyed or damaged and, in the sole discretion of Secured Party,
such destruction or damage can be repaired, Debtor shall, at its expense,
promptly effect such repairs as Secured Party shall deem necessary for
compliance with clause (a) of paragraph 7 below. Any proceeds of insurance
received by Secured Party with respect to such reparable damage to the Equipment
shall, at the election of Secured Party, be applied either to the repair of the
Equipment by payment by Secured Party directly to the party completing the
repairs, or to the reimbursement of Debtor for the cost of such repairs;
provided, however, that Secured Party shall have no obligation to make such
payment or any part thereof until receipt of such evidence as Secured Party
shall deem satisfactory that such repairs have been completed and further
provided that Secured Party may apply such proceeds to the payment of any of the
Liabilities or the Other Liabilities due if at the time such proceeds are
received by Secured Party there shall have occurred and be continuing any Event
of Default hereunder or any event which with lapse of time or notice, or both,
would become an Event of Default. Debtor shall, when and as requested by
Secured Party, undertake, by litigation or otherwise, in Debtor's name, the
collection of any claim against any person for such destruction, damage, loss,
theft, requisition or taking, but Secured Party shall not be obligated to
undertake, by litigation or otherwise, the collection of any claim against any
person for such destruction, damage, loss, theft, requisition or taking.
6. Representations and Warranties of Debtor. Debtor represents and
warrants that: it has the right, power and authority to enter into and carry
out the terms and provisions of this Agreement; this Agreement constitutes a
valid obligation of the Debtor and is enforceable in accordance with its terms;
and entering into this Agreement and carrying out its terms and provisions will
not violate the terms or constitute a breach of any other agreement to which
Debtor is a party.
<PAGE>
7. Affirmative Covenants of Debtor. Debtor shall (a) cause the Equipment
to be kept in good condition and use the Equipment only in the manner for which
it was designed and intended so as to subject it only to ordinary wear and tear
and cause to be made all needed and proper repairs, renewals and replacements
thereto; (b) maintain at all times property damage, fire, theft and
comprehensive insurance for the full replacement value of the Equipment, with
loss payable provisions in favor of Secured Party and any assignee of Secured
Party as the interests may appear, and maintain public liability insurance in
amounts satisfactory to Secured Party, naming Secured Party and any assignee of
Secured Party as insureds with all of said insurance and loss payable provisions
to be in form, substance and amount and written by companies approved by Secured
Party, and deliver the policies therefor, or duplicates thereof, to Secured
Party; (c) pay or reimburse Secured Party for any and all taxes, assessments and
other governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon) levied or based upon or
with respect to the Equipment, the Liabilities or this Agreement or upon the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment, or upon any
receipts or earnings arising therefrom, or for titling or registering the
Equipment, or upon the income or other proceeds received with respect to the
Equipment or this Agreement provided, however, that Debtor shall pay taxes on or
measured by the net income of Secured Party and franchise taxes of Secured Party
only to the extent that such net income taxes or franchise taxes are levied or
assessed in lieu of any other taxes, assessments or other governmental charges
hereinabove described; (d) pay all shipping and delivery charges and other
expenses incurred in connection with the Equipment and pay all lawful claims,
whether for labor, materials, supplies, rents or services, which might or could
if unpaid become a lien on the Equipment; (e) comply with all governmental laws,
regulations, requirements and rules, all instructions and warranty requirements
of Secured Party or the manufacturer of the Equipment, and with the conditions
and requirements of all policies of insurance with respect to the Equipment and
this Agreement; (f) mark and identify the Equipment with all information and in
such manner as Secured Party may request from time to time and replace promptly
any such marking or identification which are removed, defaced or destroyed; (g)
at any and all times during business hours, grant to Secured Party free access
to enter upon the premises wherein the Equipment shall be located and permit
Secured Party to inspect the Equipment; (h) reimburse Secured Party for all
charges, costs and expenses (including attorneys' fees) incurred by Secured
Party in defending or protecting its interests in the Equipment, in the
attempted enforcement or enforcement of the provisions of this Agreement or in
the attempted collection or collection of any of the Liabilities; (i) indemnify
and hold any assignee of Secured Party, and Secured Party, harmless from and
against all claims, losses, liabilities, damages, judgments, suits, and all
legal proceedings, and any and all costs and expenses in connection therewith
(including attorneys' fees) arising out of or in any manner connected with the
manufacture, purchase, ownership, delivery, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment or with this
Agreement, including, without limitation, claims for injury to or death of
persons and for damage to property, and give Secured Party prompt notice of any
such claim or liability, provided, however, that the foregoing shall not affect
or impair any warranty made by Secured Party; and (j) maintain a system of
accounts established and administered in accordance with generally accepted
accounting principles and practices consistently applied, and, within thirty
(30) days after the end of each fiscal quarter, deliver to Secured Party a
balance sheet as at the end of such quarter and statement of operations for such
quarter, and, within one hundred and twenty (120) days after the end of each
fiscal year, deliver to Secured Party a balance sheet as at the end of such year
and statement of operations for such year, in each case prepared in accordance
with generally accepted accounting principles and practices consistently applied
and certified by Debtor's chief financial officer as fairly presenting the
financial position and results of operation of Debtor, and, in the case of year
end financial statements, certified by an independent accounting firm acceptable
to Secured Party.
<PAGE>
8. Negative Covenants of Debtor. Debtor shall not (a) create, incur,
assume or suffer to exist any mortgage, lien, pledge or other encumbrance or
attachment of any kind whatsoever upon, affecting or with respect to the
Equipment or this Agreement or any of Debtor's interests hereunder; (b) make any
changes or alterations in or to the Equipment except as necessary for compliance
with clause (a) of paragraph 7 above; (c) permit the name of any person,
association or corporation other than Secured Party to be placed on the
Equipment as a designation that might be interpreted as a claim of interest in
the Equipment; (d) part with possession or control of or suffer or allow to pass
out of its possession or control any of the Equipment or change the location of
the Equipment or any part thereof from the location shown above; (e) assign or
in any way dispose of all or any part of its rights or obligations under this
Agreement or enter into any lease of all or any part of the Equipment; or (f)
change its name or address from that set forth above unless it shall have given
Secured Party no less than thirty (30) days prior written notice thereof.
9. Equipment Personalty. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part thereof
may now be, or hereafter become, in any manner affixed or attached to, or
imbedded in, or permanently resting upon, real property or attached in any
manner to real property by cement, plaster, nails, bolts, screws or otherwise.
If requested by Secured Party with respect to any item of Equipment, Debtor will
obtain and deliver to Secured Party waivers of interest or liens in recordable
form, satisfactory to Secured Party, from all persons claiming any interest in
the real property on which such item of Equipment is installed or located.
10. Events of Default and Remedies. If any one or more of the following
events ("Events of Default") shall occur:
(a) Debtor shall fail to make any payment in respect of the Liabilities
when due; or
(b) any certification, statement, representation, warranty or financial
report or statement heretofore or hereafter furnished by or on behalf of Debtor
or any guarantor of any or all of the Liabilities proves to have been false in
any material respect at the time as of which the facts therein set forth were
stated or certified or has omitted any material contingent or unliquidated
liability or claim against Debtor or any such guarantor; or
(c) Debtor or any guarantor of any or all of the Liabilities shall fail to
perform or observe any covenant, condition or agreement to be performed or
observed by it hereunder or under any guaranty agreement; or
(d) Debtor or any guarantor of any or all of the Liabilities shall be in
breach of or in default in the payment and performance of any obligation
relating to any of the Other Liabilities; or
(e) Debtor or any guarantor of any or all of the Liabilities shall cease
doing business as a going concern, make an assignment for the benefit of
creditors, admit in writing its inability to pay its debts as they become due,
file a petition commencing a voluntary case under any chapter of Title 11 of the
United States Code entitled "Bankruptcy" (the "Bankruptcy Code"), be adjudicated
an insolvent, file a petition seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
arrangement under any present or future statute, law, rule or regulation or file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, consent to the filing of such a petition or acquiescence in
the
<PAGE>
appointment of a trustee, receiver or liquidator of it or of all or any part
of its assets or properties, or take any action looking to its dissolution or
liquidation; or
(f) an order for relief against Debtor or any guarantor of any or all of
the Liabilities shall have been entered under any chapter of the Bankruptcy Code
or a decree or order by a court having jurisdiction in the premises shall have
been entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Debtor or any guarantor of any or all of the Liabilities under any present or
future statute, law, rule or regulation, or within thirty (30) days after the
appointment without Debtor's or such guarantor's consent or acquiescence of any
trustee, receiver or liquidator of it or such guarantor or of all or any part of
its or such guarantor's assets and properties, such appointment shall not be
vacated, or an order, judgment or decree shall be entered against Debtor or such
guarantor by a court of competent jurisdiction and shall continue in effect for
any period of ten (10) consecutive days without a stay of execution, or any
execution or writ or process shall be issued under any action or proceeding
against Debtor whereby the Equipment or its use may be taken or restrained; or
(g) Debtor or any guarantor of any or all of the Liabilities shall suffer
an adverse material change in its financial condition as compared to such
condition as at the date hereof, and as a result of such change in condition
Secured Party deems itself or any of the Equipment to be insecure;
then and in any such event, Secured Party may, at the sole discretion of Secured
Party, without notice or demand and without limitation of any rights and
remedies of Secured Party under the Uniform Commercial Code, take any one or
more of the following steps:
(1) Declare all of the Time Balance to be due and payable, whereupon the
same shall forthwith mature and become due and payable as provided for in
paragraph 15 below, provided, however, upon the occurrence of any of the events
specified in subparagraphs (e) and (f) above, all sums as specified in this
clause (1) shall immediately be due and payable without notice to Debtor (the
date on which Secured Party declares all of the Time Balance to be due and
payable is hereinafter referred to as the "Declaration Date");
(2) proceed to protect and enforce its rights by suit in equity, action at
law or other appropriate proceedings, whether for the specific performance of
any agreement contained herein, or for an injunction against a violation of any
of the terms hereof, or in aid of the exercise of any other right, power or
remedy granted hereby or by law, equity or otherwise; and
(3) at any time and from time to time, with or without judicial process
and the aid or assistance of others, enter upon any premises wherein any of the
Equipment may be located and, without resistance or interference by Debtor, take
possession of the Equipment on any such premises, and require Debtor to assemble
and make available to Secured Party at the expense of Debtor any part or all of
the Equipment at any place or time designated by Secured Party; and remove any
part or all of the Equipment from any premises wherein the same may be located
for the purpose of effecting the sale or other disposition thereof; and sell,
resell, lease, assign and deliver, grant options for or otherwise dispose of any
or all of the Equipment in its then condition or following any commercially
reasonable preparation or processing, at public or private sale or proceedings,
by one or more contracts, in one or more parcels, at the same or different
times, with or without having the Equipment at the place of sale or other
disposition, for cash and/or credit, and upon any terms, at such place(s) and
time(s) and to such persons, firms or corporations as Secured Party shall deem
best, all without demand for
<PAGE>
performance or any notice or advertisement whatsoever, except that Debtor
shall be given five (5) business days' written notice of the place and time
of any public sale or of the time after which any private sale or other
intended disposition is to be made, which notice Debtor hereby agrees shall
be deemed reasonable notice thereof. If any of the Equipment is sold by
Secured Party upon credit or for future delivery, Secured Party shall not be
liable for the failure of the purchaser to pay for same and in such event
Secured Party may resell such Equipment. Secured Party may buy any part or
all of the Equipment at any public sale and if any part or all of the
Equipment is of a type customarily sold in a recognized market or which is
the subject of widely distributed standard price quotations Secured Party may
buy at private sale and may make payment therefor by application of all or a
part of the Liabilities and of all or a part of any Other Liabilities. Any
personalty in or attached to the Equipment when repossessed may be held by
Secured Party without any liability arising with respect thereto, and any and
all claims in connection with such personalty shall be deemed to have been
waived unless notice of such claim is made by certified or registered mail
upon Secured Party within three business days after repossession.
Secured Party shall apply the cash proceeds from any sale or other disposition
of the Equipment first, to the reasonable expenses of re-taking, holding,
preparing for sale, selling, leasing and the like, and to reasonable attorneys'
fees and other expenses which are to be paid or reimbursed to Secured Party
pursuant hereto, and second, to all outstanding portions of the Liabilities and
to any Other Liabilities in such order as Secured Party may elect, and third,
any surplus to Debtor, subject to any duty of Secured Party imposed by law to
the holder of any subordinate security interest in the Equipment known to
Secured Party; provided however, that Debtor shall remain liable with respect to
unpaid portions of the Liabilities owing by it and will pay Secured Party on
demand any deficiency remaining with interest as provided for in paragraph 15
below.
11. Secured Party's Right to Perform for Debtor. If Debtor fails to
perform or comply with any of its agreements contained herein Secured Party may
perform or comply with such agreement and the amount of any payments and
expenses incurred by Secured Party in connection with such performance or
compliance, together with interest thereon at the rate provided for in paragraph
15 below, shall be deemed a part of the Liabilities and shall be payable by
Debtor upon demand.
12. Further Assurances. Debtor will cooperate with Secured Party for the
purpose of protecting the interests of Secured Party in the Equipment,
including, without limitation, the execution of all Uniform Commercial Code
financing statements requested by Secured Party. Secured Party and any assignee
of Secured Party are each authorized to the extent permitted by applicable law
to file one or more Uniform Commercial Code financing statements disclosing any
security interest in the Equipment without the signature of Debtor or signed by
Secured Party or any assignee of Secured Party as attorney-in-fact for Debtor.
Debtor will pay all costs of filing any financing, continuation or termination
statements with respect to this Agreement, including, without limitation, any
documentary stamp taxes relating thereto. Debtor will do whatever may be
necessary to have a statement of the interest of Secured Party and of any
assignee of Secured Party in the Equipment noted on any certificate of title
relating to the Equipment and will deposit said certificate with Secured Party
or such assignee. Debtor shall execute and deliver to Secured Party, upon
request, such other instruments and assurances as Secured Party deems necessary
or advisable for the implementation, effectuation, confirmation or perfection of
this Agreement and any rights of Secured Party hereunder.
<PAGE>
13. Non-Waiver; Etc. No course of dealing by Secured Party or Debtor or
any delay or omission on the part of Secured Party in exercising any rights
hereunder shall operate as a waiver of any rights of Secured Party. No waiver
or consent shall be binding upon Secured Party unless it is in writing and
signed by Secured Party. A waiver on any one occasion shall not be construed as
a bar to or a waiver of any right and/or remedy on any future occasion. To the
extent permitted by applicable law, Debtor hereby waives the benefit and
advantage of, and covenants not to assert against Secured Party, any valuation,
inquisition, stay, appraisement, extension or redemption laws now existing or
which may hereafter exist which, but for this provision, might be applicable to
any sale or other disposition made under the judgment, order or decree of any
court or under the powers of sale and other disposition conferred by this
Agreement or otherwise. Debtor hereby waives any right to a jury trial with
respect to any matter arising under or in connection with this Agreement.
14. Entire Agreement; Severability; Etc. This Agreement constitutes the
entire agreement between Secured Party and Debtor and all conversations,
agreements and representations relating to this Agreement or to the Equipment
are integrated herein. If any provision hereof or any remedy herein provided
for shall be invalid under any applicable law, such provision or remedy shall be
inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof. Neither
this Agreement nor any term hereof may be changed, discharged, terminated or
waived except in an instrument in writing signed by the party against which
enforcement of the change, discharge, termination or waiver is sought. This
Agreement shall in all respects be governed by and construed in accordance with
the internal laws of the State of New York, including all matters of
construction, validity and performance, and shall be deemed a purchase money
security agreement within the meaning of the Uniform Commercial Code. The
captions in this Agreement are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. This Agreement shall
inure to the benefit of and be binding upon Secured Party and Debtor and their
respective successors and assigns, subject, however, to the limitations set
forth in this Agreement with respect to Debtor's assignment hereof. No right or
remedy referred to in this Agreement is intended to be exclusive but each shall
be cumulative and in addition to any other right or remedy referred to in this
Agreement or otherwise available to Secured Party at law or in equity, and shall
be in addition to the provisions contained in any instrument referred to herein
and any instrument supplemental hereto. Debtor shall be liable for all costs
and expenses, including attorneys' fees and disbursements, incurred by reason of
the occurrence of any Event of Default or the exercise of Secured Party's
remedies with respect thereto. Time is of the essence with respect to this
Agreement and all of its provision.
15. Prepayment; Rebate; Interest. Except for the installment payments of
the Time Balance as set forth in the Schedule of Obligations, the Debtor may not
prepay the Time Balance, in whole or in part, at any time. In the event Secured
Party declares all of the Time Balance to be due and payable pursuant to clause
(1) of paragraph 10 above, Debtor shall pay to Secured Party an amount equal to
the sum of (a) all accrued and unpaid amounts as of the Declaration Date plus
interest thereon, and (b) the present value of all future installments set forth
in this Agreement over the remaining unexpired term of this Agreement discounted
to present value using a discount rate of six percent (6%), provided that the
amount of the Finance Charge earned by Secured Party computed as aforesaid shall
not exceed the highest amount permitted by applicable law. The Time Balance as
reduced to present value in accordance with the preceding sentence shall bear
interest from and after the Declaration Date, and all other Liabilities due and
payable under the Agreement (including past due installments) shall bear
interest from and after their respective due dates, at the lesser of 1.5% per
month or the highest rate permitted by applicable law, provided, however, that
Debtor shall have no obligation to pay any interest on interest except to the
extent permitted by applicable law.
<PAGE>
16. Consent to Jurisdiction. Debtor hereby irrevocably consents to the
jurisdiction of the courts of the State of New York and of any federal court
located in such state in connection with any action or proceeding arising out of
or relating to this Agreement or the transactions contemplated hereby. Any such
action or proceeding will be maintained in the United States District Court for
the Southern District of New York or in any court of the State of New York
located in the County of New York and Debtor waives any objections based upon
venue or forum non conveniens in connection with any such action or proceeding.
Debtor consents that process in any such action or proceeding may be served upon
it by registered mail directed to Debtor at its address set forth at the head of
this Agreement or in any other manner permitted by applicable law or rules of
court. Debtor hereby irrevocably appoints Secretary of State of the State of
New York as its agent to receive service of process in any such action or
proceeding.
17. Notices. Notice hereunder shall be deemed given if served personally
or by certified or registered mail, return receipt requested, to Secured Party
and Debtor at their respective addresses set forth at the head of this
Agreement. Any party hereto may from to time by written notice to the other
change the address to which notices are to be sent to such party. A copy of any
notice sent by Debtor to Secured Party shall be concurrently sent by Debtor to
any assignee of Secured Party of which Debtor has notice.
The Debtor agrees to all the provisions set forth above. This Agreement is
executed pursuant to due authorization. DEBTOR ACKNOWLEDGES RECEIPT OF A SIGNED
TRUE COPY OF THIS AGREEMENT.
Accepted on August 30, 1996 Date August 29, 1996
CHARTER FINANCIAL, INC. U. S. LONG DISTANCE CORP. (Debtor)
(Secured Party) ----------------------------
(Signature of Proprietor or name of
Corporation or Partnership)
By /s/ STUART ABRAMSON, VP By /s/ PHIL STORIN
------------------------- --------------------------
Its Vice President Its Sr. VP & CFO
-------------------------- --------------------------
(Title of Officer) (if Corporation, President or Vice
President should sign and give
official title; if Partnership,
state partner)
<PAGE>
RIDER TO LOAN AND SECURITY AGREEMENT NO. 2885 DATED AUGUST 29, 1996
(the "AGREEMENT") BETWEEN U.S. LONG DISTANCE CORP. AS DEBTOR AND
CHARTER FINANCIAL, INC. AS SECURED PARTY
It shall be an Event of Default under the Agreement if at any time during the
term of the Agreement Debtor fails to be in compliance with any of the
following:
(i) Debtor's cash flow coverage at each fiscal year shall be 1.25:1 or
better;
(ii) Debtor's Net Worth at each fiscal year end shall be $30 million or
greater; and
(iii) Debtor's debt to Tangible Net Worth ratio at each fiscal year end
shall be 2.5:1 or less.
As used herein:
Cash Flow Coverage means the ratio of (x) the sum of income,
depreciation expense and amortization expense (and for fiscal year 1996,
restructuring expense and spin off charges) to (y), the sum of current
maturities of obligations under capital leases and current maturities of
loans, notes and other debts payable;
Tangible Net Worth means (x) the sum of shareholders equity and the
balance due under the subordinated note(s) payable to shareholders, less
(y) Intangible Assets;
Intangible Assets means the sum of all accounts receivable from
affiliates, good will and all other intangible assets.
In the event that Debtor fails to be in compliance with any of the provisions
set forth hereinabove, Debtor may cure the Event of Default resulting from such
failure by delivering to Secured Party no later than ninety (90) days following
the end of the fiscal year to which such failure applies, a letter of credit in
an amount equal to the then present value all remaining payments due under the
Agreement, computed using a discount rate of six percent (6%), which letter of
credit shall be substantially in the form annexed hereto as exhibit 1, and
issued by a bank acceptable to Secured Party (the "LC"). It shall be an Event
of Default under the Agreement if Debtor fails to deliver such LC within ninety
(90) days after the end of such fiscal year or if at any time prior to the end
of the term of the Agreement the LC is not in full force and effect or Secured
Party receives notice that the LC will not be replaced or renewed.
This rider shall be deemed to be an indivisible part of and supplement to
the Agreement.
U. S. LONG DISTANCE CORP. CHARTER FINANCIAL, INC.
By: /s/ PHIL STORIN By: /s/ STUART ABRAMSON
------------------------- --------------------------
Title: Sr. VP & CFO Title: Vice President
---------------------- -----------------------
Date: 11/12/96 Date:
----------------------- ------------------------
<PAGE>
Page 1
Private Client Group
Merrill Lynch Business
Financial Services Inc.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
312/269-1373
FAX 312/641-3421
Merrill Lynch
Matt Hanson
Credit Manager
November 5, 1996
VIA FEDERAL EXPRESS
Mr. Rick Olds
Assistant Treasurer
U.S. Long Distance, Inc.
9311 San Pedro, Suite 300
San Antonio, TX 78216
RE: CASH FLOW COVENANT (REVISED 11/5/96)
Dear Rick,
This letter acknowledges the approved change in the initial calculation of the
Cash Flow Covenant. The original covenant reads as follows:
Minimum Ratio of Cash Flow to Current Portion of Long Term Debt. The ratio of
Customer's "Net Cash Flow" to the current portion of its long term debt, as
shown on Customer's regular books and records, shall be not less than 1.4 to 1
as of the end of each calendar quarter beginning with the calendar quarter
ending December 31, 1996. As used herein, "Net Cash Flow" shall mean the sum of
Customer's net after-tax income for each of the immediately preceding four
calendar quarters, together with depreciation, amortization and any
non-recurring expenses during said period, less any non-recurring income (other
than any gains derived from the sale of individual store locations) and any
cash distributions during said period; all as shown on Customer's regular
financial statements prepared in a manner consistent with the terms hereof.
The change is to the rolling four quarter calculation at the beginning of the
covenant, 12/31/96. The initial calculation will be a two quarter calculation,
i.e. 9/30/96 and 12/31/96. At 3/31/97, a three quarter calculation will be
conducted. Finally at 6/30/97, USLD will follow the original rolling four
quarter covenant as agreed.
Sincerely,
<PAGE>
Page 2
/S/ MATT HANSON
- --------------------
Matt Hanson
Credit Manager
<PAGE>
Page 3
Merrill Lynch
No.9608340801
- ------------------------------------------------------------------------------
WCMA AND TERM WCMA LOAN AND SECURITY AGREEMENT
WCMA AND TERM WCMA LOAN AND SECURITY AGREEMENT ("Loan Agreement") dated as of
August 23, 1996, between U.S. LONG DISTANCE, INC., a corporation organized and
existing under the laws of the State of Texas having its principal office at
9311 San Pedro, Suite 300, San Antonio, TX 78216 ("Customer"), and MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the
laws of the State of Delaware having its principal office at 33 West Monroe
Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain WORKING CAPITAL MANAGEMENT ACCOUNT AGREEMENT
NO. 529-07129 ("WCMA Agreement") between Customer and MLBFS' affiliate,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S"), Customer has
subscribed to the WCMA Program described in the WCMA Agreement. The WCMA
Agreement is by this reference incorporated as a part hereof.
In conjunction therewith, and as part of the WCMA Program, Customer has
requested that MLBFS provide Customer with a commercial line of credit upon the
terms and for the Loan Purpose hereinafter set forth (the "Initial WCMA Line of
Credit").
Customer has further requested that upon the maturity date of the Initial WCMA
Line of Credit, MLBFS make a five-year Term WCMA Loan (the "Loan") in order to
provide term financing of the balance then outstanding under the Initial WCMA
Line of Credit. The Loan is a combination of the equivalent of five successive
one-year term loans, each equal to that portion of the Loan that will be fully
amortized in the ensuing year, with a fully funded line of credit under the WCMA
Program ("Term WCMA Line of Credit") for that portion of the Loan that will not
be amortized in the ensuing year. Subject to the terms hereof, each year after
the initial funding there will be an additional funding on account of the term
portion of the Loan, with the proceeds deposited into Customer's WCMA Account
concurrently with a corresponding reduction in the Term WCMA Line of Credit.
This structure provides Customer with substantially the same initial funding and
loan amortization as a conventional term loan. However, unlike most
conventional term loans, it permits both a prepayment in whole or in part at any
time without penalty, and, subject to the terms and conditions herein set forth,
a re-borrowing on a revolving basis of any such amounts prepaid on account of
the Term WCMA Line of Credit portion of the Loan. The structure of the Loan
therefore enables Customer at its option to use any free cash balances that it
may have from time to time to reduce interest expense on the line of credit
portion of the Loan without impairing its working capital.
<PAGE>
Page 4
Subject to the terms and conditions hereinafter set forth, MLBFS has agreed to
provide the Initial WCMA Line of Credit and make the Loan.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Activation Date" shall mean the date upon which MLBFS shall cause the
Initial WCMA Line of Credit to be initially activated under MLPF&S' computer
system as part of the WCMA Program.
(b) "Additional Agreements" shall mean all agreements, instruments,
documents and opinions other than this Loan Agreement, whether with or from
Customer or any other party, which are contemplated hereby or otherwise
reasonably required by MLBFS in connection herewith, or which evidence the
creation, guaranty or collateralization of any of the Obligations or the
granting or perfection of liens or security interests upon the Collateral or
any other collateral for the Obligations, and shall include, without
limitation, the Term WCMA Note.
(c) "Business Day" shall mean any day other than a Saturday, Sunday,
federal holiday or other day on which the New York Stock Exchange is regularly
closed.
(d) "Closing Date" shall mean the last to occur of (i) the Initial WCMA
Maturity Date, or (ii) the date upon which all conditions precedent to MLBFS'
obligation to make the Loan shall have been met to the satisfaction of MLBFS.
(e) "Collateral" shall mean all of the Equipment of Customer described on
Exhibit A attached hereto (as said Exhibit A may from time to time hereafter be
amended and/or supplemented), whether now owned or hereafter acquired, and
wherever located; together with all parts thereof (including spare parts), all
accessories and accessions thereto, all replacements therefor, all books and
records (including computer records) directly related thereto, all proceeds
thereof (including, without limitation, proceeds in the form of Accounts and
insurance proceeds), and the additional collateral described in Section 5.6(b)
hereof.
(f) "Commitment Expiration Date" shall mean September 26, 1996.
(g) "Commitment Fee" shall mean a fee of $75,000.00 due to MLBFS in
connection with and as partial consideration for the commitments by MLBFS
under this Loan Agreement.
(h) "General Funding Conditions" shall mean each of the following
conditions to any
<PAGE>
Page 5
loan or advance by MLBFS hereunder: (i) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an
Event of Default, shall have occurred and be continuing or would result from
the making of any such loan or advance hereunder by MLBFS; (ii) there shall
not have occurred any material adverse change in the business or financial
condition of Customer; (iii) all representations and warranties of Customer
herein or in any Additional Agreements shall then be true and correct in all
material respects; (iv) MLBFS shall have received this Loan Agreement, the
Term WCMA Note and all other Additional Agreements, duly executed and filed
or recorded where applicable, all of which shall be in form and substance
reasonably satisfactory to MLBFS; (v) the Commitment Fee shall have been paid
in full; (vi) MLBFS shall have received evidence reasonably satisfactory to
it of the insurance required hereby or by any of the Additional Agreements;
and (vii) any additional conditions specified in the "Approval of WCMA Line
of Credit Which Converts to Term WCMA Loan" letter executed by MLBFS with
respect to the transactions contemplated hereby shall have been met to the
reasonable satisfaction of MLBFS.
(i) "Increase Funding Conditions" shall mean the conditions precedent to
increasing the Maximum WCMA Line of Credit periodically on and after the
Activation Date prior to the Initial WCMA Maturity Date; to wit: (i) MLBFS
shall have received copies of invoices or other evidence reasonably satisfactory
to it as to the ownership of the specific Collateral reasonably acceptable to
MLBFS which Customer desires to finance with a portion of the Initial WCMA Line
of Credit; (ii) Exhibit A attached hereto shall have been amended to incorporate
such specific Collateral; (iii) MLBFS shall have received evidence reasonably
satisfactory to it as to the perfection and priority of MLBFS' liens and
security interests on such specific Collateral, including, without limitation,
the filing in the appropriate jurisdiction(s) of a form UCC-1 Financing
Statement covering such specific Collateral and a search of the records of said
jurisdiction(s) verifying MLBFS' priority; and (iv) the aggregate cost to
Customer of such specific Collateral shall be not less than $1,000,000.00.
(j) "Initial WCMA Maturity Date" shall mean August 31, 1997.
(k) "Interest Rate" shall mean, with respect the WCMA Line of Credit, a
variable per annum rate of interest equal to the sum of 2.70% and the 30-Day
Commercial Paper Rate. The "30-Day Commercial Paper Rate" shall mean, as of the
date of any determination, the interest rate from time to time published in the
"Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured
notes sold through dealers by major corporations. The Interest Rate will change
as of the -date of publication in The Wall Street Journal of a 30-Day Commercial
Paper Rate that is different from that published on the preceding Business Day.
In the event that The Wall Street Journal shall, for any reason, fail or cease
to publish the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably
comparable index or source to use as the basis for the Interest Rate. The
interest rate applicable to the Term WCMA Loan and Term WCMA Line of Credit
shall be the rate determined in accordance with the provisions of the Term WCMA
Note.
(l) "Loan Purpose" shall mean the purpose for the Initial WCMA Line of
Credit; to
<PAGE>
Page 6
wit: to finance various items of telecommunications and other equipment and
related software.
(m) "Location of Collateral" shall mean the address of Customer set forth
at the beginning of this Loan Agreement, together with any other address or
addresses set forth on an exhibit hereto as being a Location of Collateral.
(n) "Maximum WCMA Line of Credit" shall with respect to the Initial WCMA
Line of Credit mean an amount lesser of (i) $10,000,000.00, or (ii) 100% of the
aggregate cost to Customer of the Collateral for which each of the Increase
Funding Conditions shall have been met to the reasonable satisfaction of MLBFS
on the Activation Date, and from time to time thereafter prior to the Initial
WCMA Maturity Date (but not more frequently than once in any calendar month).
With respect to the Term WCMA Line of Credit, the Maximum WCMA Line of Credit
shall be an amount equal to the applicable percentage of the Term WCMA Loan
Amount hereinafter specified.
(o) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, shall include interest accruing after the
filing of any petition in bankruptcy, and all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement, the WCMA
Note included herein, and the Term WCMA Note.
(p) "Permitted Liens" shall mean with respect to the Collateral (i) liens
for current taxes not delinquent, other non-consensual liens arising in the
ordinary course of business for sums not due, and, if MLBFS' rights to and
interest in the Collateral are not materially and adversely affected thereby,
any such liens for taxes or other non-consensual liens arising in the ordinary
course of business being contested in good faith by appropriate proceedings;
(ii) liens which will be discharged with the proceeds of the initial WCMA
Loan; (iii) existing liens, if any, upon Accounts, Chattel Paper, Contract
Rights, Inventory, Equipment (other than the specific Equipment included in
the Collateral) and Fixtures of Customer, together with any future purchase
money liens upon and leases of Equipment and Fixtures (other than such specific
Equipment); and (iv) any other liens expressly permitted in writing by MLBFS.
(q) "Term WCMA Loan Amount" shall mean an amount equal to the lesser of
(i) the WCMA Loan Balance on the Closing Date, or (ii) $10,000,000.00.
(r) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed
by Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the WCMA Line of Credit portion of the
Loan, and a Term Note evidencing amounts owing on account of the term portion of
the Loan.
(s) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 529-07129.
<PAGE>
Page 7
(t) "WCMA Loan" shall mean each advance made by MLBFS pursuant to either
the Initial WCMA Line of Credit or Term WCMA Line of Credit.
(u) "WCMA Loan Balance" shall mean the aggregate unpaid principal amount
of all WCMA Loans.
1.2 Other Terms. Except as otherwise defined herein: (i) all terms used
in this Loan Agreement which are defined in the Uniform Commercial Code of
Illinois ("UCC") shall have the meanings set forth in the UCC, and (ii)
capitalized terms used herein which are defined in the WCMA Agreement shall
have the meaning set forth in the WCMA Agreement.
Article II. THE INITIAL WCMA LINE OF CREDIT
2.1 Initial WCMA Promissory Note.
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Initial WCMA Maturity Date, the then WCMA Loan Balance;
and (b) interest at the interest Rate on the outstanding WCMA Loan Balance, from
and including the date on which the first WCMA Loan is made until the date of
payment in full of the WCMA Loan Balance under this Initial WCMA Promissory Note
("Initial WCMA Note"). Customer hereby waives presentment, demand, protest,
notice of protest, notice of dishonor and, except as otherwise expressly set
forth herein, all other notices and formalities in connection with this Initial
WCMA Note and this Loan Agreement.
2.2 WCMA Loans Under the Initial WCMA Line of Credit.
(a) Activation Date. Provided that: (i) the Commitment Expiration Date
shall not then have occurred, and (ii) Customer shall have subscribed to the
WCMA Program and its subscription to the WCMA Program shall then be in effect,
the Activation Date of the Initial WCMA Line of Credit shall occur on or
promptly after the date, following the acceptance of this Loan Agreement by
MLBFS at its office in Chicago, Illinois, upon which each of the General
Funding Conditions and applicable Increase Funding Conditions shall have been
met or satisfied to the reasonable satisfaction of MLBFS. From time to time
thereafter prior to the Initial WCMA Maturity Date (but not more frequently
than once in any calendar month) the Maximum WCMA Line of Credit may be
increased upon the written request of Customer as and when the Increase
Funding Conditions are met to the reasonable satisfaction of MLBFS with
respect to an additional portion of the Collateral. Customer hereby
authorizes MLBFS to directly pay any or all of the invoices (to the extent
Customer has not demonstrated to MLBFS its prior payment thereof) for the
Collateral subject to said Increase Funding Conditions by a charge to
Customer's WCMA Account. No activation by MLBFS of the Initial WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of
any
<PAGE>
Page 8
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof.
(b) WCMA Loans. Subject to the terms and conditions hereof, during the
period from and after the Activation Date to the Final WCMA Maturity Date (as
hereinafter defined): (i) MLBFS will make WCMA Loans to Customer in such
amounts as Customer may from time to time request in accordance with the
terms hereof, up to an aggregate outstanding amount not to exceed the Maximum
WCMA Line of Credit (including those WCMA Loans made directly by MLBFS to pay
invoices for Collateral, as aforesaid), and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request
a re-borrowing of amounts repaid on a revolving basis. Customer may request
WCMA Loans by use of WCMA Checks, FTS, Visa charges, wire transfers, or such
other means of access to the WCMA Line of Credit as may be permitted by MLBFS
from time to time; it being understood that so long as the WCMA Line of
Credit shall be in effect, any charge or debit to the WCMA Account which but
for the WCMA Line of Credit would under the terms of the WCMA Agreement
result in an overdraft, shall be deemed a request by Customer for a WCMA Loan.
(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall
not be obligated to make any WCMA Loan, and may without notice refuse to honor
any such request by Customer, if at the time of receipt by MLBFS of Customer's
request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of
Credit to be exceeded; or (ii) the Final WCMA Maturity Date shall have occurred,
or the WCMA Line of Credit shall have otherwise been terminated in accordance
with the terms hereof; or (iii) Customer's subscription to the WCMA Program
shall have been terminated; or (iv) an event shall have occurred and is
continuing which shall have caused any of the General Funding Conditions or
Increase Funding Conditions to not then be met or satisfied to the reasonable
satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any
one or more of said conditions shall not have been met shall not in any event be
construed as a waiver of said condition or conditions or of any Event of
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(d) Force Majeure. MLBFS shall not be responsible, and shall have no
liability to Customer or any other party, for any delay or failure of MLBFS
to honor any request of Customer for a WCMA Loan or any other act or omission
of MLBFS, MLPF&S or any of their affiliates due to or resulting from any system
failure, error or delay in posting or other clerical error, loss of power,
fire, Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S
or any of their affiliates unless directly arising out of the willful wrongful
act or active gross negligence of MLBFS. In no event shall MLBFS be liable to
Customer or any other party for any incidental or consequential damages arising
from any act or omission by MLBFS, MLPF&S or any of their affiliates in
connection with the WCMA Line of Credit or this Loan Agreement.
(e) Interest. The WCMA Loan Balance with respect to both the initial
WCMA Line of
<PAGE>
Page 9
of Credit and Term WCMA Line of Credit shall bear interest at the Interest
Rate. Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 360 days. Notwithstanding any other provision
in this Loan Agreement or any Additional Agreements to the contrary, in no
event shall the Interest Rate exceed the highest rate permissible under any
applicable law. In the event that any court having jurisdiction determines
that MLBFS has received excess interest hereunder, MLBFS will promptly refund
such excess interest to Customer, without charge or penalty. Except as
otherwise provided herein, accrued and unpaid interest on the WCMA Loan
Balance shall be payable monthly on the last Business Day of each calendar
month, commencing with the last Business Day of the calendar month in which
the Activation Date shall occur. Customer hereby irrevocably authorizes and
directs MLPF&S to pay MLBFS such accrued interest from any available free
credit balances in the WCMA Account, and if such available free credit balances
are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting
any Minimum Money Accounts Balance under the WCMA Directed Reserve program)
in an amount up to the balance of such accrued interest, and pay to MLBFS the
available proceeds on account thereof. If available free credit balances in
the WCMA Account and available proceeds of the Money Accounts are insufficient
to pay the entire balance of accrued interest, and Customer otherwise fails
to make such payment when due, MLBFS may, in its sole discretion, make a WCMA
Loan in an amount equal to the balance of such accrued interest and pay the
proceeds of such WCMA Loan to itself on account of such interest. The amount
of any such WCMA Loan will be added to the WCMA Loan Balance. If MLBFS
declines to extend a WCMA Loan to Customer under these circumstances, Customer
hereby authorizes and directs MLPF&S to make all such interest payments to
MLBFS from any Minimum Money Accounts Balance. If there is no Minimum Money
Accounts Balance, or it is insufficient to pay all such interest, MLBFS will
invoice Customer for payment of the balance of the accrued interest, and
Customer shall pay such interest as directed by MLBFS within 5 Business Days
of receipt of such invoice.
(f) Payments. All payments required or permitted to be made pursuant to
this Loan Agreement shall be made in lawful money of the United States.
Unless otherwise directed by MLBFS, payments on account of the WCMA Loan
Balance with respect to the Initial WCMA Line of Credit or Term WCMA Line of
Credit may be made by the delivery of checks (other than WCMA Checks), or by
means of FTS or wire transfer of funds (other than funds from the Initial
WCMA Line of Credit or Term WCMA Line of Credit) to MLPF&S for credit to
Customer's WCMA Account. Notwithstanding anything in the WCMA Agreement to
the contrary, Customer hereby irrevocably authorizes and directs MLPF&S to
apply available free credit balances in the WCMA Account to the repayment of
the WCMA Loan Balance prior to application for any other purpose. Payments
to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan
Balance. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser
<PAGE>
Page 10
amount than shall be due from Customer, regardless of any endorsement or
statement thereon or transmitted therewith, shall not be deemed an accord and
satisfaction or anything other than a payment on account, and MLBFS or anyone
acting on behalf of MLBFS may accept such check or other payment without
prejudice to the rights of MLBFS to recover the balance actually due or to
pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
Initial WCMA Line of Credit or Term WCMA Line of Credit or Loan are subject
to final collection.
(g) Exceeding the Maximum WCMA Line of Credit. In the event that the
WCMA Loan Balance shall at any time exceed the Maximum WCMA Line of Credit,
Customer shall within 1 Business Day of the first to occur of (i) any request
or demand of MLBFS, or (ii) receipt by Customer of a statement from MLPF&S
showing a WCMA Loan Balance in excess of the Maximum WCMA Line of Credit,
deposit sufficient funds into the WCMA Account to reduce the WCMA Loan
Balance below the Maximum WCMA Line of Credit.
(h) Statements. MLPF&S will include in each monthly statement it issues
under the WCMA Program information with respect to WCMA Loans and the WCMA
Loan Balance. Any questions that Customer may have with respect to such
information should be directed to MLBFS; and any questions with respect to
any other matter in such statements or about or affecting the WCMA Program
should be directed to MLPF&S.
(i) Use of WCMA Loans; Securities Transactions. Customer warrants that
the proceeds of each WCMA Loan under the Initial WCMA Line of Credit will be
used solely for the Loan Purpose, or, with the prior written consent of MLBFS,
for other lawful business purposes of Customer not prohibited hereby; and that
the proceeds of each WCMA Loan under the Term WCMA Line of Credit will be used
solely for working capital, or, with the prior written consent of MLBFS, for
other lawful business purposes of Customer not prohibited hereby. Customer
agrees that under no circumstances will funds borrowed from MLBFS through the
Initial WCMA Line of Credit or Term WCMA Line of Credit be used: (i) for
personal, family or household purposes of any person whatsoever, (ii) to
purchase, carry or trade in securities, including shares of the Money Accounts,
or (iii) to repay debt incurred to purchase, carry or trade in securities; nor
will any such funds be remitted, directly or indirectly, to MLPF&S or any other
broker or dealer in securities, by WCMA Check, check, FTS, wire transfer, or
otherwise.
2.3 Commitment Fee. In consideration of the agreement by MLBFS to extend
the initial WCMA Line of Credit and make the Loan (including the Term WCMA
Line of Credit) to Customer in accordance with and subject to the terms
hereof, Customer has paid or shall, on or before the Activation Date pay, the
Commitment Fee to MLBFS. Customer acknowledges and agrees that the
Commitment Fee has been fully earned by MLBFS, and that it will not under any
circumstances be refundable.
Article III. THE LOAN
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3.1 Commitment of Parties. Subject to the terms hereof, on the Closing Date,
MLBFS hereby commits to lend to Customer, and Customer hereby agrees to borrow
from MLBFS, an aggregate amount equal to the Term WCMA Loan Amount. The
proceeds of the Loan will be disbursed and applied in the manner hereinafter set
forth.
3.2 Operation of Loan.
(a) Term WCMA Note. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion of
the Loan (the "Term Note") and the other evidencing the Term WCMA Line of Credit
portion of the Loan (the "WCMA Note"). The balance owing by Customer on account
of the Loan at any time shall be an amount equal to the sum of the then
outstanding balances under the WCMA Note and the Term Note included in the Term
WCMA Note. The Term WCMA Note is hereby incorporated as a part hereof.
(b) Term Note Principal. The principal balance owing under the Term Note at
any time shall be an amount equal to the difference between (i) the Term WCMA
Loan Amount less the aggregate principal paid by Customer on account of the Term
Note; and (ii) the Term WCMA Line of Credit. So long as there shall be any
moneys owing by Customer to MLBFS hereunder or there shall be a Term WCMA Line
of Credit, no reduction in the unpaid principal balance of the Term Note to zero
shall be deemed a payment of the Term Note in full or an extinguishment of any
of the obligations of Customer thereunder or hereunder.
(c) Term Note Funding. Subject to the terms hereof, the Term Note will be
funded by MLBFS in five annual installments, each equal to one-fifth of the Loan
Amount. The first one-fifth installment funded by MLBFS will be funded on the
Closing Date and applied on account of the Loan Purpose, as aforesaid.
Subsequent installments will be funded on a date chosen by MLBFS in its sole
discretion which will be on or within two weeks before or after each subsequent
anniversary of the last day of the calendar month in which the Closing Date
occurs (each, a "Subsequent Funding Date").
(d) Activation of WCMA Line. On the Closing Date, MLBFS will activate and
make available as an integral part of the Loan the Term WCMA Line of Credit
equal to four-fifths of the Term WCMA Loan Amount. Upon such activation and
consummation of all other transactions herein contemplated to occur on the
Closing Date (including, without limitation, application of the amount funded
on account of the Term Note to the WCMA Loan Balance under the Initial WCMA
Note), all amounts owing under the Initial WCMA Note shall be deemed owing
under the WCMA Note included in the Term WCMA Note, and the Initial WCMA Note
shall be deemed paid and canceled.
(e) Subsequent Fundings. On the first Subsequent Funding Date, concurrently
with MLBFS' funding of the second installment of the debt evidenced by the Term
Note into the WCMA Account, the WCMA Line of Credit will be reduced to an amount
equal to
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three-fifths of the Loan Amount. On the second Subsequent Funding Date, the
WCMA Line of Credit will be reduced to an amount equal to two-fifths of the
Loan Amount; and on the third Subsequent Funding Date the WCMA Line of Credit
will be reduced to an amount equal to one-fifth of the Loan Amount.
(f) WCMA Maturity Date. On the fourth Subsequent Funding Date (the "WCMA
Maturity Date"), the WCMA Line of Credit will be terminated and the WCMA
Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated.
3.3 Conditions Precedent to Closing Date. MLBFS' obligation to make the Loan
on the Closing Date shall be subject to the prior fulfillment of each of the
following conditions to the satisfaction of MLBFS: (a) The Initial WCMA
Maturity Date shall have occurred; and (b) each of the General Funding
Conditions shall have been met or satisfied to the reasonable satisfaction of
MLBFS.
3.4 Failure or Delay of Closing Date. If for any reason other than the sole
fault of MLBFS the Closing Date shall not occur within 10 Business Days after
the Initial WCMA Maturity Date, then, notwithstanding anything herein to the
contrary MLBFS shall be relieved of any further obligation to make the Loan, and
all amounts then outstanding under the Initial WCMA Line of Credit shall be and
become immediately due and payable without notice.
3.5 Conditions of Subsequent Fundings. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 3.3 hereof being
met at such date, and the further condition that all payments due under the Term
WCMA Note prior to any Subsequent Funding Date shall have been paid in full;
provided, however, that notwithstanding the failure of any such conditions to
have been met, MLBFS may in its sole discretion fund such installment and/or any
other installments, and no such funding shall constitute a waiver by MLBFS of
any of its rights hereunder or under any of the Additional Agreements. Without
limiting the foregoing, it is understood that no funding by MLBFS of any sum
hereunder while an Event of Default shall have occurred and is continuing shall
under any circumstances be deemed a waiver by MLBFS of such Event of Default, or
a waiver of any of MLBFS' rights hereunder.
3.6 Acknowledgments of Customer, Customer acknowledges, covenants and agrees
that:
(a) Payment of WCMA Interest; Additional Deposits. Under the terms of this
Loan Agreement, interest accrued on amounts outstanding on the Term WCMA Line of
Credit each month will, subject to the terms hereof, ordinarily be paid from the
proceeds of a borrowing of an additional sum under the Term WCMA Line of Credit.
Because substantially the entire Term WCMA Line of Credit will ordinarily be
drawn on the Closing Date, Customer agrees that it will, without demand,
invoicing or the request of MLBFS, from time to time make sufficient deposits
into the WCMA Account in order to
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assure that the Maximum
WCMA Line of Credit is not exceeded. Installments of principal and interest
under the Term Note shall be paid directly to MLBFS in accordance with the terms
of the Term Note.
(b) Additional Interest Charges. SUBJECT TO THE TERMS HEREOF, ON EACH
SUBSEQUENT FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA
ACCOUNT. DUE TO POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN
RECOGNITION OF DEPOSITS INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE
CREDIT FOR THE AMOUNT DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN
AN INTEREST CHARGE FOR THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA
ACCOUNT. ON THE OTHER HAND, BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF
THE FUNDS THAT IT LENDS ON THE DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE
AMOUNT FUNDED ON EACH SUBSEQUENT FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO
THE WCMA ACCOUNT, WHETHER OR NOT SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE
TIMING DIFFERENCES BETWEEN THE DATE OF DEPOSIT AND DATE OF RECOGNITION OF THE
DEPOSIT IN THE WCMA ACCOUNT WILL THEREFORE RESULT IN EXTRA INTEREST CHARGES TO
CUSTOMER, WHICH CUSTOMER ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND
HEREBY UNCONDITIONALLY AGREES TO PAY.
Article IV. THE TERM WCMA LINE OF CREDIT
4.1 Loan Commitment and Requests. Subject to the terms and conditions
hereof: (a) on the Closing Date, MLBFS shall be deemed to have made a WCMA
Loan to Customer under the Term WCMA Line of Credit in an amount equal to
4/5ths of the then WCMA Loan Balance, as aforesaid; and (b) during the period
from and after the Closing Date to the Final WCMA Maturity Date: (i) Customer
may repay said WCMA Loan and any other WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid
on a revolving basis, and (ii) MLBFS will make such additional WCMA Loans as
Customer may from time to time request in accordance with the terms hereof,
provided that, without limiting any of the other conditions hereof, the making
of any such WCMA Loan shall not cause the WCMA Loan Balance to exceed the
Maximum WCMA Line of Credit. Customer may request WCMA Loans by use of WCMA
Checks, FTS, Visa-Registered Trademark- charges, wire transfers, or such other
means of access to the Term WCMA Line of Credit as may be permitted by MLBFS
from time to time; it being understood that so long as the Term WCMA Line of
Credit shall be in effect, any charge or debit to the WCMA Account which but
for the Term WCMA Line of Credit would under the terms of the WCMA Agreement
result in an overdraft, shall be deemed a request by Customer for a WCMA Loan.
4.2 Conditions of WCMA Loans Under the Term WCMA Line of Credit.
Notwithstanding the foregoing, MLBFS shall not be obligated to make any WCMA
Loan
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under the Term WCMA Line of Credit, and may without notice refuse to honor
any such request by Customer, if at the time of Customer's request: (a) the
making of such WCMA Loan would cause the Maximum WCMA Line of Credit to be
exceeded; or (b) the Final WCMA Maturity Date shall have occurred, or the WCMA
Line of Credit shall have otherwise been terminated in accordance with the terms
hereof; or (c) an event shall have occurred and is continuing which shall have
caused any of the General Funding Conditions to not then be met or satisfied to
the reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a
time when any one or more of said conditions shall not have been met shall not
in any event be construed as a waiver of said condition or conditions or of any
Event of Default, and shall not prevent MLBFS at any time thereafter while any
condition shall not have been met from refusing to honor any request by Customer
for a WCMA Loan.
Article V. GENERAL PROVISIONS
5.1 Representations and Warranties.
Customer represents and warrants to MLBFS that:
(a) Organization and Existence. Customer is a corporation, duly organized
and validly existing in good standing under the laws of the State of Texas and
is qualified to do business and in good standing in each other state where the
nature of its business or the property owned by it make such qualification
necessary.
(b) Execution, Delivery and Performance. The execution, delivery and
performance by Customer of this Loan Agreement and such of the Additional
Agreements to which it is a party: (i) have been duly authorized by all
requisite action, (ii) do not and will not violate or conflict with any law or
other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer, and (iii) do not and will not breach
or violate any of the provisions of, and will not result in a default by
Customer under, any other agreement, instrument or document to which it is a
party or by which it or its properties are bound.
(c) Notices and Approvals. Except as may have been given or obtained, no
notice to or consent or approval of any governmental body or authority or other
third party whatsoever (including, without limitation, any other creditor) is
required in connection with the execution, delivery or performance by Customer
of such of this Loan Agreement, the Term WCMA Note and the other Additional
Agreements to which it is a party.
(d) Enforceability. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which it is a party are the legal, valid and
binding obligations of Customer, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
other similar laws affecting the rights of creditors generally or by general
principles of equity.
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(e) Collateral. Subject to any Permitted Liens: (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest, and (iii) upon the filing of all
Uniform Commercial Code financing statements executed by Customer with respect
to the Collateral in the appropriate jurisdiction(s) and/or the completion of
any other action required by applicable law to perfect its liens and security
interests, MLBFS will have valid and perfected first liens and security
interests upon all of the Collateral.
(f) Financial Statements. Except as expressly set forth in Customer's
financial statements, all financial statements of Customer furnished to MLBFS
have been prepared in conformity with generally accepted accounting principles,
consistently applied, are true and correct, and fairly present the financial
condition of it as at such dates and the results of its operations for the
periods then ended; and since the most recent date covered by such financial
statements, there has been no material adverse change in any such financial
condition or operation.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or, to the knowledge of Customer, threatened against
Customer, which would, if adversely determined, materially and adversely affect
the liens and security interests of MLBFS hereunder or under any of the
Additional Agreements, the financial condition of Customer or the continued
operations of Customer.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer have been filed with the appropriate
governmental agencies and all taxes due and payable by Customer have been timely
paid (except to the extent that any such failure to file or pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer, or the continued operations of Customer).
(i) Collateral Location. All of the Collateral is located at a Location of
Collateral.
Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer on the Activation Date, on the Closing Date, and
concurrently with each request for a WCMA Loan.
5.2 Financial and Other Information.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) Annual Financial Statements. Within 120 days after the close of each
fiscal year of Customer, Customer shall furnish or cause to be furnished to
MLBFS a copy of the annual audited financial statements of Customer consisting
of at least a balance sheet as at the close of such fiscal year and related
statements of income, retained earnings and cash flows, certified by its current
independent certified public accountants or other
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independent certified public accountants reasonably acceptable to MLBFS.
(b) Interim Financial Statements. Within 45 days after the close of each
fiscal quarter of Customer, Customer shall furnish or cause to be furnished to
MLBFS: (i) a statement of profit and loss for the fiscal quarter then ended,
and (ii) a balance sheet as at the close of such fiscal quarter; all in
reasonable detail and certified by its chief financial officer.
(c) Other Information. Customer shall furnish or cause to be furnished to
MLBFS such other information as MLBFS may from time to time reasonably request
relating to Customer or the Collateral.
5.3 Other Covenants. Customer further covenants and agrees during the term
of this Loan Agreement that:
(a) Financial Records; Inspection. Customer will: (i) maintain at its
principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the financial
statements heretofore furnished to MLBFS, or prepared on such other basis as may
be approved in writing by MLBFS, and (ii) permit MLBFS or its duly authorized
representatives, upon reasonable notice and at reasonable times, to inspect its
properties (both real or personal), operations, books and records.
(b) Taxes. Customer will pay when due all taxes, assessments and other
governmental charges, howsoever designated, and all other liabilities and
obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or the continued operations of Customer.
(c) Compliance With Laws and Agreements. Customer will not violate any law,
regulation or other governmental requirement, any judgment or order of any court
or governmental agency or authority, or any agreement, instrument or document to
which it is a party or by which it is bound, if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, or the financial condition
or the continued operations of Customer.
(d) Use of Proceeds; Securities Transactions. The proceeds of each WCMA Loan
under the Initial WCMA Line of Credit will be used solely for the Loan Purpose,
or, with the prior written consent of MLBFS, for other lawful business purposes
of Customer not prohibited hereby. The proceeds of each WCMA Loan under the
Term WCMA Line of Credit will be used solely for working capital, or, with the
prior written consent of MLBFS, for other lawful business purposes of Customer
not prohibited hereby. Customer agrees that under no circumstances will funds
borrowed from MLBFS through the Initial WCMA Line of Credit or Term WCMA Line of
Credit be used: (i) for
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personal, family or household purposes of any person whatsoever, (ii) to
purchase, carry or trade in securities, including shares of the Money
Accounts, or (iii) to repay debt incurred to purchase, carry or trade in
securities; nor will any such funds be remitted, directly or indirectly, to
MLPF&S or any other broker or dealer in securities, by WCMA Check, check, FTS,
wire transfer, or otherwise.
(e) Continuity. Except upon the prior written consent of MLBFS, which
consent will not be unreasonably withheld: (i) Customer will not be a party
to any merger or consolidation with, or purchase or otherwise acquire all or
substantially all of the assets or stock of, or any material partnership or
joint venture interest in, any person or entity, or sell, transfer or lease
all or any substantial part of its assets if any such action causes a material
change in its control or principal business, or a material adverse change in
its financial condition or operations; (ii) Customer will preserve its
existence and good standing in the jurisdictions of establishment and
operation, and will not operate in any material business other than a business
substantially the same as its business as of the date of application by
Customer for credit from MLBFS; and (iii) Customer will not cause or permit
any material change in its controlling ownership, controlling senior
management or, except upon not less than 30 days prior written notice to
MLBFS, its name or principal place of business.
(f) Tangible Net Worth. The "tangible net worth" of Customer, consisting of
Customer's net worth as shown on Customer's regular financial statements
prepared in a manner consistent with the terms hereof, but excluding an amount
equal to: (i) any assets which are ordinarily classified as "intangible" in
accordance with generally accepted accounting principles, and (ii) any amounts
now or hereafter directly or indirectly owing to Customer by officers,
shareholders or affiliates of Customer, shall at all times exceed $35,000,000.
(g) Minimum Ratio of Cash Flow to Current Portion of Long Term Debt. The
ratio of Customers "Net Cash Flow" to the current portion of its long term
debt, as shown on Customer's regular books and records, shall be not less than
1.4 to 1 as of the end of each calendar quarter beginning with the calendar
quarter ending December 31, 1996. As used herein, "Net Cash Flow" shall mean
the sum of Customer's net after-tax income for each of the immediately
preceding four calendar quarters, together with depreciation, amortization and
any non-recurring expenses during said period, less any non-recurring income
(other than any gains derived from the sale of individual store locations) and
any cash distributions during said period; all as shown on Customer's regular
financial statements prepared in a manner consistent with the terms hereof.
5.4 Collateral
(a) Pledge of Collateral. To secure payment and performance of the
Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS,
and grants to MLBFS first liens and security interests in and upon all of the
Collateral, subject only to Permitted Liens.
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(b) Liens. Except upon the prior written consent of MLBFS, Customer shall
not create or permit to exist any lien, encumbrance or security interest upon
or with respect to any Collateral now owned or hereafter acquired other than
Permitted Liens.
(c) Performance of Obligations. Customer shall perform all of its
obligations owing on account of or with respect to the Collateral; it being
understood that nothing herein, and no action or inaction by MLBFS, under this
Loan Agreement or otherwise, shall be deemed an assumption by MLBFS of any of
Customer's said obligations.
(d) Alterations and Maintenance. Except upon the prior written consent of
MLBFS, Customer shall not make or permit any material alterations to any
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the Collateral in good condition and repair and
shall pay or cause to be paid all obligations arising from the repair and
maintenance of such Collateral, as well as all obligations with respect to each
Location of Collateral, except for any such obligations being contested by
Customer in good faith by appropriate proceedings.
(e) Location. Except for movements required in the ordinary course of
Customer's business, Customer shall give MLBFS 30 days' prior written notice of
the placing at or movement of any Collateral to any location other than a
Location of Collateral. In no event shall Customer cause or permit any
Collateral to be removed from the United States without the prior written
consent of MLBFS.
(f) Insurance. Customer shall insure all of the Collateral under a policy or
policies of physical damage insurance providing that losses will be payable to
MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer shall maintain such other insurance as may be required by law
or is customarily maintained by companies in a similar business or otherwise
reasonably required by MLBFS. All such insurance shall provide that MLBFS will
receive not less than 10 days prior written notice of any cancellation, and
shall otherwise be in form and amount and with an insurer or insurers reasonably
acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of
each such policy or policies and, prior to any expiration or cancellation, each
renewal or replacement thereof.
(g) Event of Loss. Customer shall at its expense promptly repair all
repairable damage to any Collateral. In the event that any Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss"), then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than
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Permitted Liens (in which event Customer shall be entitled to utilize the
proceeds of insurance on account of such Event of Loss for such purpose, and
may retain any excess proceeds of such insurance), or prepay the Loan by an
amount equal to the actual cash value of such Collateral as determined by
either the insurance company's payment (plus any applicable deductible) or, in
absence of insurance company payment, as reasonably determined by MLBFS; it
being further understood that if the Loan has not then been funded, an amount
equal to the actual cash value of such Collateral shall be deposited into the
WCMA Account concurrently with a like permanent reduction in the Initial WCMA
Line of Credit and Term WCMA Loan Amount. Notwithstanding the foregoing, if
at the time of occurrence of such Event of Loss or any time thereafter prior
to replacement or prepayment, as aforesaid, an Event of Default shall occur
hereunder, then MLBFS may at its sole option, exercisable at any time while
such Event of Default shall be continuing, require Customer to either replace
such Collateral or prepay the Loan or make a deposit into the WCMA Account and
reduce the Initial WCMA Line of Credit and Term WCMA Loan Amount, as
aforesaid. Any prepayment of the Loan pursuant to this Section shall be
applied first to installments on account of the then "Term Note Balance" (as
defined in the Term WCMA Note) in inverse order of maturity; with any
prepayment in excess of the then Term Note Balance applied on account of the
WCMA Note concurrently with: (i) a like permanent reduction in the Term WCMA
Line of Credit, and (ii) a like reduction in the obligation of MLBFS to fund
future installments on account of the Term WCMA Note in inverse order of
funding. No amount prepaid pursuant to this Section may be re-borrowed by
Customer.
(h) Notice of Certain Events. Customer shall give MLBFS immediate notice of
any attachment, lien, judicial process, encumbrance or claim affecting or
involving $25,000.00 or more of the Collateral.
(i) Indemnification. Customer shall indemnify, defend and save MLBFS
harmless from and against any and all claims, liabilities, losses, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) of any nature whatsoever which may be asserted against or incurred
by MLBFS arising out of or in any manner occasioned by (i) the ownership,
possession use or operation of any Collateral, or (ii) any failure by Customer
to perform any of its obligations hereunder; excluding, however, from said
indemnity any such claims, liabilities, etc. arising directly out of the
willful wrongful act or active gross negligence of MLBFS. This indemnity
shall survive the expiration or termination of this Loan Agreement as to all
matters arising or accruing prior to such expiration or termination.
5.5 Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the
WCMA Account when due any amount owing or required to be deposited by Customer
under
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this Loan Agreement (including the WCMA Note set forth herein) or the Term
WCMA Note, or shall fail to pay when due any other Obligations, and any such
failure shall continue for more than 5 Business Days after written notice
thereof shall have been given by MLBFS to Customer.
(b) Failure to Perform. Customer shall default in the performance or
observance of any covenant or agreement on its part to be performed or observed
under this Loan Agreement, the Term WCMA Note or any of the other Additional
Agreements (not constituting an Event of Default under any other clause of this
Section), and such default shall continue unremedied for 10 Business Days after
written notice thereof shall have been given by MLBFS to Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer
contained in this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements shall at any time prove to have been incorrect in any
material respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Customer
shall occur under the terms of any other agreement, instrument or document with
or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any
required notice shall have been given and required passage of time shall have
elapsed.
(e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer, or any such proceeding shall be filed against
Customer and shall not be dismissed or withdrawn within 60 days after filing, or
Customer shall make an assignment for the benefit of creditors, or Customer
shall become insolvent or generally fail to pay, or admit in writing its
inability to pay, its debts as they become due.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer has been materially impaired.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which
results in the acceleration of the maturity of any indebtedness of $100,000.00
or more of Customer to another creditor under any indenture, agreement,
undertaking, or otherwise.
(h) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.
5.6 Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the
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following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate the Initial WCMA Line of
Credit and terminate its obligation to make the Loan (if the Loan has not then
been made), or terminate its obligation to fund any further amount on account of
the Term WCMA Note, or make or continue to make the Term WCMA Line of Credit
available to Customer, and terminate any obligation to otherwise extend any
credit to or for the benefit of Customer, and upon any such termination MLBFS
shall be relieved of all such obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest on the
Initial WCMA Note or Term Note and WCMA Note included in the Term WCMA Note, as
the case may be, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand for payment, protest and notice of protest, notice of
dishonor, notice of acceleration, notice of intent to accelerate or other notice
or formality of any kind, all of which are hereby expressly waived.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of
the remedies of a secured party under applicable law, including, but not limited
to, the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient, or may take possession of the Collateral
and the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS
may purchase any Collateral at any such public sale. The net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer remaining liable for any amount remaining unpaid after such
application.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and
<PAGE>
Page 22
securities therein or controlled thereby, and all proceeds thereof. Customer
hereby collaterally assigns and grants to MLBFS a security interest in all
such property as additional Collateral.
(c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.
(d) Notices. To the fullest extent permitted by applicable law, Customer
hereby irrevocably waives and releases MLBFS of and from any and all liabilities
and penalties for failure of MLBFS to comply with any statutory or other
requirement imposed upon MLBFS relating to notices of sale, holding of sale or
reporting of any sale, and Customer waives all rights of redemption or
reinstatement from any such sale. Any notices required under applicable law
shall be reasonably and properly given to Customer if given by any of the
methods provided herein at least 5 Business Days prior to taking action. MLBFS
shall have the right to postpone or adjourn any sale or other disposition of
Collateral at any time without giving notice of any such postponed or adjourned
date. In the event MLBFS seeks to take possession of any or all of the
Collateral by court process, Customer further irrevocably waives to the fullest
extent permitted by law any bonds and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession, and any demand for possession prior to the commencement of any suit
or action.
5.7 Miscellaneous.
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and no
single or partial exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any waiver of any provision of this Loan Agreement, the Term
WCMA Note or any of the other Additional Agreements, nor any consent to any
departure by Customer therefrom, shall be effective unless the same shall be in
writing and signed by MLBFS. Any waiver of any provision of this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements and any
consent to any departure by Customer from the terms thereof shall be effective
only in the specific instance and for the specific purpose for which given.
Except as otherwise expressly provided herein, no notice to or demand on
Customer shall in any case entitle Customer to any other or further notice or
demand in similar or other circumstances.
(b) Disclosure. Customer hereby irrevocably authorize MLBFS and each of its
affiliates, including without limitation MLPF&S, to at any time (whether or not
an Event of Default shall have occurred) obtain from and disclose to each other
any and all financial and other information about Customer.
<PAGE>
Page 23
(c) Communications. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse
MLBFS for (i) all Uniform Commercial Code and other filing and search fees and
expenses incurred by MLBFS in connection with the verification, perfection or
preservation of MLLE'S' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the enforcement of this Loan Agreement or any of the
Additional Agreements and the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and expenses of MLBFS' employees. The
obligations of Customer under this paragraph shall survive the expiration or
termination of this Loan Agreement and the discharge of the other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or
thing which it has covenanted to do under this Loan Agreement or any
representation or warranty on the part of Customer contained in this Loan
Agreement shall be breached, MLBFS may, in its sole discretion, after 5 Business
Days written notice is sent to Customer (or such lesser notice, including no
notice, as is reasonable under the circumstances), do the same or cause it to be
done or remedy any such breach, and may expend its funds for such purpose. Any
and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by
Customer upon demand, with interest at the Interest Rate during the period from
and including the date funds are so expended by MLBFS to the date of repayment,
and all such amounts shall be additional Obligations. The payment or
performance by MLBFS of any of Customer's obligations hereunder shall not
relieve Customer of said obligations or of the consequences of having failed to
pay or perform the same, and shall not waive or be deemed a cure of any Event of
Default.
(f) Late Charge. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within 10 days of
the applicable due date shall be subject to a late charge in an amount equal to
the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount
permitted by applicable
<PAGE>
Page 24
law. Such late charge shall be payable on demand, or, without demand, may in
the sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA
Loan Balance in the same manner as provided herein for accrued interest with
respect to the Initial WCMA Line of Credit or Term WCMA Line of Credit.
(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, the Term WCMA Note or any the other Additional
Agreements, or to establish, perfect and maintain MLBFS' security interests and
liens upon the Collateral, including, but not limited to: (i) executing
financing statements or amendments thereto when and as reasonably requested by
MLBFS; and (ii) if in the reasonable judgment of MLBFS it is required by local
law, causing the owners and/or mortgagees of the real property on which any
Collateral may be located to execute and deliver to MLBFS waivers or
subordinations reasonably satisfactory to MLBFS with respect to any rights in
such Collateral.
(h) Binding Effect. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Agreement
are inserted only as a matter of convenience, and shall not affect the
interpretation hereof.
(j) Governing Law. This Loan Agreement, the Term WCMA Note and, unless
otherwise expressly provided therein, each of the other Additional Agreements,
shall be governed in all respects by the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(1) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Loan, or,
<PAGE>
Page 25
after the Closing Date, there shall be any moneys outstanding under the Term
Note or WCMA Note included in the Term WCMA Note or under this Loan
Agreement, or there shall be any other Obligations outstanding.
(m) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS
THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without
limiting the foregoing, Customer acknowledges that: (i) no promise or commitment
has been made to it by MLBFS, MLPF&S or any of their respective employees,
agents or representatives to make the Loan on any terms other than as expressly
set forth herein and in the Term WCMA Note, or to make any other loan or
otherwise extend any other credit to Customer or any other party; and (ii)
except as otherwise expressly provided herein, this Loan Agreement supersedes
and replaces any and all proposals, letters of intent and approval and
commitment letters from MLBFS to Customer, none of which shall be considered an
Additional Agreement. No amendment or modification of this Agreement or any of
the Additional Agreements to which Customer is a party shall be effective unless
in a writing signed by both MLBFS and Customer.
(n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED, CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER
FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
<PAGE>
Page 26
U.S. LONG DISTANCE, INC.
By: /S/ PHIL STORIN /S/ LARRY M. JAMES
-------------------- --------------------
Signature (1) Signature (2)
PHIL STORIN LARRY M. JAMES
-------------------- --------------------
Printed Name Printed Name
SR. V.P. & CFO PRESIDENT & CEO
-------------------- --------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES, INC.
By:
<PAGE>
Page 27
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA AND TERM WCMA LOAN AND SECURITY
AGREEMENT NO. 9608340801 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
AND U.S. LONG DISTANCE, INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Specific Equipment Included in the Collateral:
(To be amended with each increase in the Initial WCMA Line of Credit)
Locations of Collateral:
<PAGE>
Page 28
Merrill Lynch
No.9608340801
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
$10,000,000.00 August 23, 1996
TERM WCMAa NOTE
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC., a corporation organized and
existing under the laws of the State of Texas ("Customer"), hereby promises to
pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
("MLBFS"), in lawful money of the United States, the principal sum of
$10,000,000.00, or, if less, an amount equal to the sum of the balances from
time to time outstanding under the "Term Note" and "WCMA Note" included herein.
TERM NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in
lawful money of the United States, an amount equal to the difference between (i)
the principal sum of $10,000,000.00 or, if less, the "Term WCMA Loan Amount", as
that term is defined in the "Loan Agreement" described below (the "Funded Loan
Amount"), and (ii) the sum of (x) the aggregate amount paid by Customer on
account of the principal hereof, and (y) the Term WCMA Line of Credit (said
difference being herein called the "Term Note Balance"); together with interest
on the Term Note Balance, from the date of advancement of funds hereunder until
payment, at the "Interest Rate" (as hereinafter defined).
Said indebtedness shall be payable in 60 consecutive monthly installments
commencing on the first day of the calendar month following the calendar month
in which funds are advanced hereunder, and continuing on the first day of each
calendar month thereafter until this Note shall be paid in full. Installments 1
through 59, both inclusive, shall be in an amount equal to the sum of (i)
accrued interest at the Interest Rate and (ii) 1/60th of the Funded Loan Amount,
and the 60th such installment in an amount equal to the then outstanding
principal of and interest on the Funded Loan Amount. Each payment received
hereunder shall be applied first to interest at the Interest Rate, with the
balance applied on account of the Term Note Balance. All sums payable hereunder
shall be payable at the office of MLBFS at 33 West Monroe Street, Chicago,
Illinois 60603, or at such other place or places as the holder hereof may from
time to time appoint in writing.
Customer may prepay this Term Note at any time in whole or in part without
premium or penalty. Any partial prepayment shall be applied to installments of
the Term WCMA Loan Amount in inverse order of maturity. Customer shall not have
the right to re-borrow amounts prepaid on account of this Term Note.
<PAGE>
Page 29
<PAGE>
Page 30
WCMA NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in the Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Final WCMA Maturity Date, the then WCMA Loan Balance; and
(b) interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full. Interest shall be payable in the manner and
on the dates specified in, or determined in accordance with, the Loan Agreement.
PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE
As used herein, the term "Interest Rate" shall mean a variable per annum rate
equal to the sum of (i) 2.70%, and (ii) the 30-Day Commercial Paper Rate.
The "30-Day Commercial Paper Rate" shall mean, as of the date of any
determination, the interest rate from time to time published in the "Money
Rates" section of The Wall Street Journal for 30-day high-grade unsecured
notes sold through dealers by major corporations. The Interest Rate will
change as of the date of publication in The Wall Street Journal of a 30-Day
Commercial Paper Rate that is different from that published on the preceding
Business Day. In the event that The Wall Street Journal shall, for any
reason, fail or cease to publish the 30-Day Commercial Paper Rate, MLBFS will
choose a reasonably comparable index or source to use as the basis for the
Interest Rate. Any part of the principal hereof or interest hereon not paid
within 10 days of the applicable due date shall be subject to a late charge
equal to the lesser of (i) 5% of the overdue amount, or (ii) the maximum
amount permitted by law. All interest shall be computed on the basis of
actual days elapsed over a 360-day year.
This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA
Note" referred to in, and is entitled to all of the benefits of, that certain
WCMA AND TERM WCMA LOAN AND SECURITY AGREEMENT NO. 9608340801 between Customer
and MLBFS (the "Loan Agreement'). Capitalized terms used herein and not defined
herein shall have the meaning set forth in the Loan Agreement. The Loan
Agreement is by this reference hereby incorporated as a part hereof,
If Customer shall fail to pay when due any installment or other sum due
hereunder and any such failure shall continue for more than 5 Business Days
after written notice thereof from the holder hereof to Customer, or if any other
"Event of Default", as that term is defined in the Loan Agreement, shall occur
and be continuing, then at the option of the holder hereof, and in addition to
all other rights and remedies available to such holder under the Loan Agreement
and otherwise, an amount equal to the sum of the WCMA Loan Balance and the Term
Note Balance at such time remaining unpaid, together with accrued interest
thereon and all other sums then owing by Customer under the Loan Agreement, may
be declared to be and thereby become immediately due and payable.
<PAGE>
Page 31
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Term WCMA Note at or after maturity, whether by acceleration or otherwise, or
shall affect the obligation of Customer, which is also unconditional and
absolute, to pay the sums payable under this Term WCMA Note in accordance with
its terms. Except as otherwise expressly set forth herein or in the Loan
Agreement, Customer hereby waives presentment, demand for payment, protest and
notice of protest, notice of dishonor, notice of acceleration, notice of intent
to accelerate and all other notices and formalities in connection with this Term
WCMA Note.
Wherever possible each provision of this Term WCMA Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Term WCMA Note shall be prohibited by or invalid under such
law, such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Term WCMA Note. Notwithstanding any provision to the
contrary in this Term WCMA Note, the Loan Agreement or any of the "Additional
Agreements" (as defined in the Loan Agreement), no provision of this Term WCMA
Note, the Loan Agreement or any of the Additional Agreements shall require the
payment or permit the collection of any amount in excess of the maximum amount
of interest permitted to be charged by law ("Excess Interest"). If any Excess
Interest is provided for, or is adjudicated as being provided for, in this Term
WCMA Note, the Loan Agreement or any of the Additional Agreements, then: (a)
Customer shall not be obligated to pay any Excess Interest; and (b) any Excess
Interest that MLBFS may have received under this Term WCMA Note, the Loan
Agreement or any of the Additional Agreements shall, at the option of MLBFS, be:
(i) applied as a credit against the then unpaid principal balance of this Term
WCMA Note, or accrued and unpaid interest hereon not to exceed the maximum
amount permitted by law, or both, (ii) refunded to the payor thereof. or (iii)
any combination of the foregoing.
This Term WCMA Note shall be construed in accordance with the laws of the State
of Illinois and may be enforced by the holder hereof in any jurisdiction in
which the Loan Agreement may be enforced.
IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the
day and year first above written.
U.S. LONG DISTANCE, INC.
By: /S/ PHIL STORIN /S/ LARRY M. JAMES
-------------------- ----------------------
Signature (1) Signature (2)
PHIL STORIN LARRY M. JAMES
-------------------- ----------------------
Printed Name Printed Name
<PAGE>
Page 32
SR. V.P. & CFO PRESIDENT & CEO
-------------------- ----------------------
Title Title
<PAGE>
Page 1
AMENDMENT NO. 3 TO OPERATOR SERVICES AGREEMENT
This Amendment No. 3 to that certain Operator Services Agreement, including
Addendum, dated September 16, 1993 (the "Agreement") by and between U. S. Long
Distance, Inc. ("USLD") and G-Five Corp. ("G-5") amends the Agreement and all
previous addendums and amendments in the following respects:
1. Section 1.1 Basic Services of the Agreement is hereby amended by adding
the following sentence:
G-5 shall have the right at any time to amend or replace its existing
form of Customer Agreement so long as the Operator Services Provider
services required of USLD thereunder are not modified or changed in any
respect from the original version of the Customer Agreement.
2. Section 1.2(a) of the Agreement is hereby deleted in its entirety.
3. Section 1.2(d) of the Agreement is hereby amended in its entirety to read
as follows:
USLD shall offer commission rates pertaining to Customers' telephones
requiring operator services located both inside and outside of the State of
California pursuant to the commission rates set forth in Exhibit "B" which
is attached hereto and incorporated herein for all purposes.
4. Section 2.1 of the Agreement is hereby amended in its entirety to read as
follows:
2.1 Premises Imposed Fees. USLD and G-5 agree that all premises
imposed fees ("PIF") on qualifying calls are included and made a part of
the applicable rate charged on Exhibit "B." All California PIF shall be
paid to G-5 or its Customers as G-5 shall direct excluding InterLATA PIF.
5. The first paragraph of Section 2.2 of the Agreement is hereby amended in
its entirety to read as follows:
2.2 Commissions. Subject to all governmental laws and governmental
regulations that may be applicable thereto, including all public utility
commission and federal communications tariffs, and subject to each
Customer's performance of its obligations set forth in the Customer
Agreement or the Telephone Agreement, USLD shall pay monthly, directly to
each Customer or to G-5 as G-5 may direct by prior notice to USLD,
commission amounts when required as specified in either the Customer
Agreement or the Telephone Agreement, whichever is applicable. The
commission amounts set forth in the Customer Agreement or the Telephone
Agreement, as the case may be, shall not be changed without notice to USLD.
<PAGE>
Page 2
Section 2.2 b. is amended to read as follows:
2.2 b. On all intrastate calls, 2% of the revenue generated by said
calls, except that the rate applicable to California Intrastate (InterLATA)
shall be 4%.
Section 2.2 of the Agreement is hereby further amended by adding the
following Section 2.2 f:
2.2 f. USLD shall pay to G-5 an override of an addition one (1%)
percent commission on all revenue resulting from calls placed during the
period October 1, 1995 through September 30, 1996, if, and only if, said
calls for that year exceed 3.0 million in number. Likewise, USLD shall pay
to G-5 a one (1%) percent override, in like manner, if the calls exceed 3.0
million in number for the next and each succeeding year during the term of
the Agreement and any renewals or extensions. Override amounts shall be
paid by December 1 following the period for which earned.
6. The rate tables referred to in Section 2.3 are revised, as set forth on
Attachment "B" to this Amendment. G-5 shall be paid the rates specified in
Section 2.2a through f in addition to the rates set forth on Attachment "B"
applicable to G-5's Customers.
7. Sections 2.4 and 2.5 of the Agreement are deleted in their entirety. The
parties' agreement regarding PIF is now contained in its entirety in Section 2.1
above.
8. Section 2.6 of the Agreement is hereby deleted in its entirety. USLD
assumes full financial responsibility for all unbillable and uncollectible
end-user calls and for all end-user fraud, and there shall be no deductions,
pre or post-billing adjustments, "true-ups" or other effect upon the commissions
otherwise payable by USLD to G-5 or its Customers by reason thereof.
9. Section 2.7 of the Agreement is hereby amended in its entirety to read as
follows:
2.7 Sign-Up and Other Bonuses. Subject to the right of refund and
offset as set forth in this Agreement, USLD shall pay G-5 a $100,000.00
signing fee payable as follows: $50,000.00 to be paid on November 1, 1995;
and $50,000 to be paid on September 30, 1996.
10. Section 3.3 of the Agreement is hereby amended in its entirety to read as
follows:
G-5's Minimum Commitment After October 1, 1995. G-5 shall provide and
maintain a minimum cumulative (i.e., running) average of 145,000 calls per
month (the "Minimum Monthly Commitment") for the term of this Agreement.
In the event G-5 fails to maintain this Minimum Monthly Commitment, USLD
shall have the right to cancel this Agreement upon ninety (90) days written
notice. If
<PAGE>
Page 3
notice of cancellation is given, the commissions otherwise payable by USLD
shall continue to be paid while an orderly transition of Customer pay phones
off of USLD's circuits is effected during said ninety (90)-day period;
however, no override shall be paid to G-5 during such period.
11. Section 4.1 of the Agreement is hereby amended in its entirety to read as
follows:
Section 4.1 Effective Date and New Term. This Agreement shall be
effective as of October 1, 1995, and shall expire on October 1, 1997.
12. Section 4.3 of the Agreement is hereby amended in its entirety to read as
follows:
4.3 Signing Fee Refund/Offset Upon Early Cancellation. In the event
USLD terminates this Agreement due to G-5's failure to maintain the Minimum
Monthly Commitment as required during the term of this Agreement, USLD
shall have the right to make written demand and G-5 agrees to refund the
$100,000.00 signing fee within thirty (30) days of such written notice. In
addition, in such event, Customer grants USLD the right of offset against
G-5's commissions to recover the signing fee.
13. Section 4.5 of the Agreement is hereby amended in its entirety to read as
follows:
4.5 Non-Solicitation. Neither USLD nor G-5 shall directly or
indirectly solicit the other's customers with respect to any operator
service project or program without the other's participation therein, and
shall not directly or indirectly interfere with or discourage the continued
affiliation and relationship between the other's customers during the term
of their respective contractual relationships and any renewals, extensions
and future replacements thereof.
14. A new Section 5.5 is hereby added to the Agreement which shall read as
follows:
5.5 Use of Services by G-5 Board Members. G-5 agrees to cause its
board members to use USLD's operator services for all InterLATA and
Interstate calls for the term of this Agreement.
15. A new Section 5.6 is hereby added as follows:
5.6 Commercial Impracticability/Force Majeure. Neither party shall
be liable for any failure to perform its obligations in connection with any
action described in this Agreement, if such failure results from any act of
God, riot, war, civil unrest, flood, earthquake, regulatory change or
change in law, or other cause beyond that party's reasonable control, but
excluding failure caused by that party's financial condition or negligence.
<PAGE>
Page 4
In the event of a legal or regulatory change that affects either
party's ability to provide telecommunications service to G-5 Customers at a
reasonable profit, the parties shall in good faith negotiate the then
applicable rates, charges and commissions required under the Agreement. If
the parties are unable to agree upon modifications acceptable to both of
them, then either dissatisfied party shall have the right to give sixty
(60) days' notice to the other of election to discontinue services
hereunder. In the event services are so discontinued, G-5 shall refund
that fraction of the $100,000.00 signing fee determined by dividing the
number of days from the date of discontinuation through September 30, 1977
by 730 (730 days being the total number of days in the two (2) year term of
this Amendment No. 3).
16. Any amounts required to be paid under this Agreement that are not paid by
either party to the other by the dates due shall bear interest at the lesser of
eighteen (18%) percent per annum or the highest amount permitted by applicable
law.
17. All other terms and conditions of the Agreement are hereby ratified and
confirmed in their entirety.
18. The "Addendum to Operator Services Agreement" dated the 16th day of
September, 1993, as well as Amendment No. 1 dated April 30, 1994 and Amendment
No. 2 dated June 28, 1995, are hereby deleted in their entirety.
AGREED TO and ACCEPTED on this 31st day of August, 1995.
U. S. LONG DISTANCE, INC. G-FIVE CORPORATION
By: /S/ JOHN M. WELSH By: /S/ MARK A. HARLAN
------------------------------- -------------------------------
John M. Welsh, Vice President Sales Mark A. Harlan, President
Dated: 09/29/95 Dated 9/14/95
By: /S/ LARRY M. JAMES By: /S/ ROBERT J. BERG
------------------------------- -------------------------------
Larry M. James, President Robert J. Berg, Secretary
Dated 09/29/95 Dated 9-7-95
<PAGE>
Page 1
1993 NON-EMPLOYEE DIRECTOR PLAN OF
U.S. LONG DISTANCE CORP.
1. PURPOSE. The purpose of this Plan is to advance the interests of U.S.
Long Distance Corp., a Delaware corporation (the "Company"), by providing an
additional incentive to attract and retain qualified and competent directors,
upon whose efforts and judgment the success of the Company is largely dependent,
through the encouragement of stock ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Annual Director Fee" shall mean a fee payable annually to each
Eligible Person on the business day on or immediately after December 15 of each
year ("Payment Date"), at the election of the Eligible Person, in either cash of
$15,000 or an Option granted pursuant to Section 5 or partly in cash and partly
in an Option granted pursuant to Section 5.
(b) "Board" shall mean the Board of Directors of U.S. Long Distance
Corp.
(c) "Committee" shall mean the committee, if any, appointed by the
Board pursuant to Section 12 hereof.
(d) "Date of Grant" shall mean the date on which an Option is granted
to an Eligible Person pursuant to Section 4(c) hereof.
(e) "Director" shall mean a member of the Board.
(f) "Eligible Person(s)" shall mean those persons who are Directors
of the Company and who are not employees of the Company or a Subsidiary.
(g) "Fair Market Value" of a Share on any date of reference shall be
the closing price on the business day immediately preceding such date. For this
purpose, the closing price of the Shares on any business day shall be (i) if the
Shares are listed or admitted for trading on any United States national
securities exchange, the last reported sale price of Shares on such exchange, as
reported in any newspaper of general circulation, (ii) if actual transactions in
the Shares are included in the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ-NMS") or are reported on a
consolidated transaction reporting system, the last sales price of the Shares on
such system, (iii) if Shares are otherwise quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), or any similar system
of automated dissemination of quotations of securities prices in common use, the
mean between the closing high bid and low asked quotations for such day of
Shares on such system, (iv) if none of clause (i), (ii) or (iii) is applicable,
the mean between the high bid and low asked quotations for Shares as reported by
the
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National Daily Quotation Service if at least two securities dealers have
inserted both bid and asked quotations for Shares on at least five (5) of the
ten (10) preceding days.
(h) "Internal Revenue Code" or "Code" shall mean the Internal Revenue
Code of 1986, as it now exists or may be amended from time to time.
(i) "Nonqualified Stock Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.
(j) "Option" (when capitalized) shall mean any option granted under
Section 4 or 5 of this Plan.
(k) "Optionee" shall mean a person to whom a stock option is granted
under this Plan or any successor to the rights of such person under this Plan by
reason of the death of such person.
(l) "Payment Date" shall have the meaning set forth in Section 2(a).
(m) "Plan" shall mean this 1993 Non-Employee Director Plan of U.S.
Long Distance Corp.
(n) "Share(s)" shall mean a share or shares of the common stock, par
value one cent ($0.01) per share, of the Company.
(o) "Subsidiary" shall mean any corporation (other than the Company)
in any unbroken chain of corporations beginning with the Company if, at the time
of the granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing more than fifty percent
(50%) of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. SHARES AND OPTIONS. The maximum number of Shares to be issued
pursuant to Options under this Plan, including shares issued on the exercise of
Shares granted to Eligible Persons prior to the adoption of the Plan under the
Company outside the director option plan adopted in February 1991, shall be TWO
HUNDRED FIFTY THOUSAND (250,000) Shares. Shares issued pursuant to Options
granted under this Plan may be issued from Shares held in the Company's treasury
or from authorized and unissued Shares. If any Option granted under this Plan
shall terminate, expire, or be cancelled or surrendered as to any Shares, new
Options may thereafter be granted covering such Shares. Any Option granted
hereunder shall be a Nonqualified Stock Option.
4. AUTOMATIC GRANT OF OPTIONS. (a) Options shall automatically be
granted to Eligible Persons as provided in this Section 4. Each Option shall be
evidenced by an option agreement (an "Option Agreement") and shall contain such
terms as are not inconsistent with this Plan or any applicable law. Any person
who files with the
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Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to
receive any Option under this Plan for the duration of such waiver.
(b) The Options automatically granted to Directors under this Plan
shall be in addition to regular director's fees or other benefits with respect
to the Director's position with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to continue to serve as a Director.
(c) Options shall be automatically granted as follows:
(i) Each Director who is an Eligible Person shall automatically
receive an Option for FIFTEEN THOUSAND (15,000) Shares on the date such
Eligible Person is initially appointed or elected a Director of the
Company, and such Option will vest as to FIVE THOUSAND (5,000) Shares on
each of the first three anniversaries of the Date of Grant; and
(ii) Each Director who is an Eligible Person will receive, on the
first business date after the date of each annual meeting of stockholders
of the Company, commencing with the annual meeting of stockholders
immediately following the full vesting of any previously granted Director
Option, an option to purchase FIFTEEN THOUSAND (15,000) Shares, and such
Option will vest as to FIVE THOUSAND (5,000) Shares on each of the first
three anniversaries of the Date of Grant.
(d) Any Option that may be granted pursuant to subparagraph (c) of
this Section 4 prior to the approval of this Plan by the stockholders of the
Company may be exercised on or after the Date of Grant subject to the approval
of this Plan by the stockholders of the Company within twelve (12) months after
the effective date of this Plan. If any Optionee exercises an Option prior to
such stockholder approval, the Optionee must tender the exercise price at the
time of exercise and the Company shall hold the Shares to be issued pursuant to
such exercise until the stockholders approve this Plan. If this Plan is
approved by the stockholders, the Company shall issue and deliver the Shares as
to which the Option has been exercised. If this Plan is not approved by the
stockholders, the Company shall return the exercise price to the Optionee.
(e) Except for the automatic grants of Options under subparagraph (c)
of this Section 4 and grants of Options to Eligible Persons under Section 5
below, no Options shall otherwise be granted hereunder, and neither the Board
nor the Committee, if any, shall have any discretion with respect to the grant
of Options within the meaning of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, or any successor rule.
5. ELECTION WITH RESPECT TO ANNUAL DIRECTOR FEE. Each Eligible Person
may
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Page 4
elect to receive the Annual Director Fee in cash or an Option or partly in
cash and partly in an Option. Any election to receive an Option shall be in
writing and must be made no less than eleven (11) months prior to the Payment
Date in 1996, and thereafter such election shall be made not later than December
31 of each year with respect to the Annual Director Fee to be made on the
Payment Date in the subsequent year. The election may not be revoked or changed
after it is made. For purposes of this election and subject to Section 9, in
lieu of receipt of the Annual Director Fee in cash, as elected by the Eligible
Person, each $2 of cash compensation shall be converted into an Option, granted
as of the Payment Date, to purchase one (1) share of Common Stock. If an
Eligible Person so elects to receive an Option, the Company shall promptly
deliver to such Eligible Person an Option Agreement. To be eligible to receive
the Annual Director Fee, for any year, the Eligible Person must be a Director on
the Payment Date for that Annual Director Fee. Any person who files with the
Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Option under this Plan shall not be eligible to
receive any Option under this Plan for the duration of such waiver.
6. OPTION PRICE. The option price per Share of any Option granted
pursuant to this Plan shall be one hundred percent (100%) of the Fair Market
Value per Share on the Date of Grant.
7. EXERCISE OF OPTIONS. Options may be exercised at any time after the
date on which the Options, or any portion thereof, are vested until the Option
expires pursuant to Section 8; provided, however, that no Option shall be
exercisable prior to six (6) months from the Date of Grant. An Option shall be
deemed exercised when (i) the Company has received written notice of such
exercise in accordance with the terms of the Option Agreement, (ii) full payment
of the aggregate option price of the Shares as to which the Option is exercised
has been made and (iii) arrangements that are satisfactory to the Committee in
its sole discretion have been made for the Optionee's payment to the Company of
the amount, if any, that the Committee determines to be necessary for the
Company to withhold in accordance with applicable federal or state income tax
withholding requirements. Pursuant to procedures approved by the Committee, tax
withholding requirements, at the option of an Optionee, may be met by
withholding Shares otherwise deliverable to the Optionee upon the exercise of an
Option. Unless further limited by the Committee in any Option Agreement, the
Option price of any Shares purchased shall be paid solely in cash, by certified
or cashier's check, by money order, with Shares (but with Shares only if
permitted by the Option Agreement or otherwise permitted by the Committee in its
sole discretion at the time of exercise) or by a combination of the above;
provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price
is paid in whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value on the date the Shares are received by the
Company.
8. TERMINATION OF OPTION PERIOD. The unexercised portion of an Option
shall automatically and without notice terminate and become null and void at the
time of the
<PAGE>
Page 5
earliest to occur of the following:
(a) with respect to Options granted automatically pursuant to Section
4(c), thirty (30) days after the date that an Optionee ceases to be a Director
regardless of the reason therefor other than as a result of such termination by
death of the Optionee;
(b) with respect to Options granted automatically pursuant to
Section, 4(c), (y) one (1) year after the date that an Optionee ceases to be a
Director by reason of death of the Optionee or (z) six (6) months after the
Optionee shall die if that shall occur during the thirty-day period described in
Subsection 8(a); or
(c) the fifth (5th) anniversary of the Date of Grant of the Option.
9. ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in effect
or unexercised Options are outstanding, there shall be any increase or decrease
in the number of issued and outstanding Shares through the declaration of a
stock dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the maximum number
of Shares then subject to being optioned under this Plan, so that the
same proportion of the Company's issued and outstanding Shares shall
continue to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of Shares
and the exercise price per Share thereof then subject to any
outstanding Option, so that the same proportion of the Company's
issued and outstanding Shares shall remain subject to purchase at the
same aggregate exercise price.
In addition, the Committee shall make such adjustments in the Option price
and the number of shares covered by outstanding Options that are required to
prevent dilution or enlargement of the rights of the holders of such Options
that would otherwise result from any reorganization, recapitalization, stock
split, stock dividend, spin-off, combination of shares, merger, consolidation,
issuance of rights or any other change in capital structure of the Company.
(b) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection with
a direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of or exercise price of Shares
then subject to outstanding Options granted under this Plan.
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Page 6
(c) Without limiting the generality of the foregoing, the existence
of outstanding Options granted under this Plan shall not affect in any manner
the right or power of the Company to make, authorize or consummate (i) any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business; (ii) any merger or consolidation of
the Company; (iii) any issue by the Company of debt securities, or preferred or
preference stock that would rank above the Shares subject to outstanding
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
10. TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide that
such Option shall not be transferable by the Optionee otherwise than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order and that so long as an Optionee lives, only such Optionee or his
or her guardian or legal representative shall have the right to exercise the
related Option.
11. ISSUANCE OF SHARES. No person shall be, or have any of the rights or
privileges of, a stockholder of the Company with respect to any of the Shares
subject to an Option unless and until certificates representing such Shares
shall have been issued and delivered to such person. As a condition of any
transfer of the certificate for Shares, the Committee may obtain such agreements
or undertakings, if any, as it may deem necessary or advisable to assure
compliance with any provision of this Plan, any Option Agreement or any law or
regulation, including, but not limited to, the following:
(i) A representation, warranty or agreement by the Optionee to
the Company, at the time any Option is exercised, that he or she is
acquiring the Shares to be issued to him or her for investment and not
with a view to, or for sale in connection with, the distribution of
any such Shares; and
(ii) A representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed
by the Committee to be applicable to the issuance of the Shares and
are endorsed upon the Share certificates.
Share certificates issued to an Optionee who is a party to any stockholder
agreement or a similar agreement shall bear the legends contained in such
agreements.
12. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by a
stock option committee (the "Committee") consisting of not fewer than three (3)
members of the Board; provided, however, that if no Committee is appointed, the
Board shall administer this Plan and in such case all references to the
Committee shall be deemed to be references to the Board. The Committee shall
have all of the powers of the Board
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Page 7
with respect to this Plan. Any member of the Committee may be removed at any
time, with or without cause, by resolution of the Board, and any vacancy
occurring in the membership of the Committee may be filled by appointment by
the Board.
(b) The Committee, from time to time, may adopt rules and regulations
for carrying out the purposes of this Plan. The determinations and the
interpretation and construction of any provision of this Plan by the Committee
shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee shall be
made either (i) by a majority vote of the members of the Committee at a meeting
or (ii) without a meeting by the written approval of a majority of the members
of the Committee.
(d) This Plan is intended and has been drafted to comply with Rule
16b-3, as amended, under the Securities Exchange Act of 1934, as amended. If
any provision of this Plan does not comply with Rule 16b-3, as amended, this
Plan shall be automatically amended to comply with Rule 16b-3, as amended.
(e) This Plan shall not be amended more than once every six (6)
months, other than to comport with applicable changes to the Internal Revenue
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder.
13. INTERPRETATION. (a) If any provision of this Plan is held invalid for
any reason, such holding shall not affect the remaining provisions hereof, but
instead this Plan shall be construed and enforced as if such provision had never
been included in this Plan.
(b) THIS PLAN SHALL BE GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE
OF DELAWARE, WITHOUT REFERENCE TO DELAWARE CONFLICT OF LAW PROVISIONS.
(c) Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine or neuter gender shall
be a reference to such other gender as is appropriate.
14. SECTION 83(b) ELECTION. If as a result of exercising an Option an
Optionee receives Shares that are subject to a "substantial risk of forfeiture"
and are not "transferable" as those terms are defined for purposes of Section
83(a) of the Code, then such Optionee may elect under Section 83(b) of the Code
to include in his gross income, for his taxable year in which the Shares are
transferred to such Optionee, the excess of the Fair Market Value of such Shares
at the time of transfer (determined without regard to any restriction other than
one which by its terms will never lapse), over
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Page 8
the amount paid for the Shares. If the Optionee makes the Section 83(b)
election described above, the Optionee shall (i) make such election in a
manner that is satisfactory to the Committee, (ii) provide the Company with a
copy of such election, (iii) agree to promptly notify the Company if any
Internal Revenue Service or state tax agent, on audit or otherwise, questions
the validity or correctness of such election or of the amount of income
reportable on account of such election, and (iv) agree to such withholding as
the Committee may reasonably require in its sole and absolute discretion.
15. EFFECTIVE DATE AND TERMINATION DATE. The effective date of this Plan
or any amendment thereto is the date on which the Board adopted this Plan or
such amendment; provided, however, if this Plan is not approved by the
stockholders of the Company within twelve (12) months after the effective date,
then, in such event, this Plan and all Options granted pursuant to this Plan
shall be null and void. This Plan shall terminate on September 17, 2000, and
any Option outstanding on such date will remain outstanding until it has either
expired or has been exercised.
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Page 1
[DATE]
[NAME]
[ADDRESS]
[ADDRESS]
Dear [Mr./Ms.] [OPTIONEE'S LAST NAME]:
On behalf of U.S. Long Distance Corp. (the "Company"), I am pleased to
announce that you (the "Participant") have been awarded, under the terms of the
1993 Non-Employee Director Plan of U.S. Long Distance Corp. (the "Plan"), a non-
qualified stock option to purchase 15,000 shares of common stock of the Company
(the "Shares"). The option to acquire the Shares is awarded and granted upon
the following terms and conditions as well as those terms, conditions, and
limitations as set forth in the Plan, which is attached hereto and incorporated
herein for all purposes:
1. The exercise price for each share of common stock is $[OPTION PRICE].
2. For so long as you are a director of the Company, the right to
exercise such option shall vest as follows:
(a) 33-1/3% (5,000 shares) on [FIRST ANNIVERSARY DATE OF GRANT];
(b) 33-1/3% (5,000 shares) on [SECOND ANNIVERSARY DATE OF GRANT]; and
(c) 33-1/3% (5,000 shares) on [THIRD ANNIVERSARY DATE OF GRANT].
3. Subject to Paragraph 5 herein, the options which have vested in
accordance with the schedule set forth in Paragraph 2 above may be exercised at
any time on or before [EXPIRATION DATE]. No partial exercise of such option may
be for less than 100 full shares. In no event shall the Company be required to
transfer fractional shares to the Participant.
4. The option granted under this Agreement shall be exercisable from time
to
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Page 2
time, as provided above, by the payment in cash to the Company of the purchase
price of the shares which the Participant elects to purchase. The Company
shall not be required to transfer or deliver any certificate or certificates
for shares of the Company's common shares purchased upon exercise of the
option granted under this Agreement until all then applicable requirements of
law have been met.
[OPTIONEE'S NAME]
[DATE]
Page Two
5. Subject to the limitations imposed pursuant to Section 7 of the Plan,
the option and all rights granted by this Agreement, to the extent those rights
have not been exercised, will terminate and become null and void on [EXPIRATION
DATE]. If the Participant dies, the person or persons to whom his vested rights
under the option shall pass, whether by will or by the applicable laws of
descent and distribution, may exercise such vested option to the extent the
Participant was entitled to exercise the option on the date of death, at any
time within a period of one year after his death, but not after [EXPIRATION
DATE].
6. During the lifetime of the Participant, the option and all rights
granted in this Agreement shall be exercisable only by the Participant, and
except as Paragraph 5 otherwise provides, the option and all rights granted
under this contract shall not be transferred, assigned, pledged or hypothecated
in any way (whether by operation of law or otherwise), and shall not be subject
to execution, attachment or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of such option or of such
rights contrary to the provisions in this Agreement, or upon the levy of any
attachment or similar process upon such option or such rights, such option and
such rights shall immediately become null and void.
7. Notwithstanding the foregoing, upon the sale of substantially all of
the assets of the Company or change in control of forty percent (40%) of the
outstanding voting shares of the Company, all non-vested options shall
immediately vest.
8. In the event of any change in the common shares of the Company subject
to the option granted hereunder, through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend or other change in the corporate
structure, without consideration, appropriate adjustment shall be made by the
Company in the number of shares subject to such option and the price per share.
Upon the dissolution or liquidation of the Company other than in connection with
a transaction to which such Section is applicable, the option granted under this
Agreement shall terminate and become null and void, but the Participant shall
have the right immediately prior to such dissolution or liquidation to exercise
the option granted hereunder to the full extent not before exercised.
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Page 3
9. Neither the Participant nor his executor, administrator, heirs or
legatees shall be or have any rights or privileges of a shareholder of the
Company in respect of the shares transferable upon exercise of the option
granted under this Agreement, unless and until certificates representing such
shares shall have been endorsed, transferred and delivered and the transferee
has caused his/her name to be entered as the shareholder of record on the books
of the Company.
10. The Shares underlying your options have been registered with the
Securities and Exchange Commission, and the Shares issued upon the exercise of
your options will be freely tradable, subject, with respect to Shares held by
"affiliates" of the Company, to compliance with Rule 144 of the Securities and
Exchange Commission.
11. The Company does not attempt to advise you on any consequences arising
from your acquisition of the Shares through the exercise of the option.
[OPTIONEE'S NAME]
[DATE]
Page Three
12. The terms and conditions of the Plan, unless expressly supplemented by
this Agreement, shall continue unchanged and in full force and effect. To the
extent that any terms or provisions of this Agreement are or may be deemed
expressly inconsistent with any terms or conditions of the Plan, the terms of
this Agreement shall control.
13. The Participant hereby agrees to take whatever additional actions and
execute whatever additional documents the Company may in its reasonable judgment
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on the Participant pursuant to the express
provisions of this Agreement.
14. The rights of the Participant are subject to modification and
termination in certain events as provided in this Agreement and the Plan.
15. This Agreement shall be governed by, and construed in accordance with,
the substantive laws of the State of Delaware applicable to contracts made and
to be wholly performed therein.
16. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
17. This Agreement and the Plan constitute the entire agreement between
the parties with respect to the subject matter hereof, and supersede all
previously written or
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Page 4
oral negotiations, commitments, representations and agreements with respect
thereto.
If the foregoing represents your understanding of the terms and conditions
upon which your options have been granted, please execute in the space provided
below, returning an executed copy to the undersigned.
Sincerely,
Larry M. James
Chief Executive Officer
and President
AGREED:
- -------------------------------------
[OPTIONEE'S NAME]
<PAGE>
Page 1
[DATE]
[NAME]
[ADDRESS]
[ADDRESS]
Dear [Mr./Ms.] [OPTIONEE'S LAST NAME]:
On behalf of U.S. Long Distance Corp. (the "Company"), I am pleased to
announce that you (the "Participant") have been awarded, under the terms of the
1993 Non-Employee Director Plan of U.S. Long Distance Corp. (the "Plan") and
pursuant to your election of [DATE] to receive [PERCENT]% of your [YEAR] Annual
Director Fee in the form of a stock option in lieu of cash, a non-qualified
stock option to purchase [SHARES] shares of common stock of the Company (the
"Shares"). The option to acquire the Shares is awarded and granted upon the
following terms and conditions as well as those terms, conditions, and
limitations as set forth in the Plan, which is attached hereto and incorporated
herein for all purposes:
1. The exercise price for each share of common stock is $[OPTION PRICE].
2. The right to exercise such option shall vest on [DATE SIX MONTHS FROM
DATE OF GRANT].
3. The options which have vested as set forth in Paragraph 2 above may be
exercised at any time on or before [EXPIRATION DATE]. No partial exercise of
such option may be for less than 100 full shares. In no event shall the Company
be required to transfer fractional shares to the Participant.
4. The option granted under this Agreement shall be exercisable from time
to time, as provided above, by the payment to the Company of the purchase price
of the shares which the Participant elects to purchase, such payment to be as
set forth in Paragraph 7 of the Plan. The Company shall not be required to
transfer or deliver any certificate or certificates for shares of the Company's
common shares purchased upon exercise of the option granted under this Agreement
until all then applicable requirements of law have been met.
<PAGE>
Page 2
[OPTIONEE'S NAME]
[DATE]
Page Two
5. The option and all rights granted by this Agreement, to the extent
those rights have not been exercised, will terminate and become null and void on
[EXPIRATION DATE].
6. During the lifetime of the Participant, the option and all rights
granted in this Agreement shall be exercisable only by the Participant, and the
option and all rights granted under this contract shall not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise), and shall not be subject to execution, attachment or similar
process. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of such option or of such rights contrary to the provisions in this
Agreement, or upon the levy of any attachment or similar process upon such
option or such rights, such option and such rights shall immediately become null
and void.
7. Notwithstanding the foregoing, upon the sale of substantially all of
the assets of the Company or change in control of forty percent (40%) of the
outstanding voting shares of the Company, all non-vested options shall
immediately vest.
8. In the event of any change in the common shares of the Company subject
to the option granted hereunder, through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend or other change in the corporate
structure, without consideration, appropriate adjustment shall be made by the
Company in the number of shares subject to such option and the price per share.
Upon the dissolution or liquidation of the Company other than in connection with
a transaction to which such Section is applicable, the option granted under this
Agreement shall terminate and become null and void, but the Participant shall
have the right immediately prior to such dissolution or liquidation to exercise
the option granted hereunder to the full extent not before exercised.
9. Neither the Participant nor his executor, administrator, heirs or
legatees shall be or have any rights or privileges of a shareholder of the
Company in respect of the shares transferable upon exercise of the option
granted under this Agreement, unless and until certificates representing such
shares shall have been endorsed, transferred and delivered and the transferee
has caused his/her name to be entered as the shareholder of record on the books
of the Company.
10. The Shares underlying your options have been registered with the
Securities and Exchange Commission, and the Shares issued upon the exercise of
your options will be freely tradable, subject, with respect to Shares held by
"affiliates" of the
<PAGE>
Page 3
Company, to compliance with Rule 144 of the Securities and Exchange Commission.
[OPTIONEE'S NAME]
[DATE]
Page Three
11. The Company does not attempt to advise you on any consequences arising
from your acquisition of the Shares through the exercise of the option.
12. The terms and conditions of the Plan, unless expressly supplemented by
this Agreement, shall continue unchanged and in full force and effect. To the
extent that any terms or provisions of this Agreement are or may be deemed
expressly inconsistent with any terms or conditions of the Plan, the terms of
this Agreement shall control.
13. The Participant hereby agrees to take whatever additional actions and
execute whatever additional documents the Company may in its reasonable judgment
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on the Participant pursuant to the express
provisions of this Agreement.
14. The rights of the Participant are subject to modification and
termination in certain events as provided in this Agreement and the Plan.
15. This Agreement shall be governed by, and construed in accordance with,
the substantive laws of the State of Delaware applicable to contracts made and
to be wholly performed therein.
16. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
17. This Agreement and the Plan constitute the entire agreement between
the parties with respect to the subject matter hereof, and supersede all
previously written or oral negotiations, commitments, representations and
agreements with respect thereto.
If the foregoing represents your understanding of the terms and conditions
upon which your options have been granted, please execute in the space provided
below, returning an executed copy to the undersigned.
Sincerely,
AGREED:
<PAGE>
Page 4
Larry M. James
Chief Executive Officer ----------------------------------
and President [OPTIONEE'S NAME]
<PAGE>
Page 1
U.S. LONG DISTANCE CORP.
EXECUTIVE COMPENSATION DEFERRAL PLAN
(With Company Matching Contribution)
RESTATED
EFFECTIVE DECEMBER 12, 1995
<PAGE>
Page 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 "Beneficiary" or "Beneficiaries". . . . . . . . . . . . . . . . . 1
1.2 "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Change of Control" . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Company Matching Contribution" . . . . . . . . . . . . . . . . . 2
1.6 "Deferred Compensation Accounts". . . . . . . . . . . . . . . . . 2
1.7 "Disability". . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "Eligible Compensation" . . . . . . . . . . . . . . . . . . . . . 2
1.9 "Eligible Compensation Deferral Contribution" . . . . . . . . . . 2
1.10 "Interest Crediting Rate" . . . . . . . . . . . . . . . . . . . . 2
1.11 "Participant" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 "Plan". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 "Plan Entry Date" . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 "Plan Year" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 "Retirement". . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 "Termination for cause" . . . . . . . . . . . . . . . . . . . . . 3
1.17 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 3 ELIGIBLE COMPENSATION DEFERRAL ELECTION. . . . . . . . . . . 3
3.1 Amount of Eligible Compensation Deferral. . . . . . . . . . . . . 3
3.2 Vesting of Eligible Compensation Deferral . . . . . . . . . . . . 4
ARTICLE 4 COMPANY MATCHING CONTRIBUTIONS . . . . . . . . . . . . . . . 4
4.1 Amount of Company Matching Contribution . . . . . . . . . . . . . 4
4.2 Vesting of Company Matching Contributions . . . . . . . . . . . . 4
ARTICLE 5 DEFERRED COMPENSATION ACCOUNTS . . . . . . . . . . . . . . . 5
5.1 Establishment of Deferred Compensation Accounts . . . . . . . . . 5
(a) Eligible Compensation Deferral Account . . . . . . . . . . . 5
(b) Company Matching Contribution Account. . . . . . . . . . . . 5
5.2 Crediting of Interest . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 6 BENEFIT OF PAYMENT . . . . . . . . . . . . . . . . . . . . . 5
<PAGE>
Page 3
6.1 Amount of Benefit . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Payment Events. . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Time and Manner of Payment of Benefits. . . . . . . . . . . . . . 6
6.4 Death After the Commencement of Installment Benefit Payments. . . 6
6.5 Payment of Benefits From General Assets; Unsecured Creditor
Status of Participants. . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 7 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Administration by the Company . . . . . . . . . . . . . . . . . . 7
ARTICLE 8 AMENDMENT OR TERMINATION . . . . . . . . . . . . . . . . . . 8
8.1 Amendment or Termination. . . . . . . . . . . . . . . . . . . . . 8
8.2 Effect of Amendment or Termination. . . . . . . . . . . . . . . . 8
ARTICLE 9 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 8
9.1 No Guarantee of Benefits. . . . . . . . . . . . . . . . . . . . . 8
9.2 No Enlargement of Employee Rights . . . . . . . . . . . . . . . . 8
9.3 Spendthrift Provision . . . . . . . . . . . . . . . . . . . . . . 8
9.4 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.5 Incapacity of Recipient . . . . . . . . . . . . . . . . . . . . . 9
9.6 Corporate Successors. . . . . . . . . . . . . . . . . . . . . . . 9
9.7 Unclaimed Benefits. . . . . . . . . . . . . . . . . . . . . . . . 9
9.8 Limitations on Liability. . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10 CLAIMS FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . 9
10.1 Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . . . 9
10.2 Review Procedure. . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
Page 4
U.S. LONG DISTANCE CORP.
EXECUTIVE COMPENSATION DEFERRAL PLAN
(With Company Matching Contribution)
RESTATED
PLAN DOCUMENT
The U.S. LONG DISTANCE CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN (the
"Plan"), originally effective January 1, 1994, is hereby amended effective the
12th day of December, 1995. The Plan is established and maintained by U.S. LONG
DISTANCE CORP. (the "Company") solely for the purpose of permitting a select
group of management and/or highly compensated employees to defer all or a
portion of their Compensation and to provide for a partial Company Matching
Contribution.
Accordingly, U.S. LONG DISTANCE CORP. hereby adopts the Plan pursuant to
the terms and provisions hereinafter set forth and designates the Company as
Plan Administrator of this Plan.
<PAGE>
Page 5
ARTICLE 1
DEFINITIONS
Whenever used herein, the following terms shall have the meanings as set
forth in this Article:
1.1 "Beneficiary" or "Beneficiaries" means the individual or individuals
designated by a Participant on a Beneficiary Form filed with the Company to
receive the amount of benefit specified in Section 6.1 in the event of the
Participant's death prior to Retirement, Disability, or other lifetime
termination of employment, or to receive the death benefit as provided in
Section 6.4 in the event of the Participant's death while receiving
installment payments after the occurrence of one of such events. If a
Participant has not designated any beneficiary, or if no designated
beneficiary is living on the date of distribution, then such amounts shall
be paid to the Participant's spouse, or if the Participant's spouse is not
then living or if the Participant is unmarried or action for divorce or
annulment has been filed at the time of death, then, unless the provisions
of Section 9.8 apply, such amounts shall be paid to the Participant's
estate.
1.2 "Board" means the Board of Directors of the Company, or any committee of
the Board authorized to act in its behalf in connection with the Plan.
1.3 "Change of Control" shall mean change in at least 51% ownership interest in
the Company by sale, merger or liquidation, dissolution or reorganization.
1.4 "Company" means U.S. LONG DISTANCE CORP., a Delaware corporation, or, to
the extent provided in Section 9.7, any successor corporation or other
entity resulting from a merger or consolidation into or with the Company or
from a transfer or sale of substantially all of the assets of the Company.
1.5 "Company Matching Contribution" means the contribution made by the Company
out of its own funds in behalf of a Plan Participant during any Plan Year
pursuant to Article 4.
1.6 "Deferred Compensation Accounts" means the Accounts established in the name
of a Plan Participant pursuant to Article 5. One of such Accounts shall be
designated as the "Eligible Compensation Deferral Account" and the other
Account shall be designated as the "Company Matching Contribution Account."
1.7 "Disability" means that the Participant is unable to perform the usual and
customary duties of his or her regular job and is unable to work elsewhere
in the Company in a capacity for which the Participant is suited by
education, training, or experience, for a period of six (6) months as a
result of illness or injury.
1.8 "Eligible Compensation" means the base compensation payable to a
Participant
<PAGE>
Page 6
by the Company for individual performance.
1.9 "Eligible Compensation Deferral Contribution" means the contribution
credited to a Participant's Eligible Compensation Deferral Account
resulting from a deferral from Eligible Compensation under and in
accordance with the terms of the Plan during any Plan Year.
1.10 "Interest Crediting Rate" means the interest rate declared by the Company
which will be credited at least annually to a Participant's Deferred
Compensation Accounts. For the first Plan Year, the interest rate shall be
declared by the Company at the inception of the Plan and shall apply until
the end of that year. Thereafter, the interest rate shall be declared by
the Company by December 15th of each year for the following Plan Year. If
it is not declared by that time, the rate for the following year shall be
the prime rate of interest declared by the Frost National Bank of
San Antonio plus two percent (2%), determined as of December 15th.
1.11 "Participant" means an employee of the Company who qualifies to participate
in the Plan under the eligibility requirements set forth in Article 2 and
who elects to participate in the Plan by filing with the Company
Participation Enrollment and Election Forms.
1.12 "Plan" means the Executive Compensation Deferral Plan provided for herein
for selected management and/or highly compensated employees of the Company.
1.13 "Plan Entry Date" shall mean the effective date of the Plan, the date an
Employee first becomes an Eligible Employee (as defined in Article 2), and
each January 1st thereafter.
1.14 "Plan Year" means each 12-month calendar year.
1.15 "Retirement" means either (i) a Participant's actual early, normal or late
retirement from employment with the Company, whether under the terms of the
Company's qualified retirement plan or otherwise, or (ii) the Participant's
attainment of age 65 if later than actual retirement, as elected by the
Participant on the Payout Election Form filed at the time of the
Participant's initial election to defer Eligible Compensation under the
Plan.
1.16 "Termination for cause" shall mean an employee's termination of employment
by the Board of Directors for fraud, embezzlement, or such other egregious
and serious act against the Company that warrants immediate termination.
1.17 Interpretation. Words in the masculine gender shall include the feminine,
and the singular shall include the plural, and vice versa, unless otherwise
required by context. Any headings used herein are for ease of reference
only and are not to be construed as to alter the meaning of the substantive
provisions of the Plan.
<PAGE>
Page 7
ARTICLE 2
ELIGIBILITY
Selected employees occupying management positions with the Company or its
subsidiaries who are determined by the Board from time to time to be eligible to
participate in the Plan ("Eligible Employees"). All Eligible Employees may
thereafter participate in the Plan beginning on the effective date of the Plan
or any Plan Entry Date thereafter.
ARTICLE 3
ELIGIBLE COMPENSATION DEFERRAL ELECTION
3.1 Amount of Eligible Compensation Deferral. An employee who is eligible to
participate in the Plan may elect effective on a Plan Entry Date to defer
all or a portion of his or her Eligible Compensation for a Plan Year by
filing with the Company an Annual Deferral Election Form prior to the Plan
Year to which such election relates; provided, however, that (i) for
employees who are eligible to participate in the Plan upon adoption of the
Plan, the election for the first Plan Year may be made with the 30-day
period immediately after adoption of the Plan, and (ii) for employees who
become eligible to participate in the Plan thereafter, the election for the
Plan Year during which they first become eligible may be made within the
first pay period immediately after becoming eligible. Deferrals from
Eligible Compensation shall be made in equal monthly amounts of up to 100%
of a Participant's Eligible Compensation.
3.2 Vesting of Eligible Compensation Deferral. An Eligible Compensation
Deferral is 100% vested, unless the employee is terminated for cause, in
which case the Eligible Compensation shall be forfeited.
ARTICLE 4
COMPANY MATCHING CONTRIBUTIONS
4.1 Amount of Company Matching Contribution. In addition to a Participant's
deferral from Eligible Compensation, the Company intends, each Plan Year,
to contribute out of its own funds, on behalf of each Participant, an
amount equal to the lesser of (a) 100% of the amount of such Participant's
deferral from Eligible Compensation for such Plan Year or (b) an amount
together with the Eligible Compensation Deferral which actuarially
determined would yield a 10-year annuity equal to 50% of the Participant's
compensation payable at age 65. Effective for Plan Years beginning on or
after January 1, 1996, the amount described in (b) shall in no event be
less than $3,000. Further, the interest rate used for purposes of
determining the amount required to provide the annuity
<PAGE>
Page 8
described in (b) above shall be the Interest Crediting Rate declared by
the Company for the same Plan Year pursuant to Section 5.2.
Notwithstanding anything contained in this paragraph, the Company, in its
sole discretion, reserves the right at any time for any Plan Year, either
(i) not to provide such Company Matching Contribution altogether, or (ii)
to make a Company Matching Contribution of a different amount, in either
case by giving written notice to each affected Participant by December
15th of the prior Plan Year. Any such skipped or reduced Company
Matching Contribution shall not be required to be made up in future Plan
Years.
4.2 Vesting of Company Matching Contributions. The portion of the Company
Matching Contribution Account established for a Participant pursuant to
Article 5 to which the Participant or the Participant's Beneficiary or
Beneficiaries shall be entitled upon the occurrence of one of the payment
events specified in Section 6.2 shall be based upon the number of full
years of employment with the Company completed by the Participant as of the
last day of the plan year prior to the date payment is due under this Plan.
Such vested portion shall be determined in accordance with the following
schedule:
YEARS OF SERVICE VESTED PORTION
---------------- --------------
Less than 1 year 0.00%
More than 1 and less than 2 33.33%
More than 2 and less than 3 66.66%
3 years or more 100.00%
Change of Control of Company 100.00%
Termination for Cause 0.00%
ARTICLE 5
DEFERRED COMPENSATION ACCOUNTS
5.1 Establishment of Deferred Compensation Accounts. The Company shall
establish and maintain in the name of each Plan Participant two separate
accounts (the "Participant's Accounts") designated, respectively, as the
"Eligible Compensation Deferral Account" and the "Company Matching
Contribution Account." Such Accounts shall be segregated from other
accounts on the books and records of the Company and shall together be
carried as a contingent liability of the Company to the Participant.
5.2 Eligible Compensation Deferral Account. The Company shall credit to the
Eligible Compensation Deferral Account (the "Deferral Account") the amount
of each deferral from Eligible Compensation which the Participant elects to
make on a timely filed Annual Deferral Election Form. Such amount shall be
credited to the Deferral Account as of the day such Eligible Compensation
would
<PAGE>
Page 9
otherwise be payable to the Participant.
5.3 Company Matching Contribution Account. The Company shall credit to the
Company Matching Contribution Account (the "Matching Account") the amount
of each Company Matching Contribution. Such amount shall be credited to
the Matching Account on the same day as the Participant's deferral from
Eligible Compensation to which it relates is credited to the Participant's
Deferral Account.
5.4 Crediting of Interest. From time to time, the Company shall credit each of
the Participant's Accounts with interest at the Interest Crediting Rate
declared by the Company for that year. Interest on amounts in an Account
for less than a full calendar year shall be appropriately pro-rated based
upon the number of days within the calendar year such amounts have been in
such Account. Interest shall continue to be credited to a Participant's
Accounts in the foregoing manner for only as long as the Participant is an
employee with the Company and not disabled or deceased. Thereafter, the
Company shall credit the Participant's Deferral Account and the vested
Matching Account with the rate of interest earned on federally insured
passbook savings accounts at Frost National Bank of San Antonio, Texas.
ARTICLE 6
PAYMENT OF BENEFIT
6.1 Amount of Benefit. The benefit payable to a Participant or a Participant's
Beneficiary or Beneficiaries shall be equal to 100% of the value of such
Participant's Deferral Account, unless terminated for cause, plus the
vested percentage of the value of such Participant's Matching Account,
"value" in each case to be determined in accordance with Article 5 as of
the date of the applicable payment event specified in Section 6.2,
except, in the event of a Participant's death, the Participant's
Beneficiary or Beneficiaries shall be entitled to a minimum benefit in an
amount equal to twelve (12) times the monthly base compensation which the
Participant received as of the month prior to the Participant's death.
6.2 Payment Events. Benefits shall become due and payable to a Participant or
a Participant's Beneficiary or Beneficiaries upon the occurrence of the
first to occur of the following events:
(a) Retirement of the Participant as defined in Section 1.15;
(b) Disability of the Participant as defined in Section 1.6, except that
the Company may, in its sole discretion, commence benefit payments
prior to the date specified in Section 1.6 if the Participant is
unable to work for the Company as a result of illness or injury;
<PAGE>
Page 10
(c) The later of any termination of employment or termination of the
written employment contract of the Participant;
(d) Death of the Participant prior to the occurrence of any of the other
events specified in this Section 6.2.
6.3 Time and Manner of Payment of Benefits. Benefits payable upon the
occurrence of an event specified in Section 6.2 shall be paid, or
installment payments shall commence, on the first day of the month next
following the occurrence of the event, or as soon thereafter as may
reasonably be practicable. Benefits payable upon the occurrence of an
event specified in paragraph (a), (b), (c) or (d) of Section 6.2 shall be
paid in a lump sum, except that elections of payment in installments with
interest over a period of five (5) or ten (10) years signed prior to
December 12, 1995 and not subsequently revoked shall be honored. The
Retirement of a Participant under Section 1.15 may be changed at any time
by means of execution and filing of a new Payout Election Form, but any new
Payout Election Form shall not become effective until the date that is two
calendar years following the date of the new election. In addition, a
Participant who has elected payment of benefits in installment form prior
to December 12, 1995 may subsequently elect payment in lump sum form, but
such election shall not become effective until two calendar years following
the date of the election.
6.4 Death After the Commencement of Installment Benefit Payments. If a
Participant dies after the commencement of installment benefit payments but
before distribution of the full amount specified in Section 6.1, either
(i) such payments shall continue to be paid to the Participant's
Beneficiary or Beneficiaries, or (ii) the balance due shall be paid to such
Beneficiary or Beneficiaries in a lump sum, as elected by the Participant
on the Payout Election Form filed with the Company.
6.5 Payment of Benefits From General Assets; Unsecured Creditor Status of
Participants. All benefits payable under the Plan to or in behalf of any
Participant shall be paid from the general assets of the Company. The
Company shall set aside funds with which to discharge its obligations
hereunder, and may if it chooses to do so by the purchase of Corporate
Owned Life Insurance (COLI) policies on the lives of the Participants or
otherwise. Any and all funds which may be so set aside shall remain
subject to the claims of the present and future general creditors of the
Company in the event of insolvency or bankruptcy, and any recipient of
benefits hereunder shall not have any security or other interest in such
funds. Neither any Participant, his or her Beneficiary or Beneficiaries,
nor any other person shall, under any circumstances, have an interest
whatsoever in any particular property or assets of the Company by virtue of
the Plan, and the rights of the Participant and his or her Beneficiary or
Beneficiaries under the Plan shall be no greater than the rights of a
general unsecured creditor of the Company. The right of a Participant or
his or her Beneficiary or Beneficiaries
<PAGE>
Page 11
to receive a benefit payment hereunder shall be an unsecured claim against
the general assets of the Company, and neither the Participant nor his or
her Beneficiary or Beneficiaries shall have any rights, in, to or against
any specific assets of the Company. All amounts credited to the Deferred
Compensation Accounts of a Participant shall constitute general assets of
the Company and, subject to any trust agreement established to hold assets
pursuant to this Plan, may be disposed of by the Company at such time and
for such purposes as it may deem appropriate in the event of bankruptcy or
insolvency.
ARTICLE 7
ADMINISTRATION
7.1 Administration by the Company. The Company shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel, or
other person employed or engaged by the Company with respect to the
Plan. The Company shall have full power and discretion to administer
the Plan in all of its details, and its decision shall be binding. For
this purpose, the Company's powers shall include, but shall not be
limited to, the following authority, in addition to all other powers
provided hereunder:
(a) To make and enforce such rules and regulations as it deems necessary
or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good faith to be
final and conclusive on all persons claiming benefits under the Plan;
(c) To decide all questions concerning the Plan and the eligibility of any
person to participate in the Plan;
(d) To appoint such agents, counsel, accountants, consultants, and other
persons as may be required to assist in administering the Plan; and
(e) To allocate and delegate its responsibilities under the plan and to
designate other persons or an administrative committee to carry out
any of its responsibilities under the Plan, any such allocation,
delegation or designation to be in writing.
ARTICLE 8
AMENDMENT OR TERMINATION
8.1 Amendment or Termination. The Company intends the Plan to be permanent,
but reserves the right to amend or terminate the Plan when, in the sole
opinion of the Company, such amendment or termination is advisable. Any
such
<PAGE>
Page 12
amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date specified in such resolution.
8.2 Effect of Amendment or Termination. No amendment or termination of the
Plan shall directly or indirectly reduce the value of any Deferred
Compensation Account held hereunder as of the effective date of such
amendment or termination.
ARTICLE 9
GENERAL PROVISIONS
9.1 No Guarantee of Benefits. Nothing contained in the Plan shall constitute a
guarantee by the Company or by any other person or entity that the assets
of the Company will be sufficient to pay any benefits hereunder.
9.2 No Enlargement of Employee Rights. No Participant shall have any right to
receive a benefit payment under the Plan except in accordance with the
terms of the Plan. Establishment of the Plan shall not be construed to
give any Participant the right to be retained in the service of the
Company.
9.3 Spendthrift Provision. No interest of any person or entity in, or right to
receive a benefit payment under, the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment or other
alienation or encumbrance of any kind; nor may any such interest or right
to receive a benefit payment be taken, either voluntarily or involuntarily,
for the satisfaction of the debts of, or other obligations or claims
against, such person or entity, including claims of alimony, support or
separate maintenance, or claims in bankruptcy proceedings.
9.4 Applicable Law. The Plan shall be construed and administered under the
laws of the State of Texas.
9.5 Incapacity of Recipient. If any person entitled to a benefit payment under
the Plan is deemed by the Company to be incapable of personally receiving,
and giving a valid receipt for, such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian, conservator or
other legal representative of such person, the Company may provide for such
payment or any part thereof to be made to any other person or institution
then contributing toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of such person
and shall constitute a complete discharge of any liability of the Company
and the Plan therefor.
9.6 Corporate Successors. The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the
Plan shall
<PAGE>
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be continued after such sale, merger or consolidation only if and to the
extent that the transferee, purchaser or successor entity agrees to
continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate
subject to the provisions of Section 8.2.
9.7 Unclaimed Benefits. Each Participant shall keep the Company informed of
his or her current address and the current address of his or her
Beneficiary or Beneficiaries. The Company shall not be obligated to search
for the whereabouts of any person. If the location of a Participant is not
made known to the Company within three (3) years after the date on which
payment of the Participant's benefit may first be made, payment may be made
as though the Participant had died at the end of the three-year period,
provided that proof of death satisfactory to the Plan Administrator is
provided. If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of a Participant,
the Company is unable to locate any Beneficiary or Beneficiaries of the
Participant, and is further unable to locate a spouse, dependent or
descendant of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to or in behalf of such Participant
or Beneficiary, and such benefits shall be irrevocably forfeited.
9.8 Limitations on Liability. Notwithstanding any of the preceding provisions
of the Plan, neither the Company nor any Individual acting as employee or
agent of the Company shall be liable to any Participant, former
Participant, Beneficiary, or other person for any claim, loss, liability or
expense incurred in connection with the Plan.
ARTICLE 10
CLAIMS FOR BENEFITS
10.1 Claims Procedure. The Plan Administrator shall make all determinations as
to the right of a Participant or Beneficiary to a benefit under the Plan.
If any person does not receive the benefit to which he or she believes he
or she is entitled under this Plan, said person may file a claim for
benefits in writing which shall be signed by the Participant, Beneficiary
or legal representative of a Participant or Beneficiary. Claims shall be
granted or denied within 30 days after receipt unless additional time is
required because of special circumstances. If additional time is required,
the claimant will be notified in writing before the expiration of 30 days
from the receipt of the claim. In no event shall the time for reaching a
decision with respect to a claim be extended beyond 180 days after receipt
of the claim.
In the event that the Plan Administrator denies a claim for benefits, the
claimant will be notified in writing. Such notice shall set forth the
specific reasons for the denial, the specific provisions of this Plan on
which the denial is based, a
<PAGE>
Page 14
description of any additional materials or information necessary to
perfect the claim along with an explanation of why such material or
information is necessary, and an explanation of the claim review
procedure.
If no action is taken by the Plan Administrator on a claim within 30 days
after its receipt, or, if the period for considering the claim has been
extended, then if no action is taken within 180 days after receipt of the
claims, the claim shall be deemed to be denied for purposes of the
following review procedure.
10.2 Review Procedure. If a claim is denied in whole or in part, the claimant
may request the Board to review the decision with the Plan Administrator,
neither body to include the claimant. This request must be made in writing
within 30 days after the claim has been denied or is deemed to be denied
under Section 10.1 and must set forth all of the grounds upon which the
request is based, any facts in support of the request, and any issues or
comments which the claimant considers relevant to the review. In preparing
a request for review, the claimant will be entitled to review any documents
which are pertinent to his or her claim at the office of the Company during
regular business hours.
The Board of Directors shall act upon each request for review as soon as
possible but not later than 60 days after the request for review is
received.
The Board of Directors shall make an independent determination concerning
the claim for benefits under this Plan and shall give written notice of its
decision to the claimant. The decision of the Board of Directors on any
claim review shall be final.
If the Board of Directors fails to deliver a decision within 60 days after
receipt of the request for review, the claim shall be deemed denied on
review.
IN WITNESS WHEREOF, U.S. LONG DISTANCE CORP. has caused this instrument to
be executed by its duly authorized officer this 19th day of December, 1995,
effective as of the 12th day of December, 1995.
ATTEST: U.S. LONG DISTANCE CORP.
/s/ JENNIFER B. HARVEY By: /s/ LARRY M. JAMES
- ------------------------------- -----------------------------
Assistant Secretary Name: Larry M. James
Title: President
<PAGE>
Page 1
U.S. LONG DISTANCE CORP.
DIRECTOR COMPENSATION DEFERRAL PLAN
(WITH COMPANY MATCHING CONTRIBUTION)
RESTATED
EFFECTIVE DECEMBER 19, 1995
<PAGE>
Page 2
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS 1
1.1 "BENEFICIARY" or "BENEFICIARIES" 1
1.2 "BOARD" 1
1.3 "CHANGE OF CONTROL" 1
1.4 "COMPANY" 2
1.5 "COMPANY MATCHING CONTRIBUTION" 2
1.6 "DEFERRED COMPENSATION ACCOUNTS" 2
1.7 "DISABILITY" 2
1.8 "ELIGIBLE COMPENSATION" 2
1.9 "ELIGIBLE COMPENSATION DEFERRAL CONTRIBUTION" 2
1.10 "INTEREST CREDITING RATE" 2
1.11 "OUTSIDE DIRECTORS" 2
1.12 "PARTICIPANT" 2
1.13 "PLAN" 3
1.14 "PLAN ENTRY DATE" 3
1.15 "PLAN YEAR" 3
1.16 "RETIREMENT" 3
1.17 "TERMINATION FOR CAUSE" 3
1.18 INTERPRETATION 3
ARTICLE 2 ELIGIBILITY 3
ARTICLE 3 ELIGIBLE COMPENSATION DEFERRAL ELECTION 3
3.1 AMOUNT OF ELIGIBLE COMPENSATION DEFERRAL 3
3.2 VESTING OF ELIGIBLE COMPENSATION DEFERRAL 4
ARTICLE 4 COMPANY MATCHING CONTRIBUTIONS 4
4.1 AMOUNT OF COMPANY MATCHING CONTRIBUTION 4
4.2 VESTING OF COMPANY MATCHING CONTRIBUTIONS 4
ARTICLE 5 DEFERRED COMPENSATION ACCOUNTS 5
5.1 ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS 5
(a) ELIGIBLE COMPENSATION DEFERRAL ACCOUNT 5
(b) COMPANY MATCHING CONTRIBUTION ACCOUNT 5
5.2 CREDITING OF INTEREST 5
ARTICLE 6 PAYMENT OF BENEFIT 5
<PAGE>
Page 3
6.1 AMOUNT OF BENEFIT 5
6.2 PAYMENT EVENTS 6
6.3 TIME AND MANNER OF PAYMENT OF BENEFITS 6
6.4 DEATH AFTER THE COMMENCEMENT OF INSTALLMENT BENEFIT PAYMENTS 6
6.5 PAYMENT OF BENEFITS FROM GENERAL ASSETS; UNSECURED CREDITOR
STATUS OF PARTICIPANTS 6
ARTICLE 7 ADMINISTRATION 7
7.1 ADMINISTRATION BY THE COMPANY 7
ARTICLE 8 AMENDMENT OR TERMINATION 8
8.1 AMENDMENT OR TERMINATION 8
8.2 EFFECT OF AMENDMENT OR TERMINATION 8
ARTICLE 9 GENERAL PROVISIONS 8
9.1 NO GUARANTEE OF BENEFITS 8
9.2 NO ENLARGEMENT OF DIRECTOR RIGHTS 8
9.3 SPENDTHRIFT PROVISION 8
9.4 APPLICABLE LAW 8
9.5 INCAPACITY OF RECIPIENT 8
9.6 CORPORATE SUCCESSORS 9
9.7 UNCLAIMED BENEFITS 9
9.8 LIMITATIONS ON LIABILITY 9
ARTICLE 10 CLAIMS FOR BENEFITS 9
10.1 CLAIMS PROCEDURE 9
10.2 REVIEW PROCEDURE 10
<PAGE>
Page 4
U.S. LONG DISTANCE CORP.
DIRECTOR COMPENSATION DEFERRAL PLAN
(WITH COMPANY MATCHING CONTRIBUTION)
RESTATED
PLAN DOCUMENT
The U.S. LONG DISTANCE CORP. DIRECTOR COMPENSATION DEFERRAL PLAN (the
"Plan"), originally effective January 1, 1994, is hereby amended effective the
19th day of December, 1995. The Plan is established and maintained by U.S. LONG
DISTANCE CORP. (the "Company") solely for the purpose of permitting certain
outside directors of the Company to defer all or a portion of their director's
fees and to provide for a partial Company Matching Contribution.
Accordingly, U.S. LONG DISTANCE CORP. hereby adopts the restated Plan
pursuant to the terms and provisions hereinafter set forth and designates the
Company as Plan Administrator of this Plan.
ARTICLE 1
DEFINITIONS
Whenever used herein, the following terms shall have the meanings as set
forth in this Article:
1.1 "BENEFICIARY" or "BENEFICIARIES" means the individual or individuals
designated by a Participant on a Beneficiary Form filed with the Company to
receive the amount of benefit specified in Section 6.1 in the event of the
Participant's death prior to Retirement, Disability, or other lifetime
termination of employment, or to receive the death benefit as provided in
Section 6.4 in the event of the Participant's death while receiving
installment payments after the occurrence of one of such events. If a
Participant has not designated any beneficiary, or if no designated
beneficiary is living on the date of distribution, then such amounts shall
be paid to the Participant's spouse, or if the Participant's spouse is not
then living or if the Participant is unmarried or action for divorce or
annulment has been filed at the time of death, then, unless the provisions
of Section 9.8 apply, such amounts shall be paid to the Participant's
estate.
1.2 "BOARD" means the Board of Directors of the Company, or any committee of
the Board authorized to act in its behalf in connection with the Plan.
1.3 "CHANGE OF CONTROL" shall mean change in at least 51% ownership interest in
the Company by sale, merger or liquidation, dissolution or reorganization.
<PAGE>
Page 5
1.4 "COMPANY" means U.S. LONG DISTANCE CORP., a Delaware corporation, or, to
the extent provided in Section 9.7, any successor corporation or other
entity resulting from a merger or consolidation into or with the Company or
from a transfer or sale of substantially all of the assets of the Company.
1.5 "COMPANY MATCHING CONTRIBUTION" means the contribution made by the Company
out of its own funds in behalf of a Plan Participant during any Plan Year
pursuant to Article 4.
1.6 "DEFERRED COMPENSATION ACCOUNTS" means the Accounts established in the name
of a Plan Participant pursuant to Article 5. One of such Accounts shall be
designated as the "Eligible Compensation Deferral Account" and the other
Account shall be designated as the "Company Matching Contribution Account."
1.7 "DISABILITY" means that the Participant is unable to perform the usual and
customary duties of his or her regular job and is unable to work elsewhere
in the Company in a capacity for which the Participant is suited by
education, training, or experience, for a period of six (6) months as a
result of illness or injury.
1.8 "ELIGIBLE COMPENSATION" means the base fees payable to a Participant by the
Company for services as a Director of the Company.
1.9 "ELIGIBLE COMPENSATION DEFERRAL CONTRIBUTION" means the contribution
credited to a Participant's Eligible Compensation Deferral Account
resulting from a deferral from Eligible Compensation under and in
accordance with the terms of the Plan during any Plan Year.
1.10 "INTEREST CREDITING RATE" means the interest rate declared by the Company
which will be credited at least annually to a Participant's Deferred
Compensation Accounts. For the first Plan Year, the interest rate shall be
declared by the Company at the inception of the Plan and shall apply until
the end of that year. Thereafter, the interest rate shall be declared by
the Company by December 15th of each year for the following Plan Year. If
it is not declared by that time, the rate for the following year shall be
the prime rate of interest declared by the Frost National Bank of
San Antonio plus two percent (2%), determined as of December 15th.
1.11 "OUTSIDE DIRECTORS" shall mean those Directors of the Company who are not
employed by the Company on a full-time basis.
1.12 "PARTICIPANT" means an individual who qualifies to participate in the Plan
under the eligibility requirements set forth in Article 2 and who elects to
participate in the Plan by filing with the Company Participation Enrollment
and Election Forms.
1.13 "PLAN" means the Director Compensation Deferral Plan provided for herein
for
<PAGE>
Page 6
selected Directors of the Company.
1.14 "PLAN ENTRY DATE" shall mean the effective date of the Plan, the date a
Director first becomes an Eligible Director (as defined in Article 2), and
each January 1st thereafter.
1.15 "PLAN YEAR" means each 12-month calendar year.
1.16 "RETIREMENT" means either (i) a Participant's actual retirement from
service with the Company, or (ii) the Participant's attainment of age 65 if
later than actual retirement, as elected by the Participant on the Payout
Election Form filed at the time of the Participant's initial election to
defer Eligible Compensation under the Plan.
1.17 "TERMINATION FOR CAUSE" shall mean a Participant's removal from the Board
of Directors by the Board of Directors for fraud, embezzlement, or such
other egregious and serious act against the interests of the Company that
warrants immediate removal.
1.18 INTERPRETATION. Words in the masculine gender shall include the feminine,
and the singular shall include the plural, and vice versa, unless otherwise
required by context. Any headings used herein are for ease of reference
only and are not to be construed as to alter the meaning of the substantive
provisions of the Plan.
ARTICLE 2
ELIGIBILITY
Selected individuals occupying positions as Outside Directors of the
Company who are determined by the Board from time to time to be eligible to
participate in the Plan ("Eligible Directors"). All Eligible Directors may
thereafter participate in the Plan beginning on the effective date of the Plan
or any Plan Entry Date thereafter.
ARTICLE 3
ELIGIBLE COMPENSATION DEFERRAL ELECTION
3.1 AMOUNT OF ELIGIBLE COMPENSATION DEFERRAL. A Director of the Company who is
eligible to participate in the Plan may elect effective on a Plan Entry
Date to defer all or a portion of his or her Eligible Compensation for a
Plan Year by filing with the Company an Annual Deferral Election Form
prior to the Plan Year to which such election relates; provided,
however, that (i) for Directors who are eligible to participate in the
Plan upon adoption of the Plan, the election for the first Plan Year may
be made with the 30-day period immediately after adoption of the Plan,
and (ii) for Directors who become eligible to participate in the Plan
thereafter, the election for the Plan Year during which they first
become eligible
<PAGE>
Page 7
may be made within the first pay period immediately after becoming
eligible. Deferrals from Eligible Compensation shall be made in equal
monthly amounts of up to 100% of a Participant's Eligible Compensation.
3.2 VESTING OF ELIGIBLE COMPENSATION DEFERRAL. An Eligible Compensation
Deferral is 100% vested, unless the Participant is removed for cause, in
which case the Eligible Compensation shall be forfeited.
ARTICLE 4
COMPANY MATCHING CONTRIBUTIONS
4.1 AMOUNT OF COMPANY MATCHING CONTRIBUTION. In addition to a Participant's
deferral from Eligible Compensation, the Company intends, each Plan
Year, to contribute out of its own funds, on behalf of each Participant,
an amount equal to thirty-three percent (33%) of the amount of such
Participant's deferral from Eligible Compensation for such Plan Year.
Effective for Plan Years beginning on or after January 1, 1996, the
amount of Company Matching Contribution shall in no event be less than
$3,000. Notwithstanding anything contained in this paragraph, the
Company, in its sole discretion, reserves the right at any time for any
Plan Year, either (i) not to provide such Company Matching Contribution
altogether, or (ii) to make a Company Matching Contribution of a
different amount, in either case by giving written notice to each
affected Participant by December 15th of the prior Plan Year. Any such
skipped or reduced Company Matching Contribution shall not be required
to be made up in future Plan Years.
4.2 VESTING OF COMPANY MATCHING CONTRIBUTIONS. The portion of the Company
Matching Contribution Account established for a Participant pursuant to
Article 5 to which the Participant or the Participant's Beneficiary or
Beneficiaries shall be entitled upon the occurrence of one of the
payment events specified in Section 6.2 shall be based upon the number
of full years of service with the Company completed by the Participant
as of the last day of the plan year prior to the date payment is due
under this Plan. Such vested portion shall be determined in accordance
with the following schedule:
YEARS OF SERVICE VESTED PORTION
---------------- --------------
Less than 1 year 0.00%
More than 1 and less than 2 33.33%
More than 2 and less than 3 66.66%
3 years or more 100.00%
Change of Control of Company 100.00%
Termination for Cause 0.00%
ARTICLE 5
<PAGE>
Page 8
DEFERRED COMPENSATION ACCOUNTS
5.1 ESTABLISHMENT OF DEFERRED COMPENSATION ACCOUNTS. The Company shall
establish and maintain in the name of each Plan Participant two separate
accounts (the "Participant's Accounts") designated, respectively, as the
"Eligible Compensation Deferral Account" and the "Company Matching
Contribution Account." Such Accounts shall be segregated from other
accounts on the books and records of the Company and shall together be
carried as a contingent liability of the Company to the Participant.
(a) ELIGIBLE COMPENSATION DEFERRAL ACCOUNT. The Company shall credit to
the Eligible Compensation Deferral Account (the "Deferral Account")
the amount of each deferral from Eligible Compensation which the
Participant elects to make on a timely filed Annual Deferral Election
Form. Such amount shall be credited to the Deferral Account as of the
day such Eligible Compensation would otherwise be payable to the
Participant.
(b) COMPANY MATCHING CONTRIBUTION ACCOUNT. The Company shall credit to
the Company Matching Contribution Account (the "Matching Account") the
amount of each Company Matching Contribution. Such amount shall be
credited to the Matching Account on the same day as the Participant's
deferral from Eligible Compensation to which it relates is credited to
the Participant's Deferral Account.
5.2 CREDITING OF INTEREST. From time to time, the Company shall credit each of
the Participant's Accounts with interest at the Interest Crediting Rate
declared by the Company for that year. Interest on amounts in an
Account for less than a full calendar year shall be appropriately
pro-rated based upon the number of days within the calendar year such
amounts have been in such Account. Interest shall continue to be
credited to a Participant's Accounts in the foregoing manner for only as
long as the Participant is a Director with the Company and not disabled
or deceased. Thereafter, the Company shall credit the Participant's
Deferral Account and the vested Matching Account with the rate of
interest earned on federally insured passbook savings accounts at Frost
National Bank of San Antonio, Texas.
ARTICLE 6
PAYMENT OF BENEFIT
6.1 AMOUNT OF BENEFIT. The benefit payable to a Participant or a Participant's
Beneficiary or Beneficiaries shall be equal to 100% of the value of such
Participant's Deferral Account, unless terminated for cause, plus the
vested percentage of the value of such Participant's Matching Account,
"value" in each case to be determined in accordance with Article 5 as of
the date of the
<PAGE>
Page 9
applicable payment event specified in Section 6.2, except, in the event
of a Participant's death, the Participant's Beneficiary or Beneficiaries
shall be entitled to a minimum benefit in an amount equal to the
standard annual Director's fee which the Participant received for the
year prior to the Participant's death.
6.2 PAYMENT EVENTS. Benefits shall become due and payable to a Participant or
a Participant's Beneficiary or Beneficiaries upon the occurrence of the
first to occur of the following events:
(a) Retirement of the Participant as defined in Section 1.16;
(b) Disability of the Participant as defined in Section 1.7, except that
the Company may, in its sole discretion, commence benefit payments
prior to the date specified in Section 1.7 if the Participant is
unable to serve the Company as a result of illness or injury;
(c) Termination of service;
(d) Death of the Participant prior to the occurrence of any of the other
events specified in this Section 6.2.
6.3 TIME AND MANNER OF PAYMENT OF BENEFITS. Benefits payable upon the
occurrence of an event specified in Section 6.2 shall be paid, or
installment payments shall commence, on the first day of the month next
following the occurrence of the event, or as soon thereafter as may
reasonably be practicable. Benefits payable upon the occurrence of an
event specified in paragraph (a), (b), (c) or (d) of Section 6.2 shall
be paid in a lump sum, except that elections of payment in installments
with interest over a period of five (5) or ten (10) years signed prior
to December 19, 1995 and not subsequently revoked shall be honored. The
Retirement of a Participant under Section 1.16 may be changed at any
time by means of execution and filing of a new Payout Election Form, but
any new Payout Election Form shall not become effective until the date
that is two calendar years following the date of the new election. In
addition, a Participant who has elected payment of benefits in
installment form prior to December 19, 1995 may subsequently elect
payment in lump sum form, but such election shall not become effective
until two calendar years following the date of the election.
6.4 DEATH AFTER THE COMMENCEMENT OF INSTALLMENT BENEFIT PAYMENTS. If a
Participant dies after the commencement of installment benefit payments
but before distribution of the full amount specified in Section 6.1,
either (i) such payments shall continue to be paid to the Participant's
Beneficiary or Beneficiaries, or (ii) the balance due shall be paid to
such Beneficiary or Beneficiaries in a lump sum, as elected by the
Participant on the Payout Election Form filed with the Company.
6.5 PAYMENT OF BENEFITS FROM GENERAL ASSETS; UNSECURED CREDITOR STATUS OF
<PAGE>
Page 10
PARTICIPANTS. All benefits payable under the Plan to or in behalf of any
Participant shall be paid from the general assets of the Company. The
Company shall set aside funds with which to discharge its obligations
hereunder, and may if it chooses to do so by the purchase of Corporate
Owned Life Insurance (COLI) policies on the lives of the Participants or
otherwise. Any and all funds which may be so set aside shall remain
subject to the claims of the present and future general creditors of the
Company in the event of insolvency or bankruptcy, and any recipient of
benefits hereunder shall not have any security or other interest in such
funds. Neither any Participant, his or her Beneficiary or
Beneficiaries, nor any other person shall, under any circumstances, have
an interest whatsoever in any particular property or assets of the
Company by virtue of the Plan, and the rights of the Participant and his
or her Beneficiary or Beneficiaries under the Plan shall be no greater
than the rights of a general unsecured creditor of the Company. The
right of a Participant or his or her Beneficiary or Beneficiaries to
receive a benefit payment hereunder shall be an unsecured claim against
the general assets of the Company, and neither the Participant nor his
or her Beneficiary or Beneficiaries shall have any rights, in, to or
against any specific assets of the Company. All amounts credited to the
Deferred Compensation Accounts of a Participant shall constitute general
assets of the Company and, subject to any trust agreement established to
hold assets pursuant to this Plan, may be disposed of by the Company at
such time and for such purposes as it may deem appropriate in the event
of bankruptcy or insolvency.
ARTICLE 7
ADMINISTRATION
7.1 ADMINISTRATION BY THE COMPANY. The Company shall be entitled to rely
conclusively upon all tables, valuations, certificates, opinions and
reports furnished by any actuary, accountant, controller, counsel, or
other person employed or engaged by the Company with respect to the
Plan. The Company shall have full power and discretion to administer
the Plan in all of its details, and its decision shall be binding. For
this purpose, the Company's powers shall include, but shall not be
limited to, the following authority, in addition to all other powers
provided hereunder:
(a) To make and enforce such rules and regulations as it deems necessary
or proper for the efficient administration of the Plan;
(b) To interpret the Plan, its interpretation thereof in good faith to be
final and conclusive on all persons claiming benefits under the Plan;
(c) To decide all questions concerning the Plan and the eligibility of any
person to participate in the Plan;
(d) To appoint such agents, counsel, accountants, consultants, and other
<PAGE>
Page 11
persons as may be required to assist in administering the Plan; and
(e) To allocate and delegate its responsibilities under the plan and to
designate other persons or an administrative committee to carry out
any of its responsibilities under the Plan, any such allocation,
delegation or designation to be in writing.
ARTICLE 8
AMENDMENT OR TERMINATION
8.1 AMENDMENT OR TERMINATION. The Company intends the Plan to be permanent,
but reserves the right to amend or terminate the Plan when, in the sole
opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date specified in such resolution.
8.2 EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination of the
Plan shall directly or indirectly reduce the value of any Deferred
Compensation Account held hereunder as of the effective date of such
amendment or termination.
ARTICLE 9
GENERAL PROVISIONS
9.1 NO GUARANTEE OF BENEFITS. Nothing contained in the Plan shall constitute a
guarantee by the Company or by any other person or entity that the assets
of the Company will be sufficient to pay any benefits hereunder.
9.2 NO ENLARGEMENT OF DIRECTOR RIGHTS. No Participant shall have any right to
receive a benefit payment under the Plan except in accordance with the
terms of the Plan. Establishment of the Plan shall not be construed to
give any Participant the right to be retained in the service of the
Company.
9.3 SPENDTHRIFT PROVISION. No interest of any person or entity in, or right to
receive a benefit payment under, the Plan shall be subject in any manner to
sale, transfer, assignment, pledge, attachment, garnishment or other
alienation or encumbrance of any kind; nor may any such interest or right
to receive a benefit payment be taken, either voluntarily or involuntarily,
for the satisfaction of the debts of, or other obligations or claims
against, such person or entity, including claims of alimony, support or
separate maintenance, or claims in bankruptcy proceedings.
9.4 APPLICABLE LAW. The Plan shall be construed and administered under the
laws of the State of Texas.
<PAGE>
Page 12
9.5 INCAPACITY OF RECIPIENT. If any person entitled to a benefit payment under
the Plan is deemed by the Company to be incapable of personally receiving,
and giving a valid receipt for, such payment, then, unless and until claim
therefor shall have been made by a duly appointed guardian, conservator or
other legal representative of such person, the Company may provide for such
payment or any part thereof to be made to any other person or institution
then contributing toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of such person
and shall constitute a complete discharge of any liability of the Company
and the Plan therefor.
9.6 CORPORATE SUCCESSORS. The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the
Plan shall be continued after such sale, merger or consolidation only if
and to the extent that the transferee, purchaser or successor entity agrees
to continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate
subject to the provisions of Section 8.2.
9.7 UNCLAIMED BENEFITS. Each Participant shall keep the Company informed of
his or her current address and the current address of his or her
Beneficiary or Beneficiaries. The Company shall not be obligated to search
for the whereabouts of any person. If the location of a Participant is not
made known to the Company within three (3) years after the date on which
payment of the Participant's benefit may first be made, payment may be made
as though the Participant had died at the end of the three-year period,
provided that proof of death satisfactory to the Plan Administrator is
provided. If, within one additional year after such three-year period has
elapsed, or, within three years after the actual death of a Participant,
the Company is unable to locate any Beneficiary or Beneficiaries of the
Participant, and is further unable to locate a spouse, dependent or
descendant of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to or in behalf of such Participant
or Beneficiary, and such benefits shall be irrevocably forfeited.
9.8 LIMITATIONS ON LIABILITY. Notwithstanding any of the preceding provisions
of the Plan, neither the Company nor any Individual acting as employee or
agent of the Company shall be liable to any Participant, former
Participant, Beneficiary, or other person for any claim, loss, liability or
expense incurred in connection with the Plan.
ARTICLE 10
CLAIMS FOR BENEFITS
10.1 CLAIMS PROCEDURE. The Plan Administrator shall make all determinations
as to
<PAGE>
Page 13
the right of a Participant or Beneficiary to a benefit under the Plan.
If any person does not receive the benefit to which he or she believes he
or she is entitled under this Plan, said person may file a claim for
benefits in writing which shall be signed by the Participant, Beneficiary
or legal representative of a Participant or Beneficiary. Claims shall be
granted or denied within 30 days after receipt unless additional time is
required because of special circumstances. If additional time is required,
the claimant will be notified in writing before the expiration of 30 days
from the receipt of the claim. In no event shall the time for reaching a
decision with respect to a claim be extended beyond 180 days after receipt
of the claim.
In the event that the Plan Administrator denies a claim for benefits, the
claimant will be notified in writing. Such notice shall set forth the
specific reasons for the denial, the specific provisions of this Plan on
which the denial is based, a description of any additional materials or
information necessary to perfect the claim along with an explanation of why
such material or information is necessary, and an explanation of the claim
review procedure.
If no action is taken by the Plan Administrator on a claim within 30 days
after its receipt, or, if the period for considering the claim has been
extended, then if no action is taken within 180 days after receipt of the
claims, the claim shall be deemed to be denied for purposes of the
following review procedure.
10.2 REVIEW PROCEDURE. If a claim is denied in whole or in part, the claimant
may request the Board to review the decision with the Plan Administrator,
neither body to include the claimant. This request must be made in writing
within 30 days after the claim has been denied or is deemed to be denied
under Section 10.1 and must set forth all of the grounds upon which the
request is based, any facts in support of the request, and any issues or
comments which the claimant considers relevant to the review. In preparing
a request for review, the claimant will be entitled to review any documents
which are pertinent to his or her claim at the office of the Company during
regular business hours.
The Board of Directors shall act upon each request for review as soon as
possible but not later than 60 days after the request for review is
received. No Director shall participate in any Board action taken with
respect to his or her own claim.
The Board of Directors shall make an independent determination concerning
the claim for benefits under this Plan and shall give written notice of its
decision to the claimant. The decision of the Board of Directors on any
claim review shall be final.
If the Board of Directors fails to deliver a decision within 60 days after
receipt of the request for review, the claim shall be deemed denied on
review.
<PAGE>
Page 14
IN WITNESS WHEREOF, U.S. LONG DISTANCE CORP. has caused this instrument to
be executed by its duly authorized officer this 19th day of December, 1995,
effective as of the 19th day of December, 1995.
ATTEST: U.S. LONG DISTANCE CORP.
/S/ JENNIFER B. HARVEY By: /S/ LARRY M. JAMES
- ------------------------ -------------------------------
Assistant Secretary Name: Larry M. James
Title: President
<PAGE>
-----------------------------
MERRILL LYNCH
-----
SPECIAL
-----
PROTOTYPE
DEFINED CONTRIBUTION PLAN
-----------------------------
Base Plan Document #03 used in conjunction with:
Non-standardized Profit Sharing Plan with CODA
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
Non-standardized Money Purchase Pension Plan
Letter Serial Number: D359288b
National Office Letter Date: 6/29/93
Non-standardized Profit Sharing Plan
Letter Serial Number: D359289b
National Office Letter Date: 6/29/93
Non-standardized Target Benefit Plan
Letter Serial Number: D361009a
National Office Letter Date: 6/29/93
THIS PROTOTYPE PLAN AND ADOPTION AGREEMENT ARE IMPORTANT LEGAL INSTRUMENTS WITH
LEGAL AND TAX IMPLICATIONS FOR WHICH THE SPONSOR, MERRILL LYNCH, PIERCE, FENNER
& SMITH, INCORPORATED, DOES NOT ASSUME RESPONSIBILITY. THE EMPLOYER IS URGED TO
CONSULT WITH ITS OWN ATTORNEY WITH REGARD TO THE ADOPTION OF THIS PLAN AND ITS
SUITABILITY TO ITS CIRCUMSTANCES.
<PAGE>
Internal Revenue Service Department of the Treasury
Plan Description: Prototype Non-standardized Profit Sharing Plan with CODA
FFN: 50339816103-004 Case 9201920 EIN: 13-5674085 Washington, DC 20224
BPD: 03 Plan: 004 Letter Serial No: 0359287b
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER & SMITH INC
Telephone Number: (202) 622-8380
P 0 BOX 9038
Refer Reply to E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application with
the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1
C.B. 780. The applicability of such provisions may be determined by reference
to the initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
/s/ John ????
Chief, Employee Plans Qualifications Branch
<PAGE>
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Non-standardized Money Purchase Pension Plan
FFN: 50339816103-003 Case: 9201919 EIN: 13-5674085 Washington, DC 20224
BPD: 03 Plan: 003 Letter Serial No: 0359288b
Person to Contact: Mr. Wolf
MERRILL LYNCH PIERCE FENNER & SMITH INC
Telephone Number: (202) 622-8380
P 0 BOX 9038
Refer Reply to: E:EP:Q:1
PRINCETON, NJ 08543
Date: 06/29/93
Dear Applicant:
In our opinion, the amendment to the form of the plan identified above does not
in and of itself adversely affect the plan's acceptability under section 401 of
the Internal Revenue Code. This opinion relates only to the amendment to the
form of the plan. It is not an opinion as to the acceptability of any other
amendment or of the form of the plan as a whole, or as to the effect of other
Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
An employer who adopts the amended form of the plan after the date of the
amendment should apply for a determination letter by filing an application
with the Key District Director of Internal Revenue on Form 5307, Short Form
Application for Determination for Employee Benefit Plan.
This letter with respect to the amendment to the form of the plan does not
affect the applicability to the plan of the continued, interim and extended
reliance provisions of sections 13 and 17.03 of Rev. Proc. 89-9, 1989-1
C.B. 780. The applicability of such provisions may be determined by reference
to the initial opinion letter issued with respect to the plan.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by adopting
employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this Letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely
/s/ John ????
Chief, Employee Plans Qualifications Branch
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
1.1 "Account" 1
1.2 "Account Balance" 1
1.3 "ACP Test" 1
1.4 "Actual Deferral Percentage" 1
1.5 "Adjustment Factor" 1
1.6 "Administrator" 1
1.7 "Adoption Agreement" 1
1.8 "ADP Test" 1
1.9 "Affiliate" 1
1.10 "Annuity Contract" 1
1.11 "Average Actual Deferral Percentage" 1
1.12 "Average Contribution Percentage" 1
1.13 "Beneficiary" 1
1.14 "Benefit Commencement Date" 2
1.15 "CODA" 2
1.16 "CODA Compensation" 2
1.17 "Code" 2
1.18 "Compensation" 2
1.19 "Contribution Percentage" 3
1.20 "Contribution Percentage Amounts" 3
1.21 "Defined Benefit Plan" 3
1.22 "Defined Contribution Plan" 3
1.23 "Disability" 3
1.24 "Early Retirement" 3
1.25 "Early Retirement Date" 3
1.26 "Earned Income" 3
1.27 "Elective Deferrals" 3
1.28 "Elective Deferrals Account" 4
1.29 "Eligible Employee" 4
1.30 "Eligible Participant" 4
1.31 "Employee" 4
1.32 "Employee Thrift Contributions" 4
1.33 "Employee Thrift Contributions Account" 4
1.34 "Employer" 4
1.35 "Employer Account" 4
1.36 "Employer Contributions" 4
1.37 "Employer Contributions Account" 4
1.38 "Employment" 4
1.39 "Entry Date" 4
1.40 "ERISA" 5
1.41 "Excess Aggregate Contributions" 5
1.42 "Excess Contributions" 5
1.43 "Excess Elective Deferrals" 5
1.44 "Family Member" 5
1.45 "401(k) Contributions Accounts" 5
1.46 "401(k) Election" 5
1.47 "Fully Vested Separation" 5
1.48 "Group Trust" 5
1.49 "Highly Compensated Employee" 5
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TABLE OF CONTENTS
1.50 "Hour of Service" 6
1.51 "Immediately Distributable" 6
1.52 "Investment Manager" 6
1.53 "Key Employee" 6
1.54 "Leased Employee" 7
1.55 "Limitation Year" 7
1.56 "Master or Prototype Plan" 7
1.57 "Matching 401(k) Contribution" 7
1.58 "Matching 401(k) Contributions Account" 7
1.59 "Matching Thrift Contributions" 7
1.60 "Matching Thrift Contributions Account" 7
1.61 "Net Profits" 7
1.62 "Nonhighly Compensated Employee" 7
1.63 "Nonvested Separation" 7
1.64 "Normal Retirement Age" 7
1.65 "Owner-Employee" 7
1.66 "Partially Vested Separation" 8
1.67 "Participant" 8
1.68 "Participant Contributions Account" 8
1.69 "Participant-Directed Assets" 8
1.70 "Participant Voluntary Nondeductible Contributions" 8
1.71 "Participant Voluntary Nondeductible Contributions Account" 8
1.72 "Participating Affiliate" 8
1.73 "Period of Severance" 8
1.74 "Plan" 8
1.75 "Plan Year" 8
1.76 "Prototype Plan" 9
1.77 "Qualified Joint and Survivor Annuity" 9
1.78 "Qualified Matching Contributions" 9
1.79 "Qualified Matching Contributions Accounts" 9
1.80 "Qualified Nonelective Contributions" 9
1.81 "Qualified Nonelective Contributions Account" 9
1.82 "Qualified Plan" 9
1.83 "Qualifying Employer Securities" 9
1.84 "Rollover Contribution" 9
1.85 "Rollover Contribution Account" 9
1.86 "Self-Employed Individual" 9
1.87 "Social Security Retirement Age" 9
1.88 "Sponsor" 9
1.89 "Spouse" 9
1.90 "Surviving Spouse" 10
1.91 "Taxable Wage Base" 10
1.92 "Transferred Account" 10
1.93 "Trust" 10
1.94 "Trust Fund" 10
1.95 "Trustee" 10
1.96 "Valuation Date" 10
1.97 "Vesting Service" 10
1.98 "Years of Service" 10
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TABLE OF CONTENTS
ARTICLE II PARTICIPATION
2.1 Admission as a Participant 10
2.2 Rollover Membership Trust to Trust Transfer 11
2.3 Crediting of Service for Eligibility Purposes 11
2.4 Termination of Participation 11
2.5 Limitation for Owner-Employee 11
2.6 Corrections with Regard to Participation 12
2.7 Provision of Information 12
ARTICLE III CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.1 Employer Contributions and Allocations 12
3.2 Participant Voluntary Nondeductible Contributions 13
3.3 Rollover Contributions and Trust to Trust Transfers 13
3.4 Section 401(k) - Contributions and Account Allocations 13
3.5 Matching 401(k) Contributions 16
3.6 Thrift Contributions 18
3.7 Treatment of Forfeitures 19
3.8 Establishing of Accounts 19
3.9 Limitation on Amount of Allocations 19
3.10 Return of Employer Contributions Under Special Circumstances 24
ARTICLE IV VESTING
4.1 Determination of Vesting 24
4.2 Rules for Crediting Vesting Service 24
4.3 Employer Accounts Forfeitures 24
4.4 Top-Heavy Provisions 25
ARTICLE V AMOUNT AND DISTRIBUTION OF BENEFITS, WITHDRAWALS AND LOANS
5.1 Distribution Upon Termination of Employment 27
5.2 Amount of Benefits Upon a Fully Vested Separation 27
5.3 Amount of Benefits Upon a Partially Vested Separation 27
5.4 Amount of Benefits Upon a Nonvested Separation 27
5.5 Amount of Benefits Upon A Separation Due to Disability 27
5.6 Distribution and Restoration 27
5.7 Withdrawals During Employment 28
5.8 Loans 28
5.9 Hardship Distributions 30
5.10 Limitation on Commencement of Benefits 30
5.11 Distribution Requirements 30
ARTICLE VI FORMS OF PAYMENT OF RETIREMENT BENEFITS
6.1 Methods of Distribution 34
6.2 Election of Optional Forms 35
6.3 Change in Form of Benefit Payments 36
6.4 Direct Rollovers 36
iv
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TABLE OF CONTENTS
ARTICLE VII DEATH BENEFITS
7.1 Payment of Account Balances 37
7.2 Beneficiaries 37
7.3 Life Insurance 39
ARTICLE VIII FIDUCIARIES
8.1 Named Fiduciaries 40
8.2 Employment of Advisers 41
8.3 Multiple Fiduciary Capacities 41
8.4 Indemnification 41
8.5 Payment of Expenses 41
ARTICLE IX PLAN ADMINISTRATION
9.1 The Administrator 41
9.2 Powers and Duties of the Administrator 41
9.3 Delegation of Responsibility 42
ARTICLE X TRUSTEE AND INVESTMENT COMMITTEE
10.1 Appointment of Trustee and Investment Committee 42
10.2 The Trust Fund 42
10.3 Relationship with Administrator 42
10.4 Investment of Assets 43
10.5 Investment Direction, Participant-Directed
Assets and Qualifying Employer Investments 44
10.6 Valuation of Accounts 45
10.7 Insurance Contracts 46
10.8 The Investment Manager 46
10.9 Powers of Trustee 47
10.10 Accounting and Records 48
10.11 Judicial Settlement of Accounts 48
10.12 Resignation and Removal of Trustee 48
10.13 Group Trust 49
ARTICLE XI PLAN AMENDMENT OR TERMINATION
11.1 Prototype Plan Amendment 49
11.2 Plan Amendment 49
11.3 Right of the Employer to Terminate Plan 50
11.4 Effect of Partial or Complete Termination
or Complete Discontinuance of Contributions 50
11.5 Bankruptcy 51
ARTICLE XII MISCELLANEOUS PROVISIONS
12.1 Exclusive Benefit of Participants 51
12.2 Plan Not a Contract of Employment 51
12.3 Action by Employer 51
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TABLE OF CONTENTS
12.4 Source of Benefits 51
12.5 Benefits Not Assignable 51
12.6 Domestic Relations Orders 52
12.7 Claims Procedure 52
12.8 Records and Documents; Errors 52
12.9 Benefits Payable to Minors,
Incompetents and Others 52
12.10 Plan Merger or Transfer of Assets 52
12.11 Participating Affiliates 52
12.12 Controlling Law 53
12.13 Singular and Plural and Article and Section References 53
vi
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ARTICLE I DEFINITIONS
As used in this Prototype Plan and in each Adoption Agreement, each of the
following terms shall have the meaning for that term set forth in this Article
I:
1.1 ACCOUNT: A separate Elective Deferrals Account, Employee Thrift
Contributions Account, Employer Contributions Account, Matching 401(k)
Contributions Account, Matching Thrift Contributions Account, Participant
Voluntary Nondeductible Contributions Account, Qualified Matching Contributions
Account, Qualified Nonelective Contributions Account, Rollover Contribution
Account, and Transferred Account, as the case may be.
1.2 ACCOUNT BALANCE: The value of an Account determined as of the applicable
Valuation Date.
1.3 ACP TEST: The Contribution Percentage test that is set forth in Section
3.5.2 of the Plan.
1.4 ACTUAL DEFERRAL PERCENTAGE: The ratio (expressed as a percentage), of (A)
Elective Deferrals made on behalf of an Eligible Participant for the Plan Year
(including Excess Elective Deferrals of Highly Compensated Employees and, at the
election of the Employer, Qualified Nonelective Contributions and/or Qualified
Matching Contributions), but excluding (1) Excess Elective Deferrals of
Nonhighly Compensated Employees that arise solely from Elective Deferrals made
under the Plan or plans of the Employer or an Affiliate and (2) Elective
Deferrals that are taken into account in the ACP Test (provided the ADP Test is
satisfied with or without the exclusion of such Elective Deferrals) to (B) the
Participant's CODA Compensation for the Plan Year (whether or not the Eligible
Employee was a Participant for the entire Plan Year). The Actual Deferral
Percentage of an Eligible Participant who would be a Participant but for the
failure to make an Elective Deferral is zero.
1.5 ADJUSTMENT FACTOR: The cost of living adjustment factor prescribed by the
Secretary of the Treasury under Code Section 415(d) for years beginning after
December 31, 1987, as applied to such items and in such manner as the Secretary
shall provide.
1.6 ADMINISTRATOR: The Employer, unless otherwise specified by duly authorized
action by the Employer.
1.7 ADOPTION AGREEMENT: The document so designated with respect to this
Prototype Plan that is executed by the Employer, as amended from time to time.
1.8 ADP Test: The Average Actual Deferral Percentage test set forth in Section
3.4.2(B) of the Plan.
1.9 AFFILIATE: Any corporation or unincorporated trade or business (other than
the Employer) while it is:
(A) a member of a "controlled group of corporations" (within the meaning of
Code Section 414(b)) of which the Employer is a member;
(B) a member of any trade or business under "common control" (within the
meaning of Code Section 414(c)) with the Employer;
(C) a member of an "affiliated service group" (as that term is defined in Code
Section 414(m)) which includes the Employer; or
(D) any other entity required to be aggregated with the Employer pursuant to
Code Section 414(o). With respect to Section 3.9, "Affiliate" status shall be
determined in accordance with Code Section 415(h).
1.10 ANNUITY CONTRACT: An individual or group annuity contract issued by an
insurance company providing periodic benefits, whether fixed, variable or both,
the benefits or value of which a Participant or Beneficiary cannot transfer,
sell, assign, discount, or pledge as collateral for a loan or as security for
the performance of an obligation, or for any other purpose, to any person other
than the issuer thereof. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
1.11 AVERAGE ACTUAL DEFERRAL PERCENTAGE: For any group of Eligible
Participants, the average (expressed as a percentage) of the Actual Deferral
Percentages for each of the Eligible Participants in that group, including those
not making Elective Deferrals.
1.12 AVERAGE CONTRIBUTION PERCENTAGE: For any group of Eligible Participants,
the average (expressed as a percentage) of the Contribution Percentages for each
of the Participants in that group, including those on whose behalf Matching
401(k) Contributions and/or Matching Thrift Contributions, if applicable, are
not being made.
1.13 BENEFICIARY: A person or persons entitled to receive any payment of
benefits pursuant to Article VII.
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1.14 BENEFIT COMMENCEMENT DATE: The first day, determined pursuant to Article
V, for which a Participant or Beneficiary receives or begins to receive payment
in any form of distribution as a result of death, Disability, termination of
Employment, Early Retirement, Plan termination or upon or after Normal
Retirement Age or age 70-1/2.
1.15 CODA: A cash or deferred arrangement pursuant to Code Section 401(k)
which is part of a profit sharing plan and under which an Eligible Participant
may elect to make Elective Deferrals in accordance with Section 3.4.1.
1.16 CODA COMPENSATION: Solely for purposes of determining the Actual Deferral
Percentage and the Contribution Percentage, CODA Compensation shall be
Compensation excluding or including "elective contributions" as specified in the
Adoption Agreement. The preceding sentence shall be effective for Plan Years
beginning on or after January 1, 1989.
1.17 CODE: The Internal Revenue Code of 1986, as now in effect or as amended
from time to time. A reference to a specific provision of the Code shall
include such provision and any applicable regulation pertaining thereto.
1.18 COMPENSATION: For purposes of contributions, Compensation shall be
defined in the Adoption Agreement and Section 3.9.1(H), subject to any
exclusions elected under Section I.A(d) of the Adoption Agreement, Section 3.1.4
and the following modifications:
(A) For a Self-Employed Individual, Compensation means his or her Earned
Income, provided that if the Self-Employed Individual is not a Participant for
an entire Plan Year, his or her Compensation for that Plan Year shall be his or
her Earned Income for that Plan Year multiplied by a fraction the numerator of
which is the number of days he or she is a Participant during the Plan Year and
the denominator of which is the number of days in the Plan Year.
(B) Compensation of each Participant taken into account under this Plan for any
Plan Year beginning after December 21, 1988 shall be limited to the first
$200,000 as adjusted by the Adjustment Factor. In determining the Compensation
of a Participant for purposes of this limitation, the rule of Code Section
414(q)(6) shall apply, except in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants of the
Participant who have not attained the age of 19 before the close of the year.
If, as a result of the application of such rules, the adjusted $200,000
limitation is exceeded, (except for purposes of determining the portion of
Compensation up to the Integration Level if this Plan is integrated with Social
Security), the limitation shall be prorated among the affected Participants in
proportion to each such Participant's Compensation as determined under this
Section 1.18 prior to the application of this limitation. In a manner applied
uniformly to all Eligible Employees, only Compensation during the period in
which the Employee is an Eligible Employee may be taken into account for
purposes of the nondiscrimination tests described in Code Section 401(k) and
401(m).
(C) If Compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current year, the
Compensation for such prior year is subject to the applicable annual
compensation limit in effect for that prior year. For this purpose, for years
beginning before January 1, 1990, the applicable annual compensation limit is
$200,000.
(D) In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000 as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code.
The cost of living adjustment in effect for a calendar year applies to any
period, not exceeding 12 months, over which compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this Plan
to the limitations under Section 401(a)(17) of the Code shall mean the OBRA '93
annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for prior determination periods beginning before the first day of
the first Plan Year beginning on
2
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or after January 1, 1994, the OBRA '93 Compensation limit is $150,000.
1.19 CONTRIBUTION PERCENTAGE: The ratio (expressed as a percentage) of the
Participant's Contribution Percentage Amounts to the Participant's CODA
Compensation for the Plan Year, whether or not the Eligible Employee was a
Participant for the entire Plan Year.
1.20 CONTRIBUTION PERCENTAGE AMOUNTS: shall mean the sum of the: (A) Matching
401(k) Contributions; (B) Matching Thrift Contributions;
(C) Qualified Matching Contributions (to the extent not taken into account
for purposes of the ADP Test); (D) Employee Thrift Contributions; and (E)
Participant Voluntary Nondeductible Contributions, as applicable, made on
behalf of the Participant for the Plan Year. Such Contribution Percentage
Amounts shall not include Matching 401(k) Contributions that are forfeited
either to correct Excess Aggregate Contributions or because the contributions
to which they relate are Excess Elective Deferrals, Excess Contributions or
Excess Aggregate Contributions. The Employer may include Qualified
Nonelective Contributions in the Contribution Percentage
Amounts, as specified in the Adoption Agreement. Elective Deferrals may also be
used in the Contribution Percentage Amounts so long as the ADP Test is met
before the Elective Deferrals are used in the ACP Test and continues to be met
following the exclusion of those Elective Deferrals that are used to meet the
ACP Test, as specified in the Adoption Agreement. An Eligible Participant who
does not direct an Elective Deferral or an Employee Thrift Contribution shall be
treated as an Eligible Participant on behalf of whom no such contributions are
made.
1.21 DEFINED BENEFIT PLAN: A plan of the type defined in Code Section 414(j)
maintained by the Employer or Affiliate, as applicable.
1.22 DEFINED CONTRIBUTION PLAN: A plan of the type defined in Code Section
414(i) maintained by the Employer or Affiliate, as applicable.
1.23 DISABILITY. Disability as defined in the Adoption Agreement. The
permanence and degree of such impairment shall be supported by medical evidence.
1.24 EARLY RETIREMENT: An actively employed Participant is eligible for Early
Retirement upon satisfying the requirements set forth in the Adoption Agreement.
1.25 EARLY RETIREMENT DATE: The Participant's Benefit Commencement Date
following his or her termination of Employment on or after satisfying the
requirements for Early Retirement and prior to Normal Retirement Age.
1.26 EARNED INCOME: The "net earnings from self-employment" within the meaning
of Code Section 401(c)(2) of a Self-Employed Individual from the trade or
business with respect to which the Plan is established, but only if the personal
services of the Self-Employed Individual are a material income-producing factor
in that trade or business. Net earnings will be determined without regard to
items not included in gross income and the deductions properly allocable to or
chargeable against such items and are to be reduced by contributions by the
Employer or Affiliate to a Qualified Plan to the extent deductible under Code
Section 404. Where this Plan refers to Earned Income in the context of a trade
or business other than that with respect to which the Plan is adopted, the term
Earned Income means such net earnings as would be Earned Income as defined above
if that trade or business was the trade or business with respect to which the
Plan is adopted.
Net earnings shall be determined with regard to the deduction allowed to the
Employer by Code Section 164(f) for taxable years beginning after December
31, 1989.
1.27 ELECTIVE DEFERRALS: Contributions made to the Plan during the Plan Year
by the Employer, at the election of the Participant, in lieu of cash
compensation and shall include contributions that are made pursuant to a 401(k)
Election.
A Participant's Elective Deferral in any taxable year is the sum of all Employer
and Affiliate contributions pursuant to an election to defer under any qualified
cash or deferred arrangement, any simplified employee pension plan or deferred
arrangement as described in Code Section 402(h)(1)(B), any eligible deferred
compensation plan under Code Section 457, any plan as described under Code
Section 501(c)(18), and any Employer contributions made on behalf of a
Participant for the purchase of an annuity under Code Section 403(b) pursuant to
a salary reduction agreement. Such contributions are nonforfeitable when made
and are not distributable under the terms of the Plan to Participants or their
Beneficiaries earlier than the earlier of:
(A) termination from Employment, death or Disability of the Participant;
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(B) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
(C) disposition by the Employer or Affiliate to an unrelated corporation of
substantially all of its assets used in a trade or business if such unrelated
corporation continues to maintain this Plan after the disposition but only with
respect to Employees who continue employment with the acquiring unrelated
entity. The sale of 85% of the assets used in a trade or business will be
deemed a sale of "substantially all" the assets used in a trade or business;
(D) sale by the Employer or Affiliate to an unrelated entity of its interest in
an Affiliate if such unrelated entity continues to maintain the Plan but only
with respect to Employees who continue employment with such unrelated entity; or
(E) the events specified in Part B, Article VIII of the Adoption Agreement.
Elective Deferrals shall not include any deferrals properly distributed as an
"Excess Amount" pursuant to Section 3.9.2.
1.28 ELECTIVE DEFERRALS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.1.
1.29 ELIGIBLE EMPLOYEE: Those Employees specified in the Adoption Agreement.
1.30 ELIGIBLE PARTICIPANT: An Eligible Employee who has met the eligibility
requirements set forth in the Adoption Agreement whether or not he or she makes
Elective Deferrals and/or Employee Thrift Contributions.
1.31 EMPLOYEE: A Self-Employed Individual, or any individual who is employed
by the Employer in the trade or business with respect to which the Plan is
adopted and any individual who is employed by an Affiliate. Each Leased
Employee shall also be treated as an Employer of the recipient Employer. The
preceding sentence shall not apply, however, to any Leased Employee who is (A)
covered by a money purchase pension plan maintained by the "leasing
organization" referred to in Section 1.54 which provides, with respect to such
Leased Employee, a nonintegrated Employer contribution rate of at least 10% of
Limitation Compensation, but including amounts contributed pursuant to a salary
reduction agreement which are excluded from the Employee's gross income under
Code Section 402(a)(8), Code Section 402(h) or Code Section 403(b), immediate
participation and full and immediate vesting and (B) such Leased Employees do
not constitute more than 20% of the Employer's and Affiliates' nonhighly
compensated workforce. For purposes of the Plan, all Employees will be treated
as employed by a single employer.
1.32 EMPLOYEE THRIFT CONTRIBUTIONS: Employee nondeductible contributions which
are required to be eligible for a Matching Thrift Contribution. Employee Thrift
Contributions do not include Participant Voluntary Nondeductible Contributions.
1.33 EMPLOYEE THRIFT CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.3.
1.34 EMPLOYER: The sole proprietorship, partnership or corporation that adopts
the Plan by executing the Adoption Agreement. For all purposes relating to
eligibility, participation, contributions, vesting and allocations, Employer
includes all Participating Affiliates.
1.35 EMPLOYER ACCOUNT: The Participant's Matching 401(k) Contributions
Account, Matching Thrift Contributions Account, Employer Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account, as the case may be.
1.36 EMPLOYER CONTRIBUTIONS: Any contributions made by the Employer for the
Plan Year on behalf of a Participant in accordance with Section 3.1 of the Plan.
1.37 EMPLOYER CONTRIBUTIONS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.2.
1.38 EMPLOYMENT: An Employee's employment or self-employment with the
Employer, Affiliate or a "leasing organization" referred to in Section 1.54
or, to the extent required under Code Section 414(a)(2) or as otherwise
specified by the Administrator on a uniform and nondiscriminatory basis, any
predecessor of any of them. If any of them maintains a plan of a
"predecessor employer" (within the meaning of Code Section 414(a)(1))
employment or self-employment with the "predecessor employer" will be treated
as Employment. Additionally, if the trade or business conducted by a
Self-Employed Individual becomes incorporated, all employment with that trade
or business or with any Affiliate shall be treated as Employment with the
Employer.
1.39 ENTRY DATE: The date on which an Eligible Employee becomes a Participant,
as specified in the Adoption Agreement.
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1.40 ERISA: The Employee Retirement Income Security Act of 1974, as amended
from time to time. Reference to a specific provision of ERISA shall include
such provision and any applicable regulation pertaining thereto.
1.41 EXCESS AGGREGATE CONTRIBUTIONS: With respect to any Plan Year, the excess
of:
(A) The aggregate Contribution Percentage Amounts, taken into account in
computing the numerator of the Contribution Percentage actually made on behalf
of Highly Compensated Employees for such Plan Year, over (B) The maximum
Contribution Percentage Amounts permitted by the ACP Test (determined by
reducing contributions made on behalf of Highly Compensated Employees in the
order of their Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess Elective
Deferrals and then determining Excess Contributions.
1.42 EXCESS CONTRIBUTIONS: With respect to any Plan Year, the aggregate amount
of Elective Deferrals, Qualified Nonelective Contributions and Qualified
Matching Contributions, if applicable, actually paid over to the Trust Fund on
behalf of Highly Compensated Employees for such Plan Year, over the maximum
amount of such contributions permitted by the ADP Test (determined by reducing
contributions made on behalf of Highly Compensated Employees in order of the
Actual Deferral Percentages, beginning with the highest of such percentages).
1.43 EXCESS ELECTIVE DEFERRALS: The amount of Elective Deferrals for a
Participant's taxable year that are includible in the gross income of the
Participant to the extent that such Elective Deferrals exceed the Code Section
402(g) dollar limitation and which the Participant allocates to this Plan
pursuant to the procedure set forth in Section 3.4.2. Excess Elective Deferrals
shall be treated as an Annual Addition pursuant to Section 3.9, unless such
amounts are distributed no later than the first April 15th following the close
of the Participant's taxable year.
1.44 FAMILY MEMBER: An individual described in Code Section 414(q)(6)(B).
1.45 401(k) CONTRIBUTIONS ACCOUNTS: The Participant's Elective Deferral
Account, Qualified Nonelective Contributions Account, and/or Qualified Matching
Contributions Account, as the case may be.
1.46 401(k) ELECTION: The election by a Participant to make Elective Deferrals
in accordance with Section 3.4.1.
1.47 FULLY VESTED SEPARATION: Termination of Employment, by reason other than
death, of a Participant whose vested percentage in each Employer Account is
100%.
1.48 GROUP TRUST: A Trust Fund consisting of assets of any Plan maintained and
established by the Employer or an Affiliate pursuant to Section 10.14.
1.49 HIGHLY COMPENSATED EMPLOYEE: The term Highly Compensated Employee includes
highly compensated active Employees and highly compensated former employees.
(A) A highly compensated active Employee includes any Employee who performs
service for the Employer or Affiliate during the Plan Year and who, during the
look-back year (the twelve-month period immediately preceding the Plan Year):
(i) received Compensation from the Employer or Affiliate in excess of $75,000
(as adjusted by the Adjustment Factor);
(ii) received Compensation from the Employer or Affiliate in excess of $50,000
(as adjusted by the Adjustment Factor) and was a member of the top-paid group
for such year; or
(iii) was an officer of the Employer or Affiliate and received Compensation
during such year that is greater than 50% of the Defined Benefit Dollar
Limitation.
(B) The term Highly Compensated Employee also includes:
(i) Employees who are both described in the preceding sentence if the term
"Plan Year" is substituted for the term "look-back year" and the Employee is one
of the 100 Employees who received the most Compensation from the Employer or
Affiliate during the Plan Year; and
(ii) Employees who are 5% owners at any time during the look-back year or Plan
Year.
(C) If no officer has received Compensation that is greater than 50% of the
Defined Benefit Dollar Limitation in effect during either the Plan Year or
look-back year, the highest paid officer of such year shall be treated as a
Highly Compensated Employee.
(D) A highly compensated former employee includes any Employee who terminated
Employment (or was deemed to have terminated) prior to the Plan Year,
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performs no service for the Employer or Affiliate during the Plan Year, and was
a highly compensated active employee for either the separation year or any Plan
Year ending on or after the Employee's 55th birthday.
(E) If an Employee is, during a Plan Year or look-back year, a Family Member of
either (i) a 5% owner who is an active or former Employee or (ii) a Highly
Compensated Employee who is one of the ten most highly compensated employees
ranked on the basis of Compensation paid by the Employer or Affiliate during
such year, then the Family Member and the 5% owner or top-ten Highly Compensated
Employee shall be aggregated. In such case, the Family Member and 5% owner or
top-ten Highly Compensated Employee shall be treated as a single Employee
receiving Compensation and plan contributions or benefits equal to the sum of
such compensation and contributions or benefits of the Family Member and 5%
owner or top-ten Highly Compensated Employee. For purposes of this section,
Family Member includes the Spouse, lineal ascendents and descendants of the
Employee or former employee and the spouses of such lineal ascendants and
descendants.
(F) The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group;
the top 100 Employees; the number of Employees treated as officers; and the
Compensation that is considered will be made in accordance with Code Section
414(q).
1.50 HOUR OF SERVICE: If the Employer elects in the Adoption Agreement the
hourly record method, an Hour of Service shall include:
(A) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate for the performance of duties for the Employer or an
Affiliate. These hours will be credited to the Employee for each Plan Year in
which the duties are performed, or with respect to eligibility under Article II,
the applicable computation period under the definition of Year of Service in
which the duties are performed;
(B) Each hour for which an Employee is paid, or entitled to payment, by the
Employer or an Affiliate due to a period of time during which no duties are
performed (irrespective of whether Employment has terminated) due to vacation,
holiday, illness, incapacity (including Disability), layoff, jury duty, military
duty, or leave of absence. No more then 501 Hours of Service will be credited
under this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours under this paragraph will
be calculated and credited pursuant to section 2530.200b-2 of the Department of
Labor Regulations which are incorporated herein by this reference; and
(C) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate. The same Hours of
Service will not be credited both under subparagraph (A) or subparagraph (B), as
the case may be, and under this subparagraph (C). These hours will be credited
to the Employee for the Year of Service or other computation period to which the
award or agreement pertains rather than the Year of Service or other computation
period in which the award, agreement or payment is made.
If the Employer elects in the Adoption Agreement the elapsed time method, an
Hour of Service is an hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer or an Affiliate.
With respect to both the hourly record method and the elapsed time method, in
addition to service with an Affiliate, Hours of Service will also be credited
for any individual considered an Employee for purposes of this Plan under Code
Section 414(n).
1.51 IMMEDIATELY DISTRIBUTABLE: A Participant's Account is Immediately
Distributable if any part of such Account could be distributed to the
Participant or Participant's Surviving Spouse before the Participant attains (or
would have attained if not deceased) the later of Normal Retirement Age or age
62.
1.52 INVESTMENT MANAGER: Any person appointed by the Trustee or, with respect
to Participant-Directed Assets, by the Participant or Beneficiary having the
power to direct the investment of such assets, to serve as such in accordance
with Section 10.8.
1.53 KEY EMPLOYEE: Any Employee or former Employee (and the beneficiaries of
such Employee) who at any time during the "determination period" was (A) an
officer of the Employer or Affiliate, having an annual Compensation greater than
50% of the Defined Benefit Dollar Limitation for any Plan Year within the
"determination period"; (B) an owner (or considered an owner under Code Section
318) of one of the ten largest interests in the Employer or Affiliate if such
individual's Compensation exceeds 100% of the dollar limitation under Code
Section 415(c)(1)(A); (C) a "5% owner" (as defined in Code Section 416(i)) of
the Employer or Affiliate; or (D) a "1% owner" (as defined in Code Section
416(i)) of the Employer or Affiliate who has an annual Compensation of more
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than $150,000. Annual Compensation means compensation as defined in Code
Section 415(c)(3), but including amounts contributed by the Employer pursuant to
a salary reduction agreement which are excludible from the Employee's gross
income under Code Section 125, Code Section 402(a)(8), Code Section 402(h) or
Code Section 403(b). The "determination period" is the Plan Year containing the
"determination date" and the four preceding Plan Years. The "determination
date" for the first Plan Year is the last day of that Plan Year, and for any
subsequent Plan Year is the last day of the preceding Plan Year. The
determination of who is a Key Employee will be made in accordance with Code
Section 416(i).
1.54 LEASED EMPLOYEE: Any individual (other than an Employee of the recipient
Employer or Affiliate) who, pursuant to an agreement between the Employer or
Affiliate and any other person (the "leasing organization") has performed
services for the Employer (or for the Employer or Affiliate and "related
persons" determined in accordance with Code Section 414(n)(6)) on a
substantially full-time basis for a period of at least one year, which services
are of a type historically performed, in the business field of the recipient
Employer or Affiliate, by employees. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient Employer or Affiliate shall be treated as provided
by the recipient Employer.
1.55 LIMITATION YEAR: The Limitation Year as specified in the Adoption
Agreement. All Qualified Plans maintained by the Employer must use the same
Limitation Year. If the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year must begin on a date within
the Limitation Year in which the amendment is made.
1.56 MASTER OR PROTOTYPE PLAN: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.57 MATCHING 401(k) CONTRIBUTION: Any contribution made by the Employer to
this and/or any other Defined Contribution Plan for the Plan Year, by reason of
the Participant's 401(k) Election, and allocated to a Participant's Matching
401(k) Contributions Account or to a comparable account in another Defined
Contribution Plan. Matching 401(k) Contributions are subject to the
distribution provisions applicable to Employer Accounts in the Plan.
1.58 MATCHING 401(k) CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.4.
1.59 MATCHING THRIFT CONTRIBUTIONS: Any contribution made by the Employer for
the Plan Year by reason of Employee Thrift Contributions. Matching Thrift
Contributions shall be subject to the distribution provisions applicable to
Employer Accounts in the Plan.
1.60 MATCHING THRIFT CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.5.
1.61 NET PROFITS: The current and accumulated profits of the Employer from the
trade or business of the Employer with respect to which the Plan is established,
as determined by the Employer before deductions for federal, state and local
taxes on income and before contributions under the Plan or any other Qualified
Plan.
1.62 NONHIGHLY COMPENSATED EMPLOYEE: An Employee of the Employer who is
neither a Highly Compensated Employee nor a Family Member.
1.63 NONVESTED SEPARATION: Termination of Employment of a Participant whose
vested percentage in each Employer Account is 0%.
1.64 NORMAL RETIREMENT AGE: The age specified in the Adoption Agreement.
Notwithstanding the Employer's election in the Adoption Agreement, if, for Plan
Years beginning before January 1, 1988, Normal Retirement Age was determined
with reference to the anniversary of the participation commencement date (more
than 5 but not to exceed 10 years), the anniversary date for Participants who
first commenced participation under the Plan before the first Plan Year
beginning on or after January 1, 1988, shall be the earlier of (A) the tenth
anniversary of the date the Participant commenced participation in the Plan (or
such anniversary as had been elected by the Employer, if less than 10) or (B)
the fifth anniversary of the first day of the first Plan Year beginning on or
after January 1, 1988.
1.65 OWNER-EMPLOYEE: An individual who is a sole proprietor, if the Employer
is a sole proprietorship, or if the Employer is a partnership, a partner owning
more than 10% of either the capital interest or the profits interest in the
Employer; provided that where this Plan refers to an Owner-Employee in the
context of a trade or business other than the trade or business with respect to
which the Plan is adopted, the term Owner-Employee means a person who would be
an Owner-Employer as defined above if that other trade or business was the
Employer.
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1.66 PARTIALLY VESTED SEPARATION: Termination of Employment of a Participant
whose vested percentage in any Employer Account is less than 100% but greater
than 0%.
1.67 PARTICIPANT: An Employee who has commenced, but not terminated,
participation in the Plan as provided in Article II.
1.68 PARTICIPANT CONTRIBUTIONS ACCOUNT: The Participant's Participant
Voluntary Nondeductible Contributions Account and/or Employee Thrift
Contributions Account, as the case may be.
1.69 PARTICIPANT-DIRECTED ASSETS: The assets of an Account which are invested,
as described in Section 10.5.1, according to the direction of the Participant or
the Participant's Beneficiary, as the case may be, in either individually
selected investments or in commingled funds or in shares of regulated investment
companies.
1.70 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS: Any voluntary
nondeductible contributions made in cash by a Participant to this Plan other
than Employee Thrift Contributions.
1.71 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS ACCOUNT: The Account
established for a Participant pursuant to Section 3.8.6.
1.72 PARTICIPATING AFFILIATE: Any Affiliate or any other employer designated
as such by the Employer, and, by duly authorized action, that has adopted the
Plan with the consent of the Employer and has not withdrawn therefrom.
1.73 PERIOD OF SEVERANCE: For purposes of the hourly records method, a Period
of Severance is a period equal to the number of consecutive Plan Years or, with
respect to eligibility, the applicable computation period under the definition
of Year of Service, in which an Employee has 500 Hours of Service or less. The
Period of Severance shall be determined on the basis of Hours of Service and
shall commence with the first Plan Year in which the Employee has 500 Hours of
Service or less. With respect to any period of absence during which a Period of
Severance does not commence, the Participant shall be credited with the Hours of
Service (up to a maximum of 501 Hours of Service in a Plan Year) which would
otherwise have been credited to him or her but for such absence, or if such
Hours of Service cannot be determined, 8 Hours of Service for each day of
absence.
For purposes of the elapsed time method, a Period of Severance is a continuous
period of at least 12-consecutive months during which an individual's Employment
is not continuing, beginning on the date an Employee retires, quits or is
discharged or, if earlier, the first 12-month anniversary of the date that the
individual is otherwise first absent from service (with or without pay) for any
other reason, and ending on the date the individual again performs an Hour of
Service.
Anything in the definition thereof to the contrary notwithstanding, a Period of
Severance shall not commence if the Participant is:
(A) On an authorized leave of absence in accordance with standard personnel
policies applied in a nondiscriminatory manner to all Employees similarly
situated and returns to active Employment by the Employer or Affiliate
immediately upon the expiration of such leave of absence;
(B) On a military leave while such Employee's re-employment rights are
protected by law and returns to active Employment within ninety days after his
or her discharge or release (or such longer period as may be prescribed by law);
or
(C) Absent from work by reason of (i) the pregnancy of the Employee, (ii) the
birth of a child of the Employee, or (iii) the placement of a child with the
Employment in connection with the adoption of such child by such Employee, or
(iv) the care of such child for a period beginning immediately following such
birth or placement. In determining when such a Participant's Period of
Severance begins, the Participant will be credited with (i) for purposes of the
elapsed time method, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence; or (ii) for purposes of the
hourly records method, the Hours of Service he or she would normally have had
but for such absence, or if such Hours cannot be determined, eight Hours of
Service for each day of such absence; provided, however, that such Hours of
service shall not exceed 50% and shall be credited only in the year in which
such absence began if such crediting would prevent the Participant from
incurring a Period of Severance in that year, or in any other case, shall be
credited in the immediately following year.
1.74 PLAN: The plan established by the Employer in the form of this Prototype
Plan and the applicable Adoption Agreement executed by the Employer. The Plan
shall have the name specified in the Adoption Agreement.
1.75 PLAN YEAR: Each 12-consecutive month period ending on the date specified
in the Adoption Agreement, during any part of which the Plan is in effect.
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1.76 PROTOTYPE PLAN: The Merrill Lynch Special Prototype Defined Contribution
Plan set forth in this document, as amended or restated from time to time.
1.77 QUALIFIED JOINT AND SURVIVOR ANNUITY: An immediate annuity for the life
of Participant with a survivor annuity continuing after the Participant's death
to the Participant's Surviving Spouse for the Surviving Spouse's life in an
amount equal to 50% of the amount of the annuity payable during the joint lives
of the Participant and such Surviving Spouse and which is the actuarial
equivalent of a single life annuity which could be provided for the Participant
under an Annuity Contract purchased with the aggregate vested Account Balances
of the Participant's Accounts at the Benefit Commencement Date.
1.78 QUALIFIED MATCHING CONTRIBUTIONS: Matching Contributions which, pursuant
to the election made by the Employer, and in accordance with Code Section
401(m), are nonforfeitable when made and subject to the limitation on
distribution set forth in the definition of Qualified Nonelective Contributions.
1.79 QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT: The Account established for a
Participant pursuant to Section 3.8.7.
1.90 QUALIFIED NONELECTIVE CONTRIBUTIONS: Contributions (other than Matching
401(k) Contributions, Qualified Matching 401(k) Contributions or Elective
Deferrals), if any, made by the Employer which the Participant may not elect to
receive in cash until distributed from the Plan, which are nonforfeitable when
made, and which are not distributable under the terms of the Plan to
Participants or their Beneficiaries earlier than the earlier of:
(A) termination of Employment, death, or Disability of the Participant;
(B) attainment of the age 59-1/2 by the Participant;
(C) termination of the Plan without establishment of another Defined
Contribution Plan by the Employer or an Affiliate;
(D) disposition by the Employer or Participating Affiliate to an unrelated
corporation of substantially all of its assets used in a trade or business if
such unrelated corporation continues to maintain this Plan after the disposition
but only with respect to Employees who continue employment with the acquiring
unrelated entity. The sale of 85% of the assets used in a trade or business
will be deemed a sale of "substantially all" the assets used in a trade or
business;
(E) sale by the Employer to an unrelated entity of its interest in an Affiliate
if such unrelated entity continues to maintain the Plan but only with respect to
Employees who continue employment with such unrelated entity; and
(F) effective for Plan Years beginning before January 1, 1989, upon the
hardship of the Participant.
1.81 QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT. The Account established for
a Participant pursuant to Section 3.8.7.
1.82 QUALIFIED PLAN: A Defined Benefit Plan or Defined Contribution Plan.
1.83 QUALIFYING EMPLOYER SECURITIES: Employer securities, as that term is
defined in ERISA Section 407(d)(5).
1.84 ROLLOVER CONTRIBUTION: A contribution described in Section 3.3.
1.85 ROLLOVER CONTRIBUTIONS ACCOUNT: The Account established for a Participant
pursuant to Section 3.8.9.
1.86 SELF-EMPLOYED INDIVIDUAL: An individual who has Earned Income for the
Plan Year involved from the trade or business for which the Plan is established,
or who would have had such Earned Income but for the fact that the trade or
business with respect to which the Plan is established had no Net Profits for
that Plan Year.
1.87 SOCIAL SECURITY RETIREMENT AGE: Age 65 in the case of a Participant
attaining age 62 before January 1, 2000 (I.E., born before January 1, 1938), age
66 for a Participant attaining age 62 after December 31, 1999, and before
January 1, 2017 (I.E., born after December 31, 1937, but before January 1,
1955), and age 67 for a Participant attaining age 62 after December 31, 2016
(I.E., born after December 31, 1954).
1.88 SPONSOR: The mass submitter, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and any successor thereto, and any other qualifying sponsoring
organization who sponsors with the consent of the mass submitter, the Prototype
Plan and makes the Prototype Plan available for adoption by Employers.
1.89 SPOUSE. The person married to a Participant, provided that a former
spouse will be treated as the Spouse to the extent provided under a "qualified
domestic relations order" (or a "domestic relations order" treated as such) as
referred to in Section 12.6.
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1.90 SURVIVING SPOUSE: The person married to a Participant on the earliest of:
(A) the date of the Participant's death;
(B) the Participant's Benefit Commencement Date; or
(C) the date on which an Annuity Contract is purchased for the Participant
providing benefits under the Plan.
Anything contained herein to the contrary notwithstanding, a former spouse will
be treated as the Surviving spouse to the extent provided under a "qualified
domestic relations order" (or a "domestic relations order" treated as such) as
referred to in section 12.6.
1.91 TAXABLE WAGE BASE: The maximum amount of earnings which may be considered
"wages" for the Plan Year involved under Code section 3121(a)(1).
1.92 TRANSFERRED ACCOUNT: The Account established for a Participant pursuant
to Section 3.8.10.
1.93 TRUST: The trust established under the Plan to which Plan contributions
are made and in which Plan assets are held.
1.94 Trust Fund: The assets of the Trust held by or in the name of the
Trustee.
1.95 TRUSTEE: The person appointed as Trustee pursuant to Article X and any
successor Trustee.
1.96 VALUATION DATE: The last business day of each Plan Year, the date
specified in the Adoption agreement or determined pursuant to Section 10.6, if
applicable, and each other date as may be determined by the Administrator.
1.97 VESTING SERVICE: The Years of Service credited to a Participant under
Article IV for purposes of determining the Participant's vested percentage in
any Employer account established for the Participant.
1.98 YEARS OF SERVICE: If the Employer elects the hourly records method in the
Adoption Agreement, an employee shall be credited with one Year of Service for
each Plan Year in which he or she has 1,000 Hours of Service. Solely for
purposes of eligibility to participate, an employee shall be credited with a
Year of Service on the last day of the 12-consecutive month period which begins
on the first day on which he or she has an Hour of Service, if he or she has at
least 1,000 Hours of service in that period.
If an employee fails to be credited with a Year of Service on such date, he or
she shall be credited with a Year of service on the last day of each succeeding
12-consecutive month period in which he or she is credited with at least 1,000
Hours of Service.
If the Employer elects the elapsed time method in the Adoption Agreement, the
Employee's Years of Service shall be a span of service equal to the sum of:
(A) the period commencing on the date the Employee first performs an Hour of
Service and ending on the date he or she quits, retires, is discharged, dies, or
if earlier, the 12-month anniversary of the date on which the Employee was
otherwise first absent from service (with or without pay) for any other reason;
and
(B) (i) if the Employee quits, retires, or is discharged, the period commencing
on the date the employee terminated his or her Employment and ending on the
first date on which he or she again performs an Hour of Service, if such date
is within 12 months of the date on which he or she last performed an Hour of
Service; or
(ii) if the Employee is absent from work for any other reason and, within 12
months of the first day of such absence, the Employee quits, retires or is
discharged, the period commencing on the first day of such absence and ending on
the first day he or she again performs an Hour of Service if such day is within
12 months of the date his or her began.
With respect to both the elapsed time method and the hourly record method,
service with a predecessor employer, determined in the manner in which the rules
of this Plan would have credited such service had the Participant earned such
service under the terms of this Plan, may be included in Years of Service, as
specified in the Adoption Agreement.
ARTICLE II PARTICIPATION
2.1 ADMISSION AS A PARTICIPANT
2.1.1 An Eligible Employee shall become a Participant on the Entry date
coincident with or next following the date on which he or she meets the
eligibility requirements specified in the Adoption Agreement; provided, however
that:
(A) an Eligible Employee who has met the eligibility requirements as of the
first day of the Plan year in which the Plan is adopted as a new Plan shall
become a Participant as of such date;
(B) an Eligible Employee who had met the eligibility requirements of a plan
that is restated and/or amended to become this Plan shall become a
Participant as of the date this Plan is adopted; and
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(C) if selected in the Adoption Agreement, an Eligible Employee shall become a
Participant on the effective date of the Plan providing he or she is an Eligible
Employee on such date.
2.1.2 An Employee who did not become a Participant on the Entry Date coincident
with or next following the day on which he or she met the eligibility
requirements because he or she was not then an Eligible Employee shall become a
Participant on the first day on which he or she again becomes an Eligible
Employee unless determined otherwise in accordance with Section 2.3.1 of the
Plan.
2.1.3 If the Plan includes a CODA or thrift feature, in addition to the
participation requirements set forth in Section 2.1.1, an Eligible Employee
shall become a Participant upon filing his or her 401(k) Election or election to
make Employee Thrift Contributions with the Administrator. An election shall
not be required if the Employer has elected to make contributions to an Employer
Account and/or Qualified Nonelective Contributions with respect to all Eligible
Participants.
2.1.4 An individual who has ceased to be a Participant and who again becomes an
Eligible Employee shall become a Participant immediately upon reemployment as an
Eligible Employee unless determined otherwise in accordance with Section 2.3.1
of the Plan.
2.2 ROLLOVER MEMBERSHIP AND TRUST TO TRUST TRANSFER
An Eligible Employee who makes a Rollover Contribution or a trust to trust
transfer shall become a Participant as of the date of such contribution or
transfer even if he or she had not previously become a Participant, Such an
Eligible Employee shall be a Participant only for the purposes of such Rollover
Contribution or transfer and shall not be eligible to share in contributions
made by the Employer until he or she has become a Participant in accordance with
Section 2.l.
2.3 CREDITING OF SERVICE FOR ELIGIBILITY PURPOSES
2.3.1 For purposes of eligibility to participate, an Eligible Employee or
Participant without any vested interest in any Employer Account and without an
Elective Deferrals Account who terminates Employment shall lose credit for his
or her Years of Service prior to such termination of Employment if his or her
Period of Severance equals or exceeds five years or, if greater, the aggregate
number of Years of Service.
2.3.2. For purposes of eligibility to participate, a Participant who has a
vested interest in any Employer Account and who terminates Employment shall
retain credit for his or her Years of Service prior to such termination of
Employment without regard to the length of his or her Period of Severance. In
the event such Participant returns to Employment, he or she shall participate
immediately.
2.3.3 A former Eligible Employee who was not a Participant who again becomes an
Eligible Employee with no Years of Service to his or her credit shall be treated
as a new Employee.
2.4 TERMINATION OF PARTICIPATION
A Participant shall cease to be a Participant:
(A) upon his or her death;
(B) upon the payment to him or her of all nonforfeitable benefits due to him or
her under the Plan, whether directly or by the purchase of an Annuity Contract;
or
(C) upon his or her Nonvested Separation.
2.5 LIMITATION FOR OWNER-EMPLOYEE
2.5.1 If the Plan provides contributions or benefits for one or more
Owner-Employees who control the trade or business for which this Plan is
established and who also control as an Owner-Employee or as Owner-Employees one
or more other trades or businesses, this Plan and the plan established for each
such other trade or business must, when looked at as a single plan, satisfy the
requirements of Code Sections 401(a) and (d) with respect to the employees of
this and all of such other trades or businesses.
2.5.2 If the Plan provides contributions or benefits for one or more
Owner-Employees who control as an Owner-Employee or as Owner-Employees one or
more other trades or businesses, the employees of the other trades or businesses
must be included in a plan which satisfies the requirements of Code Sections
401(a) and (d) and which provides contributions and benefits for the employees
of such other trades or businesses not less favorable than the contributions and
benefits provided for Owner-Employees under this Plan.
2.5.3 If an individual is covered as an Owner-Employee under the plans of
two or more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions or benefits of the
employees under the plan of the trades or businesses which are controlled
must be as favorable as those provided for such
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individual under the most affordable plan of the trade or business which is not
controlled.
2.5.4 For purposes of the preceding three subsections, an Owner-Employee, or
two or more Owner-Employees, will be considered to control a trade or business
if the Owner-Employee, or two or more Owner-Employees together:
(A) own the entire interest in an unincorporated trade or business, or
(B) in the case of a partnership, own more than 50% of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees, shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
2.6 CORRECTIONS WITH REGARD TO PARTICIPATION
2.6.1 If in any Plan Year an eligible employee who should be included as a
Participant in the plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Eligible Employee in the amount which would have contributed with respect to
such Eligible Employee had he or she not been omitted. Such contribution shall
be made whether or not it is deductible in whole or in part in any taxable year
under applicable provisions of the Code. It shall be the responsibility of the
Employer and Administrator to take any and all actions as required by this
Section 2.6.1.
2.6.2 If in any Plan Year any person who should not have been included as a
Participant in the Plan is erroneously included and discovery of such incorrect
inclusion is not made until after a contribution for the year has been made, the
amount contributed on behalf of such ineligible person shall constitute a
forfeiture for the Plan Year in which the discovery is made. It shall be the
responsibility of the Employer and Administrator to take any and all actions as
required by this Section 2.6.2.
2.7 PROVISION OF INFORMATION
Each Employee shall execute such forms as may reasonably be required by the
Administrator, and shall make available to the Administrator any information the
Administrator may reasonably request in this regard. By virtue of his or her
participation in this Plan, an Employee agrees, on his or her own behalf and on
behalf of all persons who may have or claim any right by reason of the
Employee's participation in the Plan, to be bound by all provisions of the Plan.
ARTICLE III
CONTRIBUTIONS AND ACCOUNT
ALLOCATIONS
3.1 EMPLOYER CONTRIBUTIONS AND ALLOCATIONS
3.1.1 If the Plan is a profit-sharing plan, the Employer will contribute cash
and/or Qualifying Employer Securities to the Trust Fund, in such amount, if any,
as specified in the Adoption Agreement and with respect to Qualifying Employer
Securities as is consistent with Sections 10.4.2 and 10.4.3. If the Plan is a
profit-sharing plan, Net Profits may be necessary for an employer to make
contributions, as specified in the Adoption Agreement. Employer Contributions
for a Plan Year will be allocated no later than the last day of the Plan Year to
the Employer Contributions Account of Participants eligible for an allocation in
the manner specified in the Adoption Agreement. A not-for-profit corporation
may adopt a profit-sharing plan as an incentive plan; provided, however, that
such a plan may not contain a CODA feature unless otherwise permitted by law.
3.1.2 If the Plan is a money purchase pension plan, the Employer will
contribute cash to the Trust Fund in an amount equal to that percentage of the
Compensation of each Participant eligible for an allocation of Employer
contributions for that Plan Year as specified in the Adoption Agreement.
Employer Contributions for the Plan Year will be allocated as of the last day of
the Plan Year to the Employer Contributions Accounts of Participants eligible
for an allocation and entitled to share in such contributions in the manner
specified in the Adoption Agreement.
3.1.3 If the Plan is a target benefit plan, the Employer will contribute cash
to the Trust Fund in an amount specified in the Adoption Agreement. The amount
contributed with respect to the targeted benefit of each Participant eligible
for an allocation for that Plan Year will be allocated as of the last day of the
Plan Year to the Participant's Employer Contributions Account in the manner
specified in the Adoption Agreement.
3.1.4 If the Employer elects in the Adoption Agreement to make contributions
on behalf of a Participant whose Employment terminated due to Disability,
"Compensation" shall mean, with respect
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to such Participant, the Compensation he or she would have received for the
entire calendar year in which the Disability occurred if he or she had been
paid for such year at the rate at which he or she was being paid immediately
prior to such Disability. Employer Contributions may be taken into account
only if the Participant is a Nonhighly Compensated Employee and contributions
made on his or her behalf are nonforfeitable.
3.1.5 If an Employer has adopted more than one Adoption Agreement, or has
adopted a plan pursuant to the Merrill Lynch Special Prototype Defined Benefit
Plan and Trust, only one Adoption Agreement may be integrated with Social
Security.
3.1.6 For purposes of the Plan, contributions provided by the "leasing
organization" referred to in Section 1.37 of a Leased Employee which are
attributable to services performed for the Employer shall be treated as provided
by the Employer.
3.2 PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS
3.2.1 If elected by the Employer in the Adoption Agreement, each Participant
while actively employed may make Participant Voluntary Nondeductible
Contributions in cash in a dollar amount or a percentage of Compensation which
does not, when included in the Contribution Percentage Amount, exceed the
limitations set forth in Code Section 401(m).
3.2.2 Participant Voluntary Nondeductible Contributions shall be made in
accordance with rules and procedures adopted by the Administrator.
3.3 ROLLOVER CONTRIBUTIONS AND TRUST TO TRUST TRANSFERS
3.3.1 Any Eligible Employee or Participant may make a Rollover Contribution
under the Plan. A Rollover Contribution shall be in cash or in other property
acceptable to the Trustee and shall be a contribution attributable to (a) a
"qualified total distribution" (as defined in Code Section 402(a)(5)),
distributed to the contributing Employee under Code Section 402(a)(5) from a
Qualified Plan or distributed to the Employee under Code Section 403(a)(4) from
an "employee annuity" or referred to in that section, or (b) a payout or
distribution to the Employee referred to in Code Section 408(d)(3) from an
"individual retirement account" or an "individual retirement annuity" described,
respectively, in Code Section 408(a) or Section 408(b) consisting exclusively of
amounts attributable to "qualified total distributions" (as defined in Code
Section 402(a)(5)) from a Qualified Plan.
The Plan shall not accept a Rollover Contribution attributable to any
accumulated deductible employee contributions as defined by Code Section
72(o)(5)(B). The Trustee may condition acceptance of a Rollover Contribution
upon receipt of such documents as it may require. In the event that an Employee
makes a contribution pursuant to this Section 3.3 intended to be a Rollover
Contribution but which did not qualify as a Rollover Contribution, the Trustee
shall distribute to the Employee as soon as practicable after that conclusion is
reached the entire Account balance in his or her Rollover Contributions Account
deriving from such contributions determined as of the valuation date coincident
with or immediately preceding such discovery.
3.3.2 Any Eligible Employee or Participant may direct the Administrator to
direct the Trustee to accept a transfer to the Trust Fund from another trust
established pursuant to another Qualified Plan of all or any part of the assets
held in such other trust. The Plan shall not accept a direct transfer
attributable to accumulated deductible employee contributions as defined by Code
Section 72(o)(5)(B). The Trustee may condition acceptance of such a trust to
trust transfer upon receipt of such documents as it may require.
3.4 SECTION 401(k) CONTRIBUTIONS AND ACCOUNT ALLOCATIONS
3.4.1 ELECTIVE DEFERRALS
(A) AMOUNT OF ELECTIVE DEFERRALS
Subject to the limitations contained in SECTION 3.4.2, the Employer will
contribute cash to the Trust Fund in an amount equal to:
(i) as specified on the Participant's 401(k) Election form, the specific dollar
amount, or the deferral percentage multiplied by each such Participant's
Compensation; or
(ii) a bonus contribution made pursuant to Section 3.4.1(C).
(B) The amount elected by a Participant pursuant to a 401(k) Election shall be
determined within the limits specified in the Adoption Agreement. The 401(k)
Election shall be made on a form provided by the Administrator but no election
shall be effective prior to approval by the Administrator. The Administrator
may reduce the amount of any 401(k) Election, or make such other modifications
as necessary, so that the Plan complies with the provisions of the Code. A
Participant's 401(k) Election shall remain in effect
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until modified or terminated. Modification or termination of a 401(k) Election
shall be made at such time as specified in the Adoption Agreement.
(C) If elected by the Employer in the Adoption Agreement, an Eligible employee
may make a 401(k) Election to have an amount withheld up to the amount of any
bonus payable for such Plan Year and direct the Employer to contribute the
amount so withheld to his or her Elective Deferrals Account.
3.4.2 LIMITATION ON ELECTIVE DEFERRALS
(A) MAXIMUM AMOUNT OF ELECTIVE DEFERRALS AND DISTRIBUTION OF EXCESS ELECTIVE
DEFERRALS
(i) No Participant shall be permitted to have Elective Deferrals made under
this Plan, or any other Qualified Plan maintained by the Employer, during any
Plan Year in excess of the dollar limitation contained in Code Section 402(g) in
effect at the beginning of the Participant's taxable year.
(ii) Notwithstanding any other provision of the Plan, Excess Elective deferrals
made to this Plan or assigned to this Plan, plus any income and minus any loss
allocable thereto, shall be distributed no later than April 15, 1988, and each
April 15 thereafter, to Participants to whose accounts Excess Elective Deferrals
were designated for the preceding Plan Year and who claim Excess Elective
Deferrals for such taxable year. Excess elective deferrals shall be treated as
Annual Additions.
(iii) CLAIMS. A Participant may designate to this Plan any amount of his or
her Elective Deferrals as Excess Elective Deferrals during his or her taxable
year. A Participant's claim shall be in writing, shall be submitted to the
Administrator no later than March 1, shall specify the Participant's Excess
Elective Deferral for the preceding Plan Year, and shall be accompanied by the
Participant's written statement that if such amounts are not distributed, such
Excess Elective Deferral, when added to amounts deferred under other plans or
arrangements described in Code Section 401(k), Code Section 408(k), Code
Section 403(b) or Code Section 457, exceeds the limit imposed on the
Participant by Code Section 402(g) for the year in which the deferral
occurred. A Participant is deemed to notify the Administrator of any Excess
Elective Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of the Employer or an
Affiliate.
(iv) DETERMINATION OF INCOME OR LOSS. Excess Elective Deferrals shall be
adjusted for income or loss up to the date of distribution. The income or
lots allocable to Participant's Excess Elective Deferrals is the sum of: (1)
the income or loss allocable to the Participant's Elective Deferrals Account
for the Participant's taxable year multiplied by a fraction, the numerator of
which is the Participant's Excess Elective Deferrals for the Participant's
taxable year and the denominator of which is the Account Balance of the
Participant's Elective Deferrals Account without regard to any income or loss
occurring during such taxable year; and (2) ten percent of the amount
determined under (1) multiplied by the number of whole calendar months
between the end of the Participant's taxable year and the date of
distribution occurs after the 15th of such month.
Anything in the preceding paragraph of this Section 3.4.2(A)(iv) to the
contrary notwithstanding, any reasonable method for computing the income or
loss allocable to Excess Elective Deferrals may be used, provided that such
method is used consistently for all Participants and for all corrective
distributions under the Plan, and is used by the Plan for allocating income
or loss to Participants' Accounts, Income or loss allocable to the period
between the end of the taxable year and the date of distribution may be
disregarded in determining income or loss.
(B) ADP TEST.
The Average Actual Deferral Percentage for Highly Compensated Employees for
each Plan Year and the Average Actual Deferral Percentage for Nonhighly
Compensated Employees for the same Plan Year must satisfy one of the following
tests.
(i) The Average Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Actual Deferral Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 1.25; or
(ii) The Average Actual Deferral Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Eligible Participants who are
Nonhighly Compensated Employees for the Plan Year multiplied by 2.0; provided
that the Average Actual Deferral Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the Average Actual Deferral
Percentage for Participants who are Nonhighly Compensated Employees by more
than two percentage points.
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(C) SPECIAL ACTUAL DEFERRAL PERCENTAGE RULES
(i) The Actual Deferral Percentage for any Eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals and Qualified Matching Contributions or Qualified
Nonelective Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP Test, allocated to his or her accounts under two or more
plans or arrangements described in Code Section 401(k) that are maintained by
the Employer shall be determined as if all such Elective Deferrals, Qualified
Matching Contributions and Qualified Nonelective Contributions were made
under a single arrangement. If a Highly Compensated Employee participates in
two Or more cash or deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
401(k), Code Section 401(a)(4) or Code Section 410(b) only if aggregated with
one or more other qualified plans, or if one or more other qualified plans
satisfy the requirements of such Code Sections only if aggregated with this
Plan, then this Section shall be applied by determining the Actual Deferral
Percentage of Employees as if all such qualified plans were a single
qualified plan. For Plan Years beginning after December 31, 1989, plans may
be aggregated in order to satisfy Code Section 401(k) only if they have the
same plan year.
(iii) For purposes of determining the Actual Deferral Percentage of an
Eligible Participant who is a 5% owner or one of the ten most highly paid
Highly Compensated Employees, the Elective Deferrals (and Qualified Matching
Contributions or Qualified Nonelective Contributions, or both, if treated as
Elective Deferrals for purposes of one of the tests referred to in Section
3.4.2(B)) and CODA Compensation of such Participant shall include the
Elective Deferrals (and, if applicable, Qualified Matching Contributions,
Qualified Nonelective Contributions) and CODA Compensation for the Plan Year
of Family Members. Family Members with respect to such Highly Compensated
Employees shall be disregarded as separate employees in determining the
Actual Deferral Percentage both for Eligible Participants who are Nonhighly
Compensated Employees and for Eligible Participants who are Highly
Compensated Employees.
(iv) For purposes of determining the ADP Test, Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective must be made before the
last day of the 12-month period immediately following the Plan Year to which
such contributions relate.
(v) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP Test and the a-mount of Qualified Nonelective
Contributions and/or Qualified Matching Contribution used in such test.
(vi) The determination and treatment of the Elective Deferrals, Qualified
Matching Contributions, and Qualified Nonelective Contributions, used in the
ADP Test shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(D) DISTRIBUTION OF EXCESS CONTRIBUTIONS
(i) IN GENERAL. Notwithstanding any other provision of the Plan except
Section 3.4.2(E), Excess Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last day of each
Plan Year beginning after December 31, 1987, to Participants to whose
Accounts Elective Deferrals, Qualified Matching Contributions, and Qualified
Nonelective Contributions were allocated for the preceding Plan Year(1).
Excess Contributions of Participants who are subject to the Family Member
aggregation rules shall be allocated among the Family Members in proportion
to the Elective Deferrals (and amounts treated as Elective Deferrals) of each
Family Member that is combined to determine the combined Actual Deferral
Percentage. Excess Contributions shall be treated as Annual Additions.
(ii) DETERMINATION OF INCOME OR LOSS. Excess Contributions shall be
adjusted for any income or loss up to the date of distribution. The income
or loss allocable to Excess Contributions is the sum of: (1) the income or
loss allocable to the Participant's Elective Deferrals Account (and, if
applicable, the Qualified Nonelective Contributions Account or the Qualified
Matching Contributions Account or both) for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess Contributions
for the year and the denominator of which is the Account Balances of
Participant's Elective Deferrals Account, Qualified Nonelective Contributions
Account and Qualified Matching Contributions Account if any of such
contributions
- ----------
(1) Distribution of Excess Contributions on or before the last day of the
Plan Year after the Plan Year in which such excess amounts arose is required
under Code Section 401(k)(8) if the Plan is to maintain its tax-qualified
status. However, if such excess amounts, plus any income and minus any loss
allocable thereto, are distributed more than 2-1/2 months after the last day
of the Plan Year in which such excess amounts arose, then Code Section 4979
imposes a 10% excise tax on the employer maintaining the plan with respect to
such amounts.
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are included in the ADP Test, without regard to any income or loss occurring
during such Plan Year; and (2) 10% of the amount determined under (1)
multiplied by the number of whole calendar months between the end of the Plan
Year and the date of distribution, counting the month of distribution if
distribution occurs after the 15th of such month.
Anything in the preceding paragraph of this Section 3.4.2(D)(ii) to the
contrary notwithstanding, any reasonable method for computing the income or
loss allocable to Excess Contributions may be sued, provided that such method
is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income or loss to Participant's Accounts. Income or loss allocable
ot the period between the end of the Plan Year and the date of distribution
may be disregarded in determining income or loss.
(iii) ACCOUNTING FOR EXCESS CONTRIBUTIONS. Amounts distributed under this
Section 3.4.2(D) shall first be distributed from the Participant's Elective
Deferrals Account and Qualified Matching Contributions Account in proportion
to the Participant's Elective Deferrals and Qualified Matching Contibutions
(to the extent used in the ADP Test) for the Plan Year. Excess Contributions
shall be distributed from the Participant's Qualified Nonelective
contributions Account only to the extent that such Excess Contributions
exceed the balance in the Participant's Elective Deferrals Account and
Qualified Matching Contributions Account.
(E) In lieu of distributing Excess Contributions pursuant to the preceding
Section 3.4.2(D), and as specified in the Adoption Agreement, the Employer
may make special Qualified Nonelective Contributions on behalf of Nonhighly
Compensated Employees that are sufficient to satisfy the ADP Test.
(F) In lieu of distributing Excess Contributions, the Participant may treat
his or her Excess Contributions as an amount distributed and then
re-contributed by such Participant. Recharacterized amounts are 100%
nonforfeitable and subject to the same distribution requirements as Elective
Deferrals. Amounts may not be re-characterized by a Highly Compensated
Employee to the extent that such amount in combination with other amounts
made to the Participant's Participant Contibutions account would exceed any
stated limit on such contributions, as specified in the Adoption Agreement.
If Excess Contributions are re-characterized, they must be so no later than
two and one half months after the last day of the Plan Year in which such
Excess Contributions arose and they are deemed to occur no earlier than the
date the last Highly Compensated Employee is informed in writing of the
amount re-characterized and the consequences thereof. Recharacterized amounts
are taxable to the Participant for the tax year in which he or she would have
received such contributions in cash.
(G) Under no circumstances may Elective Deferrals, Qualified Matching
Contributions and Qualified Nonelective Contributions be contributed and
allocated to the Trust later than the last day of the 12-month period
immediately following the Plan Year to which such contributions relate.
3.5 MATCHING 401(k) CONTRIBUTIONS
3.5.1 AMOUNT OF MATCHING CONTRIBUTIONS. Subject to the limitations
contained in Sections 3.9 and 3.5.2, for each Plan Year the Employer will
contribute in cash and/or Qualifying Employer Securities, Matching 401(k)
Contributions to the Trust Fund in an amount, if any, calculated by reference
to the Participant's Elective Deferrals as specified in the Adoption
Agreement.
3.5.2 LIMITATION ON CONTRIBUTION PERCENTAGE
(A) ACP Test
The Average Contribution Percentage for Eligible Participants who are Highly
Compensated Employees for the Plan Year and the Average Contributions
Percentage for Eligible Participants who are Nonhighly Compensated Employees
for the same Plan Year must satisfy one of the following tests:
(i) the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Nonhighly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(ii) the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees shall not exceed the Average Contribution
Percentage for Eligible Participants who are Nonhighly Compensated Employees
by more than two percentage points or such lesser amount as the Secretary of
the Treasury shall prescribe to prevent the multiple use of this alternative
limitation with respect to any Highly Compensated Employee.
(B) SPECIAL AVERAGE CONTRIBUTION PERCENTAGE RULES
(i) For purposes of this Section 3.5.2, the Contribution Percentage for any
Eligible Participant who is a Highly Compensated Employee for the Plan Year
and who is eligible to have Matching 401(k) Contributions
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or Matching Thrift Contributions, as the case may be (other than Qualified
Matching Contributions), allocated to his or her account under two or more
qualified plans described in Code Section 401(a), or arrangements described
in Code Section 401(k) shall be determined as if the total of such
Contribution Percentage Amounts was made under each plan.
If a Highly Compensated Employee participates in 2 or more cash or deferred
arrangements that have different plan years, all cash or deferred
arrangements ending with or within the same calendar year shall be treated as
a single arrangement.
(ii) In the event that this Plan satisfies the requirements of Code Section
410(b) only if aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of Code Section 410(b) only if
aggregated with this Plan, then this Section 3.5.2 shall be applied by
determining the Contribution Percentages of Employees as if all such plans
were a single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Code Section 401(m) only if they have
the same plan year.
(iii) For purposes of determining the Contribution Percentage of an Eligible
Participant who is a 5% owner or one of the 10 most highly-paid Highly
Compensated Employees, the Contribution Percentage Amounts and the CODA
Compensation of such Participant shall include the Contribution Percentage
Amounts and CODA Compensation for the Plan Year of Family Members. Family
Members with respect to Highly Compensated Employees shall be disregarded as
separate employees in determining the Contribution Percentage both for
Participants who are Nonhighly Compensated Employees and for Participants who
are Highly Compensated Employees.
(iv) For purposes of determining the ACP Test, Matching 401(k)
Contributions, Matching Thrift Contributions and Qualified Nonelective
Contributions will be considered made for a Plan Year if made no later than
the end of the 12-month period beginning on the day after the close of the
Plan Year.
(v) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP Test and the amount of Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, used in such test.
(C) MULTIPLE USE
If one or more Highly Compensated Employees participate in both a cash or
deferred arrangement and a plan subject to the ACP Test and the sum of the
Actual Deferral Percentage and the Actual Contribution Percentage of those
Highly Compensated Employees exceeds the "aggregate limit", then the Actual
Contribution Percentage of those Highly Compensated Employees will be
reduced, beginning with such Highly Compensated Employee whose Actual
Contribution Percentage is the highest, so that the limit is not exceeded.
The amount by which each Highly Compensated Employee's Contribution
Percentage is reduced shall be treated as an Excess Aggregate Contribution.
The Actual Deferral Percentage and Actual Contribution Percentage of the
Highly Compensated Employees are determined after any corrections required to
meet the ADP Test and the ACP Test. Multiple use does not occur if either
the Average Deferral Percentage or Actual Contribution Percentage of the
Highly Compensated Employees does not exceed 1.25 multiplied by the Actual
Deferral Percentage and the Actual Contribution Percentage of the Nonhighly
Compensated Employees. (i) The "aggregate limit" is the sum of (1) 125% of
the greater of the Actual Deferral Percentage for Participants who are
Nonhighly Compensated Employees for the Plan Year or the Actual Deferral
Percentage for Participants who are Nonhighly Compensated Employees for the
Plan Year beginning with or within the Plan Year and (2) the lesser of 200%
or two plus the lesser of such Actual Deferral Percentage or Actual
Contribution Percentage. "Lesser" is substituted for "greater" in "(1),"
above, and "greater" is substituted for "lesser" after "two plus the" in
"(2)" if it would result in a larger aggregate limit.
(D) FORFEITURE OF EXCESS AGGREGATE CONTRIBUTIONS
(i) IN GENERAL. Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss allocable
thereto, shall be forfeited and applied to reduce subsequent Matching 401(k)
Contributions or Matching Thrift Contributions, as the case may be. No
forfeitures arising under this Section 3.6.2(D) shall be allocated to the
account of any Highly Compensated Employee. If not forfeitable, Excess
Aggregate Contributions shall be distributed no later than the last day of
each Plan Year beginning after December 31, 1987, to Participants to whose
Accounts such Excess Aggregate Contributions were allocated for the preceding
Plan Year. Excess Aggregate Contributions of Participants who are subject to
the Family Member
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aggregation rules shall be allocated among the Family Members in proportion
to the amounts constituting Contribution Percentage Amounts of each Family
Member that is combined to determine the combined Actual Contribution
Percentage. Excess Aggregate Contributions shall be treated as Annual
Additions. Anything above to the contrary notwithstanding, any forfeiture or
distribution under this Section 3.5.2(D)(i) shall occur only if sufficient
Employee Thrift Contributions and/or Participant Voluntary Nondeductible
Contributions, as the case may be, are not distributed from the qualified
plan holding such Employee Thrift Contributions and/or Participant Voluntary
Nondeductible Contributions, as the case may be. (2)
(ii) DETERMINATION OF INCOME OR LOSS. Excess Aggrgate Contributions shall be
adjusted for any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of: (1) the
income or loss allocable to the Participant's Matching 401(k) Contribution
Account or Matching Thrift Contribution Account (if any, and if all amounts
therein are not used in the ADP Test) and, if applicable, Qualified
Nonelective Contribution Account and Elective Deferrals Account for the Plan
Year multiplied by a fraction, the numerator of which is such Participant's
Excess Aggregate Contributions for the year and the denominator of which is
the Participant's Account Balance(s) attributable to Contribution Percentage
Amounts without regard to any income or loss occurring during such Plan Year;
and (2) 10% of the amount determined under (1) multiplied by the number of
whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if distribution occurs after
the 15th of such month.
Anything in the preceding paragraph of this Section 3.5.2(D)(ii) to the
contrary notwithstanding, any reasonable method for computing the income or
loss allocable to Excess Aggregate Contributions may be used, provided that
such method is used consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year, and is used by the Plan for
allocating income or loss to Participants' Accounts. Income or loss allocable
to the period between the end of the Plan Year and the date of distribution
may be disregarded in determining income or loss.
(iii) The determination of the Excess Aggregate Contributions shall be made
after first determining the Excess Elective Deferrals, and then determining
the Excess Contributions.
3.5.3 For purposes of determining the ACP Test, Qualified Nonelective
Contributions, Matching 401(k) Contributions and Matching Thrift
Contributions will be considered made for a Plan Year if paid to the Trustee
no later thanthe end of the 12-month period beginning on the day after the
close of the Plan Year.
3.6 THRIFT CONTRIBUTIONS
3.6.1 EMPLOYEE THRIFT CONTRIBUTIONS. If elected by the Employer in the
Adoption Agreement to provide for Employee Thrift Contributions, the Employer
will contribute cash to the Trust Fund in an amount equal to (A) the Employee
Thrift Contribution percentage of each Participant on his or her Employee
Thrift Contribution election form multiplied by each such Participant's
Compensation or (B) the specific dollar amount set forth on the Participant's
election form. The amount elected by a Paricipant pursuant to a Participant's
Employee Thrift Contribution election shall be determined within the limits
specified in the Adoption Agreement. Such election shall be made on a form
provided by the Administrator but no election shall be effective prior to
approval by the Administrator.
The Administrator may reduce the amount of any Employee Thrift Contribution,
or make such other modifications as necessary, so that the Plan complieswith
the provisions of the Code. A Participant's election shall remain in effect
until modified or terminated at such times as specified in the Adoption
Agreement.
3.6.2 MATCHING THRIFT CONTRIBUTIONS. Subject to the limitations contained in
Sections 3.9 and 3.5.2, for each Plan Year the Employer will contribute in
cash and/or Qualifying Employer Securities, Matching Thrift Contributions to
the Trust Fund in an amount, if any, calculated by reference to the
Participants' Employee Thrift Contributions, as specified in the Adoption
Agreement.
Matching Thrift Contributions made by the Employer will be allocated to the
Matching Thrift Contributions Account of those Participants who have
contributed Employee Thrift Contributions to the Plan, as specified in the
Adoption Agreement.
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(2) Distribution or Forfeiture of Excess Aggregate Contributions on or before
the last day of the Plan Year after the Plan Year in which such excess
amounts arose is required under Code Section 401(m)(6) if the Plan is to
maintain its tax-qualified status. However, if such excess amounts, plus any
income and minus any loss allocable thereto, are distributed more than 2 1/2
months after the last day of the Plan Year in which such excess amounts
arose, then Code Section 4979 imposes a 10% excise tax on the employer
maintaining the plan with respect to such amounts.
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3.7 TREATMENT OF FORFEITURES
3.7.1 If the Employer has elected in the Adoption Agreement to reallocate
forfeitures for a Plan Year among Participants, then such forfeitures, if
any, shall be allocated as of the last day of the Plan Year to the Employer
Accounts of those Participants who are eligible to share in the allocation of
contributions to that particular Employer Account (whether or not a
contribution was made for that Plan Year) for that Plan Year in that
particular Employer Account category with respect to which such forfeitures
are attributable. If the Plan is a Target Benefit Plan, forfeitures may only
be used to reduce Employer Contributions, in accordance with Section 3.7.2.
3.7.2 If the Employer has elected in the Adoption Agreement to use forfeiture to
reduce contributions, then forfeitures shall be applied in the succeeding Plan
Year to reduce Employer Contributions in that particular Employer Account
category to which such forfeitures were attributable.
3.8 ESTABLISHING OF ACCOUNTS
3.8.1 An Elective Deferrals Account shall be established for each Eligible
Participant who makes a 401(k) Election to which the Administrator shall credit,
or cause to be credited, Elective Deferrals allocable to each such Participant,
plus earnings or losses thereon.
3.8.2 An Employer Contributions Account shall be established for each
Participant to which the Administrator shall credit or cause to be credited
Employer contributions pursuant to Section 3.1, and forfeitures attributable
to such contributions, if any, plus earnings or losses thereon.
3.8.3 An Employee Thrift Contributions Account shall be established for each
Participant who makes Employee Thrift Contributions to the Plan, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.4 A Matching 401(k) Contributions Account shall be established for each
Participant for whom Matching 401(k) Contributions are made, to which the
Administrator shall credit, or cause to be credited, all such amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.5 A Matching Thrift Contributions Account shall be established for each
Participant for whom Matching Thrift Contributions are made, to which the
Administrator shall credit, or cause to be credited, all amounts allocable to
each such Participant, plus earnings or losses thereon.
3.8.6 A Participant Voluntary Nondeductible Contributions Account shall be
established for each Participant who makes Participant Voluntary Nondeductible
Contributions to the Plan, plus earnings or losses thereon.
3.8.7 A Qualified Matching Contributions Account shall be established for each
Eligible Participant for whom Qualified Matching Contributions are made, to
which the Administrator shall credit, or cause to be credited, all amounts
allocable to each such Participant, plus earnings or losses thereon.
3.8.8 A Qualified Nonelective Contributions Account shall be established for
each Participant for whom Qualified Nonelective Contributions are made, to which
the Administrator shall credit, or cause to be credited, all amounts allocable
to each such Participant, plus earnings or losses thereon.
3.8.9 A Rollover Contributions Account shall be established for each Participant
who contributes to the Plan pursuant to Section 3.3 to which the Administrator
shall credit, or cause to be credited, Rollover Contributions made by the
Participant, plus earnings or losses thereon.
3.8.10 A Transferred Contributions Account shall be established for each
Participant for whom assets are transferred from another Qualified Plan, to
which the Administrator shall credit, or cause to be credited, transferred
assets, plus earnings or losses thereon.
3.9 LIMITATION ON AMOUNT OF ALLOCATIONS
3.9.1 As used in this Section 3.9, each of the following terms shall have the
meaning for that term set forth in this Section 3.9.1:
(A) ANNUAL ADDITIONS means, for each Participant, the sum of the following
amounts credited to the Participant's Accounts for the Limitation Year:
(i) Employer Contributions within the meaning of IRS regulation 1.415-6(b);
(ii) Employee Contributions;
(iii) forfeitures;
(iv) allocation under a simplified employee pension; and
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(v) any Excess Amount applied under a Defined Contribution Plan in the
Limitation Year to reduce Employer Contributions will also be considered as
part of the Annnual Additions for such Limitation Year.
Amounts allocated after March 31, 1984, to an "individual medical benefit
account" as defined in Code Section 415(1)(2) ("Individual Medical Benefit
Account") which is part of a pension or annuity plan maintained by the
Employer or Affiliate are treated as Annual Additions to a Defined
Contribution Plan. Also, amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending after that date, which are
attributable to post-retirement medical benefits allocated to the separate
account of a "key employee" as defined in Code Section 419A(d)(3) under a
"welfare benefit fund" as defined in Code Section 419(e) ("Welfare Benefit
Fund") maintained by the Employer or Affiliate, are treated as Annual
Additions to a Defined Contribution Plan.
(B) DEFINED BENEFIT DOLLAR LIMITATION means $90,000 multiplied by the
Adjustment Factor or such other limitation set forth in Code Section
415(b)(1) as in effect for the Limitation Year.
(C) DEFINED BENEFIT FRACTION means a fraction, the numerator of which is the
sum of the Projected Annual Benefits of the Participant involved under all
Defined Benefit Plans (whether or not terminated) maintained by the Employer
or Affiliate, and the denominator of which is the lesser of 125% of the
Defined Benefit Dollar Limitation determined for the Limitation Year or 140%
of the Participant's Highest Average Limitation Compensation, including any
adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the
first day of the first Limitation Year beginning after December 31, 1986, in
one or more Defined Benefit Plans maintained by the Employer or Affiliate
which were in existence on May 5, 1986, the denominator of this fraction will
not be less than 125% of the sum of the annual benefits under such Plans
which the Participant had accrued as of the close of the last Limitation Year
beginning before January 1, 1987, disregarding any changes in the terms and
conditions of the plans after May 5, 1986. The preceding sentence applies
only if the Defined Benefit Plans individually and in the aggregate satisfied
the requirements of Code Section 415 for all Limitation Years beginning
before January 1, 1987.
(D) DEFINED CONTRIBUTION DOLLAR LIMITATION means $30,000 or if greater,
one-fourth of the Defined Benefit Dollar Limitation as in effect for the
Limitation Year.
(E) DEFINED CONTRIBUTION FRACTION means a fraction, the numerator of which is
the sum of the Annual Additions to the Participant's Account or Accounts
under all the Defined Contribution Plans (whether or not terminated)
maintained by the Employer or Affiliate for the current and all prior
Limitation Years (including the Annual Additions attributable to the
Participant's nondeductible contributions to all Defined Benefit Plans,
whether or not terminated, maintained by the Employer or Affiliate and the
Annual Additions attributable to all Welfare Benefit Funds, Individual
Medical Benefit Accounts, and simplified employee pensions maintained by the
Employer or Affiliate), and the denominator of which is the sum of the
"maximum aggregate amounts" (as defined in the following sentence) for the
current and all prior Limitation Years of service with the Employer or
Affiliate (regardless of whether a Defined Contribution Plan was maintained
by the Employer or Affiliate). The "maximum aggregate amount" in any
Limitation Year is the lower of (i) 125% of the Defined Benefit Dollar
Limitation in effect under Code Section 415(c)(1)(A) or (ii) 35% of the
Participant's Compensation for such year.
If the Employee was a Participant as of the first day of the first Limitation
Year beginning after December 31, 1986, in one or more Defined Contribution
Plans maintained by the Employer or Affiliate in existence on May 5, 1986,
the numerator of this fraction will be adjusted if the sum of this fraction
and the Defined Benefit Fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the product of (A)
the excess of the sum of the fractions over 1.0 times (B) the denominator of
this fraction will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the later of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and
conditions of the Plans made after May 6, 1986, but using the Code Section
415 limitation applicable to the first Limitation Year beginning on or after
January 1, 1987. The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all Participant
contributions as Annual Additions.
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(F) EXCESS AMOUNTS means the excess of the
Participant's Annual Additions for the Limitation
Year involved over the Maximum Permissible
Amount for that Limitation Year.
(G) HIGHEST AVERAGE LIMITATION COMPENSATION means the average Compensation as
defined in Code Section 415(c)(3) of the Participant involved for that period of
three consecutive Years of Service with the Employer or Affiliate (or if the
Participant has less than three such Years of Service, the actual number
thereof) that produces the highest average.
(H) LIMITATION COMPENSATION means Compensation, as defined in either (i),
(ii) or (iii) below, as specified in the Adoption Agreement:
(i) CODE SECTION 415 SAFE-HARBOR COMPENSATION
For an Employee other than a Self-Employed Individual, the Employee's earned
income, wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of Employment (including but
not limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits, and reimbursements or other expense allowances under a
non-accountable plan (as described in Reg. 1.62-2(c)) and excluding the
following:
(1) Employer contributions to a plan of deferred compensation which are not
includible in the Employee's gross income for the taxable year in which
contributed, or contributions under a "simplified employee pension" plan
(within the meaning of Code Section 408(k)) to the extent such contributions
are deductible by the Employee, or any distributions from a plan of deferred
compensation;
(2) amounts realized from the exercise of a nonqualified stock option, or when
restricted stock (or other property) held by the Employee either becomes freely
'transferable" or is no longer subject to a 'substantial risk of forfeiture"
(both quoted terms within the meaning of Code Section 83(a));
(3) amounts realized from the sale, exchange or other disposition of stock
acquired under a qualified stock option; and
(4) other amounts which received special tax benefits, or contributions made
(whether or not under a salary reduction agreement) towards the purchase of an
annuity described in Code Section 403(b) (whether or not the amounts are
actually excludable from the gross income of the Employee).
For Limitation Years beginning after December 31, 1991, Limitation Compensation
shall include only that compensation which is actually paid or made available
during the Limitation Year.
(ii) Information required to be reported under
Sections 6041 and 6051. ("Wages, Tips and other
Compensation Box" Form W-2).
Limitation Compensation is defined as wages as defined in Code Section 3401(a)
and all other payments of compensation to an Employee by the Employer (in the
course of the Employer's trade or business) for which the Employer is required
to furnish the Employee a written statement under Sections 6041(d) and
6051(a)(3) of the Code. Compensation must be determined without regard to any
rules under Section 3401 (a) that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Section 3401(a)(2)).
(iii) CODE SECTION 3401(A) WAGES
Limitation Compensation is defined as wages within the meaning of Code Section
3401(a) for the purposes of income tax withholding at the source but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).
Without regard to the definition of Limitation Compensation elected by the
Employer, for a Self-Employed Individual, Limitation Compensation means his or
her Earned Income, provided that if the Self-Employed Individual is not a
Participant for an entire Plan Year, his or her Limitation Compensation for that
Plan Year shall be his or her Earned Income for that Plan Year multiplied by a
fraction the numerator of which is the number of days he or she is a Participant
during the Plan Year and the denominator of which is the number of days in the
Plan Year. Additionally, Limitation Compensation for a Participant in a Defined
Contribution Plan who is permanently and totally disabled (as defined in Code
Section 22(e)) is the compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the rate of compensation
paid immediately before becoming disabled; such imputed compensation may be
taken into account only if the Participant is not a Highly Compensated Employee
and contributions made on behalf of such Participant are nonforfeitable when
made.
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(I) MAXIMUM PERMISSIBLE AMOUNT means the maximum Annual Addition which may be
contributed or allocated to a Participant's Account under the Plan for any
Limitation Year. The maximum Annual Addition shall not exceed the lessor of:
(a) the Defined Contribution Dollar Limitation, or (b) 25% of the
Participant's Compensation for the Limitation Year.
The Compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits (within the meaning of Code Sections 401(h)
or 419A(f)(2) which is otherwise treated as an Annual Addition under Code
Section 415(l)(1) or 419A(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed
the Defined Contribution Dollar Limitation multiplied by the following
fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR
---------------------------------------------
12
(J) PROTECTED ANNUAL BENEFIT means the annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or Qualified Joint and
Survivor Annuity) to which the Participant would be entitled under the terms
of a Defined Benefit Plan assuming:
(i) the Participant continues in employment with the Employer or Affiliate
until the Participant's "normal retirement age" under the Plan within the
meaning of Code Section 411(a)(5) (or the Participant's current age, if
later); and
(ii) the Participant's Limitation Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under the Plan
will remain constant for all future Limitation Years.
3.9.2 The provisions of this subsection 3.9.2 apply with respect to a
Participant who does not participate in and has never participated in,
another Qualified Plan, a Welfare Benefit Fund or an Individual Medical
Benefit Account or a simplifed employee pension, as defined in Code Section
401(k), maintained by the Employer or an Affiliate, which provides an Annual
Addition as defined in Section 3.9.1(A) of the Plan, other than this Plan:
(A) The amount of Annual Additions which may be credited to the Participant's
Account for any Limitation Year will not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan. If the
Employer Contribution that would otherwise be contributed or allocated to
the Participant's Account would cause the Annual Additions on behalf of the
Participant for the Limitation Year to exceed the Maximum Permissible Amount
with respect to that Participant for the Limitation Year, the amount
contributed or allocated will be reduced so that the Annual Additions on
behalf of the Participant for the Limitation Year will equal such Maximum
Permissible Amount.
(B) Prior to determining the Participant's actual Limitation Compensation for
a Limitation Year, the Employer may determine the Maximum Permissible Amount
for the Participant for the Limitation Year on the basis of a reasonable
estimation of the Participant's Compensation for that Limitation Year. Such
estimated Compensation shall be uniformly determined for all Participants
similarly situated.
(C) As soon as is administratively feasible after the end of a Limitation
Year, the Maximum Permissible Amount for the Limitation Year will be
determined on the basis of the Participant's actual compensation for the
Limitation Year.
(D) If pursuant to Section 3.9.2(C) or as a result fo the allocation of
forfeitures, there is an Excess Amount with respect to the Participant for a
Limitation Year, the Excess Amount shall be disposed of as follows:
(i) First, any contribution to the Participant's Elective Deferrals Account,
Participant Voluntary Nondeductible Contributions Account or Employee Thrift
Contributions Account, if applicable, and any earnings allocable thereto will
be distributed to the Participant to the extent that the return thereof would
reduce the Excess Amount in such Participant's Accounts;
(ii) If after the application of Section 3.9.2(D)(i) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of the
Limitation Year, the remaining Excess Amount in the Participant's Account
will be used to reduce Employer contributions (including allocation of any
forfeitures) under this Plan for such Participant in the next Limitation
Year, and in each succeeding Limitation Year, if necessary. (iii) If after
the application of Section 3.9.2(D)(i) an Excess Amount still exists, and the
Participant is not covered by the Plan at the end of the Limitation Year, the
Excess Amount will be held unallocated in a suspense account. The suspense
account will be applied to reduce the future Employer contributions under
this Plan for all remaining Participants in the next Limitation Year, and in
each succeeding Limitation Year, if necessary; provided, however, that if all
or any part of the Excess Amount held in a suspense account is attributable
to a Participant's Elective Deferrals, such Excess Amount shall be held
unallocated in a suspense account to be
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used for such Participant in the next Limitation Year and each succeeding
Limitation Year as an Elective Deferral if such Participant is covered by the
Plan in the next and each succeeding Limitation Year, if necessary.
(iv) If a suspense account is in existence at any time during a Limitation Year
pursuant to Section 3.9.2(D)(iii), the suspense account will not participate in
the allocation of the Trust Fund's investment gains or losses to or from any
other Account. If a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense account must be
allocated and reallocated to Participants' Accounts before any Employer or
Participant contributions may be made to the Plan for the Limitation Year.
Excess Amounts, other than those Excess Amounts referred to in Section
3.9.2(D)(i), may not be distributed to Participants or Former Participants.
3.9.3 The provisions of this subsection 3.9.3 apply with respect to a
Participant who, in addition to this Plan, is covered or has been covered
under one or more Defined Contribution Plans which are Master or Prototype
Plans, Welfare Benefit Funds an Individual Medical Benefit Account or a
simplified employee pension maintained by the Employer or an Affiliate, which
provides an Annual Addition as described in Section 3.9.1(A) of the Plan
during any Limitation Year.
(A) The Annual Additions which may be credited to a Participant's Accounts
under this Plan for any such Limitation Year will not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to the
Participant's account or accounts under any other plans and Welfare Benefit
Fund, Individual Medical Benefit Account or simplified employee pension for
the same Limitation Year.
If the Annual Additions with respect to the Participant under any one or more
other such Defined Contribution Plans or Welfare Benefit Funds, Individual
Medical Benefit Account or simplified employee pension maintained by the
Employer are less than the Maximum Permissible Amount and the Employer
Contribution that would otherwise be contributed or allocated to a
Participant's Account under this Plan would cause the Annual Additions for
the Limitation Year to exceed this limitation, the amount contributed or
allocated shall be reduced so that the Annual Additions under all such plans
and funds for the Limitation Year will equal the Maximum Permissible Amount.
If the Annual Additions with respect to the Participant under such other
Defined Contribution Plans and Welfare Benefit Funds, Individual Medical
Benefit Account or simplified employee pension in the aggregate are equal to
or greater than the Maximum Permissible Amount, no amount will be contributed
or allocated to any of the Participant's Account under this Plan for the
Limitation Year.
(B) Prior to determining the Participant's actual compensation for a Limitation
Year, the Maximum Permissible Amount for a Participant may be determined in the
manner described in Section 3.9.2(B).
(C) As soon as is administratively feasible after the end of a Limitation Year,
the Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual Limitation Compensation for the Limitation
Year.
(D) If, pursuant to subsection 3.9.3(C) above, or as a result of the allocation
of forfeitures, a Participant's Annual Additions under this Plan and the
Participant's Annual Additions under such other plans would result in an Excess
Amount for a Limitation Year, the Excess Amount will be deemed to consist of the
Annual Additions last allocated, except that Annual Additions attributable to
simplified employee pension will be deemed to have been allocated first,
followed by Annual Additions to a Welfare Benefit Fund or Individual Medical
Benefit Account regardless of the actual allocation date.
(E) If an Excess Amount was allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another such plan, the
Excess Amount attributed to this Plan will be the product of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (A) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under this Plan to (B) the total Annual
Additions allocated to the Participant for the Limitation Year as of such date
under this Plan and all of the other plans referred to in the first sentence of
this Section 3.9.3.
(F) Any Excess Amount attributed to this Plan will be disposed in the manner
described in Section 3.9.2(D).
3.9.4 If a Participant is covered under one or more Defined Contribution Plans,
other than this Plan, maintained by the Employer or an Affiliate which are not
Master or Prototype Plans, or Welfare Benefit Funds or an Individual Medical
Benefit Account maintained by the Employer, Annual Additions which may be
credited to the Participant's Account
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under this Plan for any Limitation Year shall be limited in accordance with
the provisions of subsections 3.9.3(A) - (F) above as though each such other
plan was a Master or Prototype Plan.
3.9.5 If the Employer maintains, or at any time maintained, a Defined Benefit
Plan covering any Participant in this Plan, the sum of the Participant's
Defined Benefit Fraction and Defined Contribution Fraction will not exceed
1.0 in any Limitation Year. If such sum would otherwise exceed 1.0 and if
such Defined Benefit Plan does not provide for a reduction in benefits
thereunder, Annual Additions which may be credited to a Participant's Account
under this Plan for any Limitation Year shall be limited in accordance with
the provisions of Section 3.9.2.
3.9.6 If required pursuant to Section 4.4.4, "100%" shall be substituted for
"125%" wherever the latter percentage appears in this Section 3.9.
3.10 RETURN OF EMPLOYER CONTRIBUTIONS UNDER SPECIAL CIRCUMSTANCES
Notwithstanding any provision of this Plan to the contrary, upon timely
written demand by the Employer or the Administrator to the Trustee:
(A) Any contribution by the Employer to the Plan under a mistake of fact
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution.
(B) Any contribution made by the Employer incident to the determination by
the Commissioner of Internal Revenue that the Plan is initially a Qualified
Plan shall be returned to the Employer by the Trustee within one year after
notification from the Internal Revenue Service that the Plan is not initially
a Qualified Plan but only if the application for the qualification is made by
the time prescribed by law for filing the Employer's return for the taxable
year in which the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.
(C) In the event the deduction of a contribution made by the Employer is
disallowed under Code Section 404, such contribution (to the extent
disallowed) must be returned to the Employer within one year of the
disallowance of the deduction.
ARTICLE IV VESTING
4.1 DETERMINATION OF VESTING
4.1.1 A participant shall at all times have a vested percentage of 100% in
the Account Balance of each of his or her Participant Contributions Accounts,
401(k) Contributions Accounts, Rollover Contributions Account and Transferred
Account.
4.1.2 A Participant shall have a vested percentage of 100% in his or her
Account Balance of each of his or her Employer Accounts if he or she
terminates Employment due to the attainment of Normal Retirement Age, Early
Retirement specified in the Adoption Agreement, if elected by the Employer in
the Adoption Agreement, or upon Disability or death.
4.1.3 The vested percentage of a Participant in the Account Balance of each of
his or her Employer Accounts not vested pursuant to Section 4.1.1 or 4.1.2
shall be determined in accordance with the vesting rule or schedule specified
in the Adoption Agreement.
4.2 RULES FOR CREDITING VESTING SERVICE
4.2.1 Subject to Section 4.2.2, Years of Service shall be credited for
purposes of determining a Participant's Vesting Service as specified in the
Adoption Agreement. If the Employer maintains the plan of a predecessor
employer, service with such predecessor employer shall be treated as service
with the Employer for purposes of Vesting Service.
4.2.2 An Employee who terminates Employment with no vested percentage in an
Employer Account shall, if he or she returns to Employment, have no credit
for Vesting Service prior to such termination of Employment if his or her
Period of Severance equals or exceeds five years.
4.2.3 Vesting Service of an Employee following a Period of Severance of five
years or more shall not be counted for the purpose of computing his or her
vested percentage in his or her Employer Accounts derived from contributions
accrued prior to the Period of Severance. If applicable, separate records
shall be maintained reflecting the Participant's vested rights in his or her
Account Balance attributable to service prior to the Period of Severance and
reflecting the Participant's vested percentage in his or her Account Balance
attributable to service after the Period of Severance. Vesting Service prior
to and following an Employee's Period of Severance shall be counted for
purposes of computing his or her vested percentage in an Employer Account
derived from contributions made after the Period of Severance.
4.3 EMPLOYER ACCOUNTS FORFEITURES
4.3.1 Subject to Section 5.6, upon the Nonvested Separation of a
Participant, the nonvested portion of each Employer Account of such
Participant will be forfeited as of the date of termination of Employment.
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Upon the Partially Vested Separation of a Participant, the nonvested portion of
each Employer Account of such Participant will be forfeited as of the date of
termination of Employment; provided, however, that such Participant receives a
distribution in accordance with Section 5.6. If a Participant does not receive a
distribution following his or her termination of Employment, the nonvested
portion of each Employer Account of the Participant shall be forfeited following
a Period of Severance of five years.
4.3.2 If the Employer elects in the Adoption Agreement to reallocate
forfeitures, forfeitures for a Plan Year shall be allocated in accordance
with Section 3.7.1. If the Employer elects in the Adoption Agreement to use
forfeitures to reduce Employer contributions, forfeitures shall be applied in
accordance with Section 3.7.2.
4.4 TOP-HEAVY PROVISIONS
4.4.1 As used in this Section 4.4, each of the following terms shall have the
meanings for that term set forth in this Section 4.4.1:
(A) DETERMINATION DATE means, for any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan year. For the first Plan Year of the
Plan, the last day of that year.
(B) PERMISSIVE AGGREGATION GROUP means the Required Aggregation Group of plans
plus any other plan or plans of the Employer or Affiliate which, when considered
as a group with the Required Aggregation Group, would continue to satisfy the
requirements of Code Sections 401(a)(4) and 410.
(C) REQUIRED AGGREGATION GROUP means (i) each Qualified Plan of the Employer or
Affiliate in which at least one Key Employee participates or participated at any
time during the determination period (regardless of whether the Plan has
terminated), and (ii) any other qualified plan of the Employer or Affiliate
which enables a plan described in (i) to meet the requirements of Code Sections
401(a)(4) or 410.
(D) SUPER TOP-HEAVY means, for any Plan Year beginning after December 31, 1983,
the Plan if any Top-Heavy Ratio as determined under the definition of Top-Heavy
Plan exceeds 90%.
(E) TOP-HEAVY PLAN means, for any Plan Year beginning after December 31, 1983,
the Plan if any of the following conditions exists:
(i) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is not part of
any Required Aggregation Group or Permissive Aggregation Group of Plans.
(ii) If the Plan is a part of a Required Aggregation Group of plans but not part
of a Permissive Aggregation Group and the Top-Heavy Ratio for the group of plans
exceeds 60%.
(iii) If the Plan is a part of a Required Aggregation Group and part of a
Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60%.
(F) TOP-HEAVY RATIO means
(i) If the Employer or Affiliate maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the Employer or
Affiliate has never maintained any Defined Benefit Plan which during the
Five-Year period ending On The Determination Date has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone or for the Required or
Permissive Aggregation Group as appropriate is a fraction, the numerator of
which is the sum of the Account Balances of all Key Employees as of the
Determination Date (including any part of any Account Balance distributed in
the five-year period ending on the Determination Date), and the denominator
of which is the sum of all Account Balances (including any part of any
Account Balance distributed in the five-year period ending on the
Determination Date), both computed in accordance with Code Section 416. Both
the numerator and denominator of the Top-Heavy Ratio are increased to reflect
any contribution not actually made as of the Determination Date, but which is
required to be taken into account on that date under Code Section 416.
(ii) If the Employer or an Affiliate maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the Employer or an
Affiliate maintains or has maintained one or more Defined Benefit Plans which
during the five-year period ending on the Determination Date has or has had any
accrued benefits, the Top-Heavy Ratio for any Required or Permissive Aggregation
Group as appropriate is a fraction, the numerator of which is the sum of Account
Balances under the aggregated Defined Contribution Plans for all Key Employees,
determined in accordance with (i) above, and the present value of accrued
benefits under the aggregated Defined Benefit Plans for all Key Employees as of
the Determination Date, and the denominator of which is the sum of the Account
Balances under the aggregated Defined Contribution Plans for all Participants,
determined in accordance with (i) above, and the present value of accrued
benefits under the Defined Benefit Plans for all Participants as of the
Determination Date, all determined in accordance with Code Section 416. The
accrued benefit under a Defined Benefit Plan in both the numerator and
denominator of the Top-Heavy
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Ratio are increased for any distribution of an accrued benefit made in the
five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of Account Balances and
the present value of accrued benefits will be determined as of the most
recent Valuation Date that falls within or ends with the 12-month period
ending on the Determination Date, except as provided in Code Section 416 for
the first and second Plan Years of a Defined Benefit Plan. The Account
Balances and accrued benefits of a Participant (1) who is not a Key Employee
but who was a Key Employee in a prior year, or (2) who has not been credited
with at least one Hour of Service with the Employer or an Affiliate at any
time during the five-year period ending on the Determination Date, will be
disregarded. The calculation of the Top-Heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be made in
accordance with Code Section 416.
Elective Deferrals will not be taken into account for purposes of computing
the Top-Heavy Ratio. When aggregating plans the value of Account Balances and
accrued benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year.
The accrued benefit of a Participant who is not a Key Employee shall be
determined under (A) the method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans or (B) if there is no such method,
as if such benefit accrued not more rapidly than the slowest accrual rate
permitted under the fractional rule of Code Section 411(b)(1)(C).
4.4.2 If the Plan is determined to be a Top-Heavy Plan or a Super Top-Heavy
Plan as of any Determination Date after December 31, 1983, then the
Top-Heavy vesting schedule specified in the Adoption Agreement, beginning
with the first Plan Year commencing after such Determination Date, shall
apply only for those Plan Years in which the Plan continues to be a Top-Heavy
Plan or Super Top-Heavy Plan, as the case may be.
4.4.3 (A) Except as provided in Sections 4.4.3(C) and (D), for any Plan Year
in which the Plan is a Top-Heavy Plan, contributions and forfeitures allocated
to the Employer Contributions Account of any Participant who is not a Key
Employee in respect of that Plan Year shall not be less than the lesser of:
(i) 3% of such Participant's Limitation Compensation, or
(ii) if the Employer has no Defined Benefit plan which designates this Plan
to satisfy Code Section 401, the largest percentage of contributions and
forfeitures, as a percentage of the Key Employee's Limitation Compensation,
allocated to the Employer Contributions Account of any Key Employee for that
year. The minimum allocation is determined without regard to any Social
Security contribution. This minimum allocation shall be made even though,
under other Plan provisions, the Participant would not otherwise be entitled
to receive an allocation, or would have received a lesser allocation for the
Plan Year because of (a) the Participant's failure to complete a Year of
Service, (b) the Participant's failure to make mandatory Participant
contributions to the Plan or (c) compensation less than a stated amount.
(B) For purposes of computing the minimum allocation, a Participant's
Limitation Compensation will be applied.
(C) The provision in (A) above shall not apply to any Participant who was not
employed by the Employer or an Affiliate on the last day of the Plan Year.
(D) If the Employer or an Affiliate has executed Adoption Agreements covering
Participants by a plan which is a profit-sharing plan and by another plan
which is a money purchase pension plan or a target benefit plane, the minimum
allocation specified in the preceding Section 4.4.3(A) shall be provided by
the money purchase pension plan or by the target benefit plan, as the case
may be. If a Participant is covered under this Plan and a Defined Benefit
Plan maintained pursuant to Adoption Agreements offered by the Sponsor, the
minimum allocation specified in the preceding Section 4.4.3(A) shall not be
applicable and the Participant shall receive the minimum benefit specified in
the Defined Benefit Plan.
(E) With respect to any profit-sharing or money purchase pension plan which
becomes Top-Heavy and is integrated with Social Security, prior to making
the allocations specified in the Adoption Agreement, anything contained
therein to the contrary notwithstanding, there shall be an allocation of the
Employer Contribution to such eligible Participant's Employer Contribution
Account in the ratio that each such Participant's Limitation Compensation for
the Plan Year bears to the Limitation Compensation of all such Participants
for the Plan Year, but not in excess of 3% of such Limitation Compensation.
4.4.4 If the Plan becomes a Top-Heavy Plan, then the maximum benefit which
can be provided under Section 3.9 shall continue to be determined by applying
"125%" wherever it appears in that Section and by substituting "4%" for "3%"
wherever that appears in Section 4.4.3. However, if the Plan becomes a Super
Top-Heavy Plan, the maximum benefit which can be provided under Section 3.9
shall
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be determined by substituting "100%" for "125%" wherever the latter
percentage appears and the 3% minimum contribution provided for in Section
4.4.4 shall remain unchanged.
4.4.5 Beginning with the Plan Year in which this Plan is Top-Heavy, one of
the minimum Top-Heavy vesting schedules as specified in the Adoption
Agreement will apply. The minimum vesting schedule applies to all benefits
within the meaning of Code Section 411(a)(7) except those attributable to
Employee contributions, including benefits accrued before the effective date
of Code Section 416 and benefits accrued before the Plan became Top-Heavy.
However, this Section 4.4 does not apply to the Account Balances of any
Employee who does not have an Hour of Service after the Plan has initially
become Top-Heavy and such Employee's vesting in his or her Employer
Contributions Account will be determined without regard to this Section 4.4.
The minimum allocation pursuant to Section 4.4.3 (to the extent required to
be nonforfeitable under Code Section 416(b)) may not be forfeited under Code
Section 411(a)(3)(B) or Code Section 411(a)(3)(D).
ARTICLE V
AMOUNT AND DISTRIBUTION OF BENEFITS,
WITHDRAWALS AND LOANS
5.1 DISTRIBUTION UPON TERMINATION OF EMPLOYMENT
5.1.1 Subject to Section 5.1.2, a Participant's Benefit Commencement Date
shall be as soon as practicable following his or her Fully Vested Separation,
Partially Vested Separation OR Nonvested Separation, if applicable, and in
accordance with Section 5.6. If the Plan includes a CODA feature, each 401(k)
Contributions Account of a Participant shall be payable in accordance with
the events specified in Section 1.27 of the Plan.
5.1.2 If specified in the Adoption Agreement, a Participant's Benefit
Commencement Date shall be deferred until the earliest of his or her Normal
Retirement Age, Disability, or if elected by the Employer in the Adoption
Agreement, Early Retirement. If a Participant terminates Employment after
satisfying any service requirement for Early Retirement specified in the
Adoption Agreement, he or she shall be entitled to elect to receive A
distribution of his or her vested Employer Accounts upon satisfaction of any
age requirement for Early Retirement.
5.2 AMOUNT OF BENEFITS UPON A FULLY VESTED SEPARATION
A Participant's benefits upon his or her Fully Vested Separation for any
reason other than Disability shall be the Account Balance of all of his or
her Accounts determined in accordance with Section 10.6.2.
5.3 AMOUNT OF BENEFITS UPON A PARTIALLY VESTED SEPARATION
A Participant's benefits upon his or her Partially Vested Separation for any
reason other than Disability shall be: (A) the Account Balance of his or her
Employer Accounts determined in accordance with Section 10.6.2 multiplied by
his or her vested percentage determined pursuant to Section 4.1.3, or, if
applicable, Section 4.4.2, plus (B) the Account Balance of his or her other
Accounts determined in accordance with Section 10.6.2.
5.4 AMOUNT OF BENEFITS UPON A NONVESTED SEPARATION
A Participant's benefits upon his or her Nonvested Separation shall be the
Account Balance of his or her Accounts other than Employer Accounts, if any,
determined in accordance with Section 10.6.2.
5.5 AMOUNT OF BENEFITS UPON A SEPARATION DUE TO DISABILITY
If a Participant terminates Employment due to a Disability, his or her
benefit shall be the Account Balance of all of his or her Accounts determined
as a Fully Vested Separation in accordance with Section 5.2 and Section
10.6.2. The Benefit Commencement Date of any such Participant on whose behalf
contributions are being made pursuant to Section 3.1.4 shall be as soon as
practicable after the date such contributions cease.
5.6 DISTRIBUTION AND RESTORATION
5.6.1 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date is equal
to or less than $3,500, such Participant will receive a distribution of his or
her entire vested benefit and the nonvested portion will be treated as
forfeiture. If the value of a Participant's vested Account is zero, the
Participant shall be deemed to have received a distribution of such vested
Account.
5.6.2 If, upon a Participant's termination of Employment, the vested Account
Balance of his or her Accounts as of the applicable Valuation Date exceeds
$3,500, the Participant may elect, in accordance with Article VI, to receive
a distribution of the entire vested portion of such Accounts and the
nonvested portion, if any, will be treated as a forfeiture.
5.6.3 If the vested Account Balance of a Participant's Accounts as of the
applicable Valuation Date has an
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aggregate value exceeding (or at the time of any prior distribution exceeded)
$3,500, and the Participant's benefit is Immediately Distributable, the
Participant and the Participant's Spouse (or where either the Participant or
the Spouse has died, the survivor) must comment to any distribution of such
benefit. The consent of the Participant and the Participant's Spouse shall be
obtained in writing within the 90-day period ending on the Participant's
Benefit Commencement Date; provided, however, that if the Plan is a
profit-sharing plan and Section 6.1.2 applies, the consent of the
Participant's Spouse will not be required. The Administrator shall notify the
Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's benefit is no longer Immediately
Distributable. Such notification shall include a general description of the
material features, and an explanation of the relative volume of, the optional
forum of benefit available under the Plan in a manner that would satisfy the
notice requirements of Code Section 417(a)(3), and shall be provided no less
than 30 days and no more than 90 days prior to the Benefit Commencement Date.
5.6.4 Notwithstanding the foregoing, only the Participant need consent to the
commencement of a distribution in the form of a Qualified Joint and Survivor
Annuity while the Participant's benefit is Immediately Distributable. Neither
the consent of the Participant nor the Participant's Spouse shall be
required to the extent that a distribution is required to satisfy Code
Section 401(a)(9) or Code Section 415.
5.6.5 For purposes of determining the applicability of the foregoing consent
requirements to distributions made before the first day of the First Plan
Year beginning after December 31, 1988, the Participant's vested benefit
shall not include amounts attributable to accumulated deductible Participant
contributions within the meaning of Code Section 72(o)(5)(B).
5.6.6 If a Participant, who after termination of Employment received a
distribution and forfeited any portion of an Employer Account or is deemed to
have received a distribution in accordance with Section 5.6.1, resumes
Employment, he or she shall have the right, while an Employee, to repay the
full amount previously distributed from such Employer Account. Such repayment
must occur before the earlier of (i) the date on which he or she would have
incurred a Period of Severance of five years commencing after the
distribution or (ii) five years after the first date on which the Participant
is subsequently reemployed. If the Participant makes a repayment, the Account
Balance of his or her relevant Employer Account shall be restored to the
value as of the date of distribution. The restored amount shall be derived
from forfeitures during the Plan Year and, if such forfeitures are not
sufficient, from a contribution by the Employer made as of that date
(determined without reference to Net Profits). If an Employee who had a
Nonvested Separation and was deemed to receive a distribution resumes
Employment before a Period of Severance of five years, his or her Employer
Account will be restored, upon reemployment, to the amount on the date of
such deemed distribution.
5.7 WITHDRAWALS DURING EMPLOYMENT
5.7.1 If the Plan is a profit-sharing plan, and if the Employer has elected
in the Adoption Agreement to permit withdrawals during Employment, prior to
termination of Employment, each Participant upon attainment of age 59-1/2 may
elect to withdraw, as of the Valuation Date next following the receipt of an
election by the Administrator, and upon such notice on the Administrator may
require, all or any part of the vested Account Balance of all of his or her
Accounts, as of such Valuation Date.
5.7.2 Notwithstanding Section 5.7.1, prior to termination of Employment, each
Participant with a Rollover Contributions Account and/or a Participant
Voluntary Nondeductible Contributions Account may elect to withdraw, as of
the Valuation Date next following the receipt of an election by the
Administrator, and upon such notice as the Administrator may require, all or
any of such Account, as of such Valuation Date.
5.7.3 The Administrator may establish from time to time rules and procedures
with respect to any withdrawals including the order of Accounts from which
such withdrawals shall be made.
5.7.4 No forfeitures shall occur as a result of a withdrawal pursuant to this
Section 5.7.
5.7.5 If a Participant is married at the time of such election, the
Participant's Spouse must consent to such a withdrawal in the same manner as
provided in Section 6.2.4; provided, however, that if the Plan is a
profit-sharing plan and Section 6.1.2 applies, the consent of the
Participant's Spouse will not be required.
5.5 LOANS
5.5.1 If the Employer has elected in the Adoption Agreement to make loans
available, a Participant may submit an application to the Administrator to
borrow from any Account maintained for the Participant (on such terms and
conditions as the Administrator shall prescribe) an amount of which when
added to the outstanding balance of all other loans to the Participant would
not exceed the lower of (a) $50,000 reduced by the excess (if any) of the
highest outstanding balance of loans during the one year
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period ending on the day before the loan is made, over the outstanding
balance of loans from the Plan on the date the loan is made, or (b) 50% of
the vested portion of his or her Account from which the borrowing is to be
made as of the Valuation Date next following the receipt of his or her loan
application by the Administrator and the expiration of such notice period as
the Administrator may require. For this purpose, all loans from Qualified
Plans of the Employer or an Affiliate shall be aggregated, and an assignment
or pledge of any portion of the Participant's interest in the Plan, and a
loan, pledge or assignment with respect to any insurance contract purchased
under the Plan, will be treated as a loan under this Section 5.8.1.
5.8.2 If approved, each such loan shall comply with the following conditions:
(A) it shall be evidenced by a negotiable promissory note,-
(B) the rate of interest payable on the unpaid balance of such loan shall be
a reasonable rate determined by the Administrator;
(C) the Participant must obtain the consent of his or her Spouse, if any,
within the 90-day period before the time an Account is used as security for
the loan; provided, however, that if the Plan is a profit-sharing plan that
meets the requirements in Section 6.1.2 of the Plan, the consent of the
Participant's Spouse will not be required. A new consent is required if an
Account is used for any increase in the amount of security. The consent
shall comply with the requirements of Section 6.2.4, but shall be deemed to
meet any requirements contained in section 6.2.4 relating to the consent of
any subsequent Spouse. A new consent shall be required if an Account is used
for renegotiation, extension, renewal, or other revision of the loan;
(D) the loan, by its terms, must require repayment (principal and interest)
be amortized in level payments, not less frequently than quarterly, over a
period not extending beyond five years from the date of the loan; provided,
however, that if the proceeds of the loan are used to acquire a dwelling unit
which within a reasonable time (determined at the time the loan is made) will
be used as the principal residence of the Participant, the repayment schedule
may be for a term in excess of five years; and
(E) the loan shall be adequately secured and may be secured by no more than
50% of the Participant's vested interest in the Account Balance of his or her
Accounts.
5.8.3 If a Participant or Beneficiary requests and is granted a loan, and the
loan is made from Participant-Directed Assets, principal and interest
payments with respect to the loan shall be credited solely to the Account of
the borrowing Participant from which the loan was made. Any loss caused by
nonpayment or other default on a Participant's loan obligations shall be
charged solely to that Account. Any other loan shall be treated as an
investment of the Trust Fund and interest and principal payments on account
thereof shall be credited to the Trust Fund. The Administrator shall
determine the order of Accounts from which a loan may be made.
5.8.4 Anything herein to the contrary notwithstanding:
(A) in the event of a default, foreclosure on the promissory note will not
occur until a distributable event occurs under this Article V;
(B) no loan will be made to any Owner-Employee or to any
"shareholder-employee" of the Employer or a Participating Affiliate or with
respect to any amounts attributable to a Rollover Contribution or a trust to
trust transfer and relating to prior participation by such an individual in a
Qualified Plan. For this purpose, a "shareholder-employee" means an employee
or officer of an electing small business, (I.E. an "S corporation" as
defined in Code Section 1361, who owns (or is considered as owning within the
meaning of Code Section 318(a)(1)) on any day during the taxable year of such
corporation, more than 5% of the outstanding stock of the corporation; and
(C) loans shall not be made available to Highly Compensated Employees in an
amount greater than the amount made available to other Employees.
5.8.5 If a valid spousal consent has been obtained in accordance with Section
5.8.2(C), then, notwithstanding any other provision of this Plan, the portion
of the Participant's vested Account used as a security interest held by the
Plan by reason of a loan outstanding to the Participant shall be taken into
account for purposes of determining the amount of the Participant's benefit
payable at the time of death or distribution; but only if the reduction is
used as repayment of the loan. If less than 100% of the Participant's vested
benefit (determined without regard to the preceding sentence) is payable to
the Surviving Spouse, then the Participant's benefit shall be adjusted by
first reducing the Participant's vested benefit by the amount of the security
used as repayment of the loan, and then determining the benefit payable to
the Surviving Spouse.
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5.9 HARDSHIP DISTRIBUTION
5.9.1 Effective January 1, 1989, if available and elected by the Employer in
the Adoption Agreement, a Participant may request a distribution due to
hardship from the vested portion of his or her Accounts, (other than from his
or her Qualified Nonelective Contributions Account, Qualified Matching
Contributions Account or earnings accrued after December 31, 1988, on the
Participant's Elective Deferrals) only if the distribution is made both due
to an immediate and heavy financial need of the Participant and is necessary
to satisfy such financial need.
5.9.2 A hardship distribution shall be permitted only if the distribution is
due to:
(A) expenses incurred or necessary for medical care described in Code Section
213(d) incurred by the Participant, the Participant's Spouse, or any
dependents of the Participant (as defined in Code Section 152);
(B) purchase (excluding mortgage payments) of a principal residence for the
Participant;
(C) payment of tuition and related educational fees for the next 12 months of
post-secondary education for the Participant, his or her Spouse, children or
dependents;
(D) the need to prevent the eviction of the Participant from his or her
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or
(E) any other condition or event which the Commissioner of the Internal
Revenue Service determines is a deemed immediate and financial need.
5.9.3 A distribution will be considered necessary to satisfy an immediate and
heavy financial need of a Participant if all of the following requirements
are satisfied:
(A) the distribution will not be in excess of the amount of the immediate and
heavy financial need of the Participant (including amounts necessary to pay
any Federal, state or local income taxes or penalties reasonably anticipated
to result from the distribution);
(B) the Participant obtains all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer or an Affiliate;
(C) the Participant's Elective Deferrals, Employer Thrift Contributions and
Participant Voluntary Nondeductible Contributions will be suspended for at
least 12 months after receipt of the hardship distribution in this Plan and
in all other plans maintained by the Employer or an Affiliate; and
(D) the Participant may not make Elective Deferrals for the Participant's
taxable year immediately following the taxable year of the hardship
distribution in excess of the applicable limit under Code Section 402(g) for
such next taxable year less the amount of such Participant's Elective
Deferrals for the taxable year of the distribution in this Plan and in all
other plans maintained by the Employer or an Affiliate.
5.9.4 If the distribution is made from any Account other than a 401(k)
Contributions Account, a distribution due to hardship may be made without
application of Section 5.9.3(B), 5.9.3(C), or 5.9.3(D).
5.10 LIMITATION ON COMMENCEMENT OF BENEFITS
5.10.1 Anything in this Article V to the contrary notwithstanding, a
Participant's Benefit Commencement Date shall in no event be later than the
60th day after the close of the Plan Year in which the latest of the
following events occur:
(A) the attainment by the Participant of his or her Normal Retirement Age;
(B) the tenth anniversary of the year in which the Participant commenced
participation in the Plan; or
(C) the Participant's termination of Employment.
Notwithstanding the foregoing, the failure of a Participant and Spouse to
consent to a distribution while a benefit is Immediately Distributable, shall
be an election to defer commencement of payment of any benefit sufficient to
satisfy this Section.
5.10.2 If it is not possible to distribute a Participant's Accounts because
the Administrator has been unable to locate the Participant after making
reasonable efforts to do so, then a distribution of the Participant's
Accounts shall be made when the Participant can be located.
5.11 DISTRIBUTION REQUIREMENTS
5.11.1 Subject to the Joint and Survivor Annuity rules set forth in Article
VI, the requirements of this Article shall apply to any distribution of a
Participant's interest and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified, the provisions of this
article apply to calendar years beginning after December 31, 1984. As used
in this Section 5.11, each of the following terms
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shall have the meaning for that term set forth in this Section 5.11.1:
(A) APPLICABLE LIFE EXPECTANCY. The life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Participant (or
designated Beneficiary) as of the Participant's (or designated Beneficiary's)
birthday in the applicable calendar year reduced by one for each calendar
year which has elapsed since the date Life Expectancy was first calculated.
If Life Expectancy is being recalculated, the Applicable Life Expectancy
shall be the Life Expectancy as so recalculated. The applicable calendar
year shall be the first distribution calendar year, and if Life Expectancy is
being recalculated such succeeding calendar year.
(B) DESIGNATED BENEFICIARY. The individual who is designated as the
Beneficiary under the Plan in accordance with Code Section 401(a)(9). In the
event that a Participant names a trust to be a designated Beneficiary, such
designation shall provide that, as of the later of the date on which the
trust is named as a Beneficiary or the Participant's Required Beginning Date,
and as of all subsequent periods during which the trust is named as a
Beneficiary, the following requirements are met:
(i) the trust is a valid trust under state law, or would be but for the fact
that there is no corpus; (ii) the trust is irrevocable; (iii) the
Beneficiaries of the trust who are Beneficiaries with respect to the trust's
interest in the Participant's benefits are identifiable from the trust
instrument within the meaning of Code Section 401(a)(9); and (iv) a copy of
the trust is provided to the Plan.
(C) DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the Participant's
death, the first Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to Section 7.2.
(D) LIFE EXPECTANCY. Life Expectancy and joint and last survivor expectancy
are computed by use of the expected return multiples in Tables V and VI of
section 1.72-9 of the regulations issued under the Code.
Unless otherwise elected by the Participant (or Spouse, in the case of
distributions described in Section 7.2) by the time distributions are
required to begin, Life Expectancies shall not be recalculated annually.
Such election shall be irrevocable as to the Participant or Spouse and shall
apply to all subsequent years. The Life Expectancy of a nonspouse
Beneficiary may not be recalculated.
(E) REQUIRED BEGINNING DATE.
(i) GENERAL RULE. The Required Beginning Date of a Participant is the first
day of April of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
(ii) TRANSITIONAL RULE. The Required Beginning Date of a Participant who
attains age 70-1/2 before January 1, 1988, shall be determined in accordance
with (1) or (2) below:
(1) NON-5% OWNERS, The Required Beginning Date of a Participant who is not a
"5% owner" as defined in (iii) below is the first day of April of the
calendar year following the calendar year in which the later of retirement or
attainment of age 70-1/2 occurs.
(2) 5% OWNERS. The Required Beginning Date of a Participant who is a 5%
owner during any year beginning after December 31, 1979, is the first day of
April following the later of:
(a) the calendar year in which the Participant attains age 70-1/2; or
(b) the earlier of the calendar year with or within which ends the Plan Year
in which the Participant becomes a 5% owner, or the calendar year in which
the Participant retires. The Required Beginning Date of a Participant who is
not a 5% owner who attains age 70-1/2 during 1988 and who has not retired as
of January 1, 1989, is April 1, 1990.
(iii) 5% OWNER. A Participant is treated as a 5% owner for purposes of this
Section 5.11 if such Participant is a 5% owner as defined in Code Section
416(i) (determined in accordance with section 416 but without regard to
whether the plan is top-heavy) at any time during the Plan Year ending with
or within the calendar year in which such owner attains age 66-1/2 or any
subsequent Plan Year.
(iv) Once distributions have begun to a 5% owner under this Section 5.11,
they must continue to be distributed, even if the Participant ceases to be a
5% owner in a subsequent year.
5.11.2 All distributions required under this Section 5.11 shall be determined
and made in accordance with the Income Tax Regulations under Code Section
401(a)(9), including the minimum distribution incidental benefit requirement
of section 1.401(a)(9)-2 of the regulations issued under the Code.
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The entire interest of a Participant must be distributed or begin to be
distributed no later than the Participant's Required Beginning Date.
5.11.3 LIMITS ON DISTRIBUTION PERIODS. As of the first Distribution Calendar
Year, distributions, if not made in a lump sum, may only be made over one of
the following periods (or a combination thereof):
(A) the life of the Participant;
(B) the life of the Participant and a Designated Beneficiary;
(C) a period certain not extending beyond the Life Expectancy of the
Participant; or
(D) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
For calendar years beginning before January 1, 1989, if the Participant's
Spouse is not the Designated Beneficiary, the method of distribution selected
must assure that at least 50% of the present value of the amount available
for distribution is paid within the Life Expectancy of the Participant.
5.11.4 DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR. (A) If the
Participant's interest is to be paid in the form of annuity distributions
under the Plan (whether directly or in the form of an annuity purchased from
an insurance company), payments under the annuity shall satisfy the
following requirements:
(i) the annuity distributions must be paid in periodic payments made at
intervals not longer than one year;
(ii) the distribution period must be over a life (or lives) or over a period
certain not longer than a Life Expectancy (or joint life and last survivor
expectancy) described in Code Section 401(a)(9)(A)(ii) or Code Section
401(a)(9)(B)(iii), whichever is applicable;
(iii) the Life Expectancy (or joint life and last survivor expectancy) for
purposes of determining the period certain shall be determined without
recalculation of Life Expectancy;
(iv) once payments have begun over a period certain, the period certain may
not be lengthened even if the period certain is shorter than the maximum
permitted;
(v) payments must either be nonincreasing or increase only as follows:
(1) with any percentage increase in a specified and generally recognized
cost-of-living index;
(2) to the extent of the reduction to the amount of the Participant's
payments to provide for a survivor benefit upon death, but only if the
Beneficiary whose life was being used to determine the distribution period
described in Section 5.11.4(A)(iii) dies and the payments continue otherwise
in accordance with that action over the life of the Participant;
(3) to provide cash refunds of Employee contributions upon the Participant's
death; or
(4) because of an increase in benefits under the Plan.
(vi) If the annuity is a life annuity (or a life annuity with a period
certain not exceeding 20 years), the amount which must be distributed on or
before the Participant's Required Beginning Date (or, in the case of
distributions after the death of the Participant, the date distributions are
required to begin pursuant to Section 7.2) shall be the payment which is
required for one payment interval. The second payment need not be made until
the end of the next payment interval even if that payment interval ends in
the next calendar year. Payment intervals are the periods for which payments
are received, E.G., bimonthly, monthly, semi-annually, or annually. If the
annuity is a period certain annuity without a life contingency (or is a life
annuity with a period certain exceeding 20 years) periodic payments for each
distribution calendar year shall be combined and treated as an annual amount.
The amount which must be distributed by the Participant's Required Beginning
Date (or, in the case of distributions after the death of the Participant,
the date distributions are required to begin pursuant to Section 7.2) is the
annual amount for the first Distribution Calendar Year. The annual amount for
other Distribution Calendar Years, including the annual amount for the
calendar year in which the Participant's Required Beginning Date (or the date
distributions are required to begin pursuant to Section 7.2) occurs, must be
distributed on or before December 31 of the calendar year for which the
distribution is required.
(5) Annuities purchased after December 31, 1988, are subject to the following
additional conditions:
(1) Unless the Participant's Spouse is the Designated Beneficiary, if the
Participant's interest is being distributed in the form of a period certain
annuity without a life contingency, the period certain as of the beginning of
the first Distribution Calendar Year may not exceed the applicable period
determined using the
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table set forth in Q&A A-5 of section 1.401(a)(9)-2 of the regulations issued
under the Code.
(ii) If the Participant's interest is being distributed in the form of a
joint and survivor annuity for the joint lives of the Participant and a
nonspouse Beneficiary, annuity payments to be made on or after the
Participant's Required Beginning Date to the Designated Beneficiary after the
Participant's death must not at any time exceed the applicable percentage of
the annuity payment for such period that would have been payable to the
Participant using the table set forth in Q&A A-6 of section 1.401(a)(9)-2 of
the regulations under the Code.
(C) TRANSITIONAL RULE. If payments under an annuity which complies with
Section 5.11.4(A) begin prior to January 1, 1989, the minimum distribution
requirements in effect as of July 27, 1987, shall apply to distributions from
this Plan, regardless of whether the annuity form of payment is irrevocable.
This transitional rule also applies to deferred annuity contracts distributed
to or owned by the Participant prior to January 1, 1989, unless additional
contributions are made under the Plan by the Employer or Affiliate with
respect to such contract.
(D) If the form of distribution is an annuity made in accordance with Section
5.11.4, any additional benefits accruing to the Participant after his or her
Required Beginning Date shall be distributed as a separate and identifiable
component of the annuity beginning with the first payment interval ending in
the calendar year immediately following the calendar year in which such
amount accrues.
(E) Any part of the Participant's interest which is in the form of an
individual account shall be distributed in a manner satisfying the
requirements of Code Section 401(a)(9).
5.11.5 TRANSITIONAL RULE: SECTION 242 ELECTION. Notwithstanding the other
requirements of this Article and subject to the Joint and Survivor Annuity
rules set forth in Article VI, distribution on behalf of any Employee,
including a 5% owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(A) the distribution by the trust is one which would not have disqualified
such trust under Code Section 401(a)(9) as in effect prior to amendment by
the Deficit Reduction Act of 1984;
(B) the distribution is in accordance with a method of distribution
designated by the Employee whose interest in the trust is being distributed
or, if the Employee is deceased, by a Beneficiary of such Employee;
(C) such designation was in writing, was signed by the Employee or the
Beneficiary, and was made before January 1, 1984;
(D) the Employee had accrued a benefit under the Plan as of December 31,1983;
and
(E) the method of distribution designated by the Employee or the Beneficiary
specifies the time at which distribution will commence, the period over which
distributions will be made, and in the case of any distribution upon the
Employee's death, the Beneficiaries of the Employee listed in order of
priority.
A distribution upon death will not be covered by this transitional rule
unless the information in the designation contains the required information
described above with respect to the distributions to be made upon the death
of the Employee.
For any distribution which commences before January 1, 1984, but continues
after December 31, 1983, the Employee, or the Beneficiary, to whom such
distribution is being made, will be presumed to have designated the method of
distribution under which the distribution is being made if the method of
distribution was specified in writing and the distribution satisfies the
requirements in subsections 5.11.5(A) and (E).
If a designation is revoked any subsequent distribution must satisfy the
requirements of Code Section 401(a)(9). If a designation is revoked
subsequent to the date distributions are required to begin, the trust must
distribute by the end of the calendar year following the calendar year in
which the revocation occurs the total amount not yet distributed to satisfy
Code Section 401(a)(9) but for the Section 242(b)(2) election.
For calendar years beginning after December 31, 1988, such distributions must
meet the minimum distribution incidental benefit requirements in section
1.401(a)(9)-2 of the regulations issued under the Code. Any changes in the
designation will be considered to be a revocation of the designation.
However, the mere substitution or addition of another Beneficiary (one not
named in the designation) under the designation will not be considered to be
a revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under the
designation, directly or indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is transferred or rolled over
from one plan to another plan, the rules in Q&A J-2 and
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Q&A J-3 of section 1.401(a)(9)-1 of the regulations issued under the Code.
ARTICLE VI
FORMS OF PAYMENT OF RETIREMENT
BENEFITS
6.1 METHODS OF DISTRIBUTION
6.1.1 If the Plan is a money purchase pension plan or a target benefit plan,
a Participant's benefit shall be payable in the normal form of a Qualified
Joint and Survivor Annuity if the Participant is married on his or her
Benefit Commencement Date and in the normal form of an immediate annuity for
the life of the Participant if the Participant is not married on that date. A
Participant who terminated Employment on or after satisfying the
requirements for Early Retirement may elect to have his or her Qualified
Joint and Survivor Annuity distributed upon attainment of such Early
Retirement. If the Plan is a profit-sharing plan that satisfies the
requirements set forth in Section 6.1.2, a Participant's Accounts shall only
be payable in the normal form of a lump-sum distribution in accordance with
Section 6.1.1(B) below. A Participant in a money purchase pension plan, a
target benefit plan, or a profit-sharing plan that does not satisfy the
requirements set forth in Section 6.1.2, may at any time after attaining age
35 and prior to his or her Benefit Commencement Date elect, in accordance
with Section 6.2, any of the following optional forms of payment instead of
the normal form:
(A) An Annuity Contract payable as:
(i) a single life annuity;
(ii) a joint and 50% survivor annuity with a contingent annuitant;
(iii) a joint and 100% survivor annuity with a contingent annuitant;
(iv) an annuity for the life of the Participant with 120 monthly payments
certain;
(B) A lump-sum distribution in cash or in kind, or part in cash and part in
kind; or
(C) In installments payable in cash or in kind, or part in cash and part in
kind over a period not in excess of that required to comply with Section
5.11.4.
Anything in this Section 6.1.1 to the contrary notwithstanding, if the value
of a Participant's vested Account as of the applicable Valuation Date is
$3,500 or less, his or her benefit shall be paid in the form of a lump-sum
distribution and no optional form of benefit payment shall be available.
6.1.2 If the Plan is a profit-sharing plan then: (A) the Participant cannot
elect payments in the form of a Life annuity (this Section 6.1.2 shall not
apply if a life annuity form is an optional form preserved under Code Section
411(d)(6)); (B) on the death of the Participant, the Participant's benefits
will be paid to his or her Surviving Spouse, if any, or, if his or her
Surviving Spouse has already consented in a manner conforming to an election
under Section 6.2.4, then to the Participant's Beneficiary; and (C) the
normal form of benefit shall be a lump-sum and Sections 6.2.1, 6.2.2 and
6.2.4 shall not be applied by the Administrator. A Participant in such a
profit-sharing plan may also elect to receive his or her benefit in the form
of installments in accordance with Section 6.1.1(C) of the Plan. This Section
6.1.2 shall not apply, however, with respect to the Participant if it is
determined that the Plan is a direct or indirect transferee of a defined
benefit plan, a money purchase pension plan (including a target benefit plan)
or a stock bonus or profit-sharing plan which is subject to the survivor
annuity requirements of Code Sections 401(a)(11) and 417. In addition, this
Section 6.1.2 shall not apply unless the Participant's Surviving Spouse, if
any, is the Beneficiary of (i) the proceeds of any insurance on the
Participant's life purchased by Employer contributions or (ii) forfeitures
allocated to the Participant's Employer Account or unless the Participant's
Surviving Spouse has consented to the Participant's designation of another
Beneficiary as referred to in subsection (C) of this Section 6.1.2.
6.1.3 The following transitional rules shall apply for those Participants
entitled to but not receiving benefits as of August 23, 1984:
(A) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by Section 6.1 must be
given the opportunity to elect to have Section 6.1 apply if such Participant
is credited with at least one Hour of Service under this Plan or a
predecessor plan in a Plan Year beginning on or after January 1, 1976, and
such Participant had at least 10 Years of Service when he or she terminated
from Employment.
(B) Any living Participant not receiving benefits on August 23, 1984, who was
credited with at least one Hour of Service under this Plan or a predecessor
plan on or after September 2, 1974, and who is not otherwise credited with an
Hour of Service in a Plan Year beginning on or after January 1, 1976, must be
given the opportunity to have his or her benefits paid in accordance with
this Section 6.1.3(D).
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(C) The respective opportunities to elect (as described in these Sections
6.1.3(A) and (B)) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on such Participant's Benefit
Commencement Date.
(D) Any Participant who has elected pursuant to this Section 6.1.3(B) and any
Participant who does not elect under this Section 6.1.3(A) or who meets the
requirements of this Section 6.1.3(A) except that such Participant does not have
at least ten Years of Service when he or she terminates from Employment, shall
have his or her benefits distributed in accordance with all of the following
requirements if benefits would have been payable in the form of a single life
annuity:
(1) AUTOMATIC QUALIFIED JOINT AND SURVIVOR ANNUITY
If benefits in the form of a single life annuity become payable to a married
Participant who:
(a) begins to receive payments on or after Normal Retirement Age; or
(b) dies on or after Normal Retirement Age while in active Employment; or
(c) begins to receive payments on or after the "Qualified Early Retirement Age",
as that term is defined in Section 6.1.3(D)(3)(a); or
(d) terminates from Employment on or after attaining Normal Retirement Age (or
Qualified Early Retirement Age) and after satisfying the eligibility requirement
for the payment of benefits under the Plan and thereafter dies before his or her
Benefit Commencement Date; then such benefits will be received in the form of a
Qualified joint and Survivor Annuity, unless the Participant has elected
otherwise during the election period which begins at least six months before the
Participant attains Qualified Early Retirement Age and ends no earlier than 90
days before his or her Benefit Commencement Date. Any election hereunder will
be in writing and may be changed by the Participant at any time.
(2) ELECTION OF EARLY SURVIVOR ANNUITY
A Participant who is employed after attaining the Qualified Early Retirement
Age will be given the opportunity to elect, beginning on the later of (1) the
90th day before he or she attains his or her Qualified Early Retirement Age, or
(2) the date on which participation begins, and ending on the date he or she
terminates Employment, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such annuity must not
be less than the payments which would have been made to the Spouse under the
Qualified Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in writing
and may be changed by the Participant at any time.
(3) QUALIFIED EARLY RETIREMENT Age
(a) For purposes of this section 6.1.3, Qualified Early Retirement Age is the
latest of:
(i) the earliest date, under the Plan, on which the Participant may elect to
receive retirement benefits,
(ii) the first day of the 120th month beginning before the Participant reaches
Normal Retirement Age, or
(iii) the date the Participant begins participation.
(b) Qualified Joint and Survivor Annuity is an annuity for the life of the
Participant with a survivor annuity for the life of the Spouse as described in
Section 1.77.
6.2 ELECTION OF OPTIONAL FORMS
6.2.1 By notice to the Administrator at any time prior to a Participant's date
of death and beginning on the first day of the Plan Year in which the
Participant attains age 35, the Participant may elect, in writing not to receive
the normal form of benefit payment otherwise applicable and to receive instead
an optional form of benefit payment provided for in Section 6.1.1. If the
Participant separates from Employment prior to the first day of the Plan Year in
which the Participant attains age 35, the Participant may make such election
beginning on the date he or she separates from Employment. This Section 6.2.1
shall not be applicable if Section 6.1.2 applies to a Participant.
6.2.2 Within a reasonable period, but in any event no less than 30 and no more
than 90 days prior to each Participant's Benefit Commencement Date, the
Administrator shall provide to each Participant a written explanation of the
terms and conditions of a Qualified Joint and Survivor Annuity. Such written
explanation shall consist of:
(A) the terms and conditions of the Qualified Joint and Survivor Annuity;
(B) the Participant's right to make, and the effect of an election to waive
the Qualified Joint and Survivor Annuity;
(C) the rights of the Participant's Spouse under Section 6.2.4;
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(D) the rights to make, and the effect of, a revocation of a previous election
to waive the Qualified Joint and Survivor Annuity; and
(E) the relative values of the various optional forms of benefit under the
Plan.
(F) If the distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may commence less than
30 days after the notice required under Section 1.411(a)-11(c) of the Income
Tax Regulations is given, provided that:
(1) the Plan Administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
The Administrator may, on a uniform and nondiscriminatory basis, provide for
such other notices, information or election periods or take such other action
as the Administrator considers necessary or appropriate to implement the
provisions of this Section 6.2.2
6.2.3 A Participant may revoke his or her election to take an optional form
of benefit, and elect a different form of benefit, at any time prior to the
Participant's Benefit Commencement Date.
6.2.4 The election of an optional benefit by a Participant after December 31,
1984, must also be a waiver of a Qualified Joint and Survivor Annuity by the
Participant. Any waiver of a Qualified Joint and Survivor Annuity shall not
be effective unless (A) the Participant's Spouse consents in writing; (B) the
election designates a specific alternate Beneficiary, including any class of
Beneficiaries or any contingent Beneficiaries which may not be changed
without spousal consent (or the Spouses expressly permits designations by the
Participant without any further spousal consent); (C) the Spouse's consent to
the waiver is witnessed by a Plan representative or notary public; and (D)
the Spouse's consent acknowledges the effect of the election. Additionally, a
Participant's waiver of the Qualified Joint and Survivor Annuity will not be
effective unless the election designates a form of benefit payment which may
not be changed without spousal consent or the Spouse expressly permits
designations without any further spousal consent. Notwithstanding this
consent requirement, if the Participant establishes to the satisfaction of a
Plan representative that such written consent may not be obtained because
there is no Spouse or the Spouse cannot be located, the election will be
deemed effective. Any consent necessary under this provision will not be
valid with respect to any other Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent
to a specific Beneficiary, and a specific form of benefit, where applicable,
and that the Spouse voluntarily elects to relinquish either or both of such
rights. Additionally, a revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time before his or her
Benefit Commencement Date. The number of revocations shall not be limited.
Any new waiver will require a new consent by the electing Participant's
Spouse. No consent obtained under this provision shall be valid unless the
Participant has received notice as provided in this Section.
6.2.5 The election of an optional form of benefit which contemplates the
payment of an annuity shall not be given effect if any person who would
receive benefits under the annuity dies before the Benefit Commencement
Date.
6.3 CHANGE IN FORM OF BENEFIT PAYMENTS
Any former Employee whose payments are being deferred or who is receiving
installment payments may request acceleration or other modification of the
form of benefit distribution, subject to Code Section 401(a)(9), provided
that any necessary consent to such change required pursuant to Section 6.2.4
is obtained from the Employee's Spouse. This Section 6.3 shall not apply to
any Employee who becomes a Participant on or after January 1, 1989 or to
Plans adopted after that date.
6.4 DIRECT ROLLOVERS
6.4.1 The provisions of this Section 6.4 apply only to distributions made on
or after January 1, 1993.
6.4.2 Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 6.4, a
Distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover.
6.4.3 Definitions - All terms used in this Section 6.4 shall have the meaning
set forth below:
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(A) Eligible Rollover Distribution: An Eligible Rollover Distribution is any
distribution of all or any portion of the balance to the credit of the
Distributee, except, that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
(B) Eligible Retirement Plan: An Eligible Retirement Plan is an individual
retirement account described in Code Section 408(a), an individual retirement
annuity described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401 (a) that
accepts the Distributee's Eligible Rollover Distribution. However, in the case
of an Eligible Rollover Distribution to the Surviving Spouse, an Eligible
Retirement Plan is an individual retirement account or individual retirement
annuity.
(C) Distributee: A Distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's Surviving Spouse and the
Employee's or former Employee's Spouse or former Spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the Spouse or former
Spouse.
(D) Direct Rollover: A Direct Rollover is a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
ARTICLE VII
DEATH BENEFITS
7.1 PAYMENT OF ACCOUNT BALANCES
7.1.1 The benefits payable to the Beneficiary of a Participant who dies while
an Employee shall be the Account Balance of all of his or her Accounts
including, if applicable, the proceeds of any life insurance contract in effect
on the Participant's life in accordance with Section 7.3. The benefits payable
to the Beneficiary of a Participant who dies after terminating Employment shall
be the vested Account Balance of all of his or her Accounts. Except as
otherwise provided in this Article VII, a Beneficiary may request that he or
she be paid his or her benefits as soon as practicable after the Participant's
death.
7.1.2 If a Participant dies before distribution of his or her entire interest in
the Plan has been completed, the remaining interest shall, subject to Section
7.2.5, be distributed to the Participant's Beneficiary in the form, at the time
and from among the methods specified in Section 6.1.1 as elected by the
Beneficiary in writing filed with the Administrator. If an election is not
received by the Administrator within 90 days following the date the
Administrator is notified of the Participant's death, the distribution shall be
made, if to a Surviving Spouse, in accordance with Section 7.2.5(B), and, if to
some other Beneficiary, to the Beneficiary in a lump-sum.
7.1.3 The value of the benefits payable to a Beneficiary shall be determined in
accordance with Section 10.6.2. If the value of such death benefit is $3,500 or
less, distribution of such benefit shall be made in a lump-sum as soon as
practicable following the death of the Participant.
7.2 BENEFICIARIES
7.2.1 The Administrator shall provide each Participant, within the period
described in Section 7.2.1(A) for such Participant, a written explanation of the
death benefit in such terms and in such a manner as would be comparable to the
explanation provided for meeting the requirements applicable to a Qualified
Joint and Survivor Annuity. This Section 7.2.1 shall not be applicable if
Section 6.1.2 applies to a Participant.
(A) The period for providing a written explanation of the death benefit for a
Participant ends on the latest of the following to occur:
(i) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year preceding
the Plan Year in which the Participant attains age 35;
(ii) a reasonable period ending after the Employee becomes a Participant; or
(iii) a reasonable period ending after Code Section 417 first applies to the
Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after termination of Employment in case of a Participant who
terminates Employment before attaining age 35 and who has a vested interest in
his or her Account.
(B) For purposes of the preceding paragraph, a reasonable period ending after
the enumerated events described in (ii) and (iii) is the end of the two-year
period beginning one year prior to the date the applicable event occurs and
ending one year after that
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date. A Participant who has a vested interest in his or her Account and who
terminates Employment before the Plan in which age 35 is attained, shall be
provided such notice within the two-year period beginning one year prior to and
ending one year after termination. If such a Participant returns to
Employment, the applicable period for such Participant shall be redetermined.
7.2.2 A Participant shall designate one or more Beneficiaries to whom amounts
due after his or her death, other than under the Qualified Joint and Survivor
Annuity, shall be paid. In the event a Participant fails to make a proper
designation or in the event that no designated Beneficiary survives the
Participant, the Participant's Beneficiary shall be the Participant's Surviving
Spouse, or if the Participant has no Surviving Spouse, the legal representative
of the Participant's estate, as an asset of that estate. A Participant's
Beneficiary shall not have any right to benefits under the Plan unless he or
she shall survive the Participant.
7.2.3 Any designation of a Beneficiary incorporated into an Annuity Contract
or insurance contract shall be governed by the terms of such Annuity Contract
or insurance contract. Any other designation of a Beneficiary must be filed
with the Administrator, in a time and manner designated by such Administrator,
in order to be effective. Any such designation of a Beneficiary may be revoked
by filing a later designation or an instrument of revocation with the
Administrator, in a time and manner designated by the Administrator.
7.2.4 Effective after December 31, 1984, a married Participant whose
designation of a Beneficiary is someone other than his or her Spouse, including
a Beneficiary referred to in the first sentence of Section 7.2.3, or the change
of any such Beneficiary to a new Beneficiary other than the Participant's
Spouse, shall not be valid unless made in writing and consented to by the
Participant's Spouse in such terms and in such a manner as would be comparable
to the consent provided for a waiver of the Qualified Joint and Survivor
Annuity. The Spouse's consent to such designation must be made in the manner
described in Section 6.2.4.
7.2.5 Notwithstanding any other provision of the Plan to the contrary:
(A) If the Participant dies after his or her Benefit Commencement Date, but
before distribution of his or her benefit has been completed, the remaining
portion of such benefit may continue in the form and over the period in which
the distributions were being made, but in any event must continue to be made at
least as rapidly as under the method of distribution being used prior to the
Participant's death.
(B) If the Participant dies leaving a Surviving Spouse before his or her
Benefit Commencement Date, the Participant's benefit shall be payable to the
Participant's Surviving Spouse in the form of an annuity for the life of the
Surviving Spouse. The preceding sentence shall not apply if, within 90 days
following the date the Administrator is notified of the Participant's death,
his or her Surviving Spouse elects, by written notice to the Administrator, any
other form of benefit payment specified in Section 6.1.1, or the such Surviving
Spouse has already consented in a manner described in Section 6.2.4 to a
distribution to an alternate Beneficiary designated by the Participant. If the
Plan is a profit-sharing plan which meets the requirements of Section 6.1.2,
the Surviving Spouse shall receive his or her distribution in the form of a
lump-sum unless she or he elects within 90 days following the date the
Administrator is notified of the Participant's death, any other form of benefit
payment specified in Section 6.1.1, or the Participant's Surviving Spouse has
already consented in a manner described in Section 6.2.4 to a distribution to
an alternate Beneficiary designated by the Participant. If the Participant's
benefit is $3,500 or less, distribution shall be made in the form of a lump-sum
comprised of the assets in the Account immediately prior to the distribution if
the Account consists of Participant-Directed Assets. If the Account does not
consist of Participant-Directed Assets, the distribution shall be in cash.
If the Participant's benefit is distributable in the form of an annuity for the
life of the Surviving Spouse, the Surviving Spouse may elect to have such
annuity distributed immediately.
(C) If the Participant dies before his or her Benefit Commencement Date, the
distribution of the Participant's entire interest shall be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made by the
designated Beneficiary involved to receive distributions in accordance with (i)
or (ii) of this subsection (C) below:
(i) if any portion of the Participant's interest is payable to a designated
Beneficiary who is an individual, distributions may be made in substantially
equal installments over the life or Life Expectancy, as defined in Section
5.11.1(D), of the designated Beneficiary commencing on or before December 31
of the calendar year immediately following the calendar year of the
Participant's death;
(ii) if the designated Beneficiary is the Participant's Surviving Spouse, the
date distributions are required to begin in accordance with (i) of this
subsection (C) shall not be earlier than the later of December 31 of
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the calendar year in which the Participant died and December 31 of the calendar
year in which the Participant would have attained age 65; and
(iii) if the Surviving Spouse dies before payments begin subsequent
distributions shall be made as if the Surviving Spouse had been the Participant.
(D) For purposes of this Section 7.2.5, distribution of a Participant's
interest is considered to begin on the Participant's Required Beginning Date,
as defined in Section 5.11.1(E). If distribution in the form of an annuity
irrevocably commences to the Participant before such Required Beginning Date,
the date distribution is considered to begin is the date distribution actually
commences.
(E) For purposes of this Section 7.2.5, any amount paid to a child of the
Participant will be treated as if it had been paid to the Participant's
Surviving Spouse if the amount becomes payable to such Surviving Spouse when
the child reaches the age of majority.
(F) If the Participant has not made an election pursuant to this Section 7.2.5
by the time of his or her death, the Participant's designated Beneficiary must
elect the method of distribution no later than the earlier of (i) December 31
of the calendar year in which distributions would be required to begin under
this Section or (ii) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the Participant. If the Participant has no
designated Beneficiary, or if the designated Beneficiary does not elect a
method of distribution, distribution of the Participant's entire interest must
be completed by December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
7.3 LIFE INSURANCE
7.3.1 With the consent of the Administrator and upon such notice as the
Administrator may require, a Participant may direct that a portion of his or
her Account be used to pay premiums on life insurance on the Participant's
life; provided, however, that (a) the aggregate premiums paid on ordinary life
insurance must be less than 50% of the aggregate contributions allocated to the
Participant's Employer Accounts, (b) the aggregate premiums paid on term life
insurance contracts, universal life insurance contracts and all other life
insurance contracts which are not ordinary life insurance may not exceed 25% of
the aggregate contributions allocated to the Participant's Employer Account,
and (c) the sum of one-half of the premiums paid on ordinary life insurance and
the total of all other life insurance premiums may not exceed 25% of the
aggregate contributions allocated to the Employer Account of the Participant.
For purposes of these limitations, ordinary life insurance contracts are
contracts with both non-decreasing death benefits and non-increasing premiums.
7.3.2 The Trustee shall be the owner of each life insurance contract purchased
under this Section 7.3 and the proceeds of each such contract shall be payable
to the Trustee, provided that all benefits, rights and privileges under each
contract on the life of a Participant which are available while the Participant
is living shall be exercised by the Trustee only upon and in accordance with
the written instructions of the Participant. The proceeds of all such
insurance on the life of a Participant shall be paid over by the Trustee to the
Participant's Beneficiary in accordance with this Article VII. Under no
circumstances shall the Trustee retain any part of the proceeds.
7.3.3 Any dividends or credits earned on a life insurance contract shall be
applied when received in reduction of any premiums thereon, or, if no premiums
are due, applied to increase the proceeds of the insurance contract.
7.3.4 If a Participant is found by the Administrator to be insurable only at a
substandard premium rate, the policy shall provide a reduced death benefit
using the same premium as would be required if the Participant were a standard
risk, the amount of the death benefit being determined in accordance with the
amount of the rating.
7.3.5 The cash surrender value of an insurance contract to the extent deriving
from Employer or Participant contributions, if any, shall be included,
respectively, in the Account Balance of the Account from which the premiums
were paid. Any death benefits under an insurance contract payable before the
Participant's termination of Employment will be paid to the Trustee for
addition to the relevant Account of the Participant for distribution in
accordance with Section 7.1.
7.3.6 Any other provisions herein to the contrary notwithstanding, the
purchase of life insurance for any Participant shall be subject to such minimum
premium requirements as the Trustee may determined from time to time.
7.3.7 Premiums on life insurance contracts on a Participant's life shall be
paid by the Trustee, unless directed otherwise by the Participant, first from
cash in the Participant's Employer Accounts to the extent thereof, and then
from cash in the Participant's Participant Contributions Accounts, if any, to
the extent thereof. If there is insufficient cash in either Account to pay
premiums due, the Trustee shall
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notify the Participant of this fact. If the Participant does not thereafter
instruct the Trustee to sell sufficient assets in an Account of the Participant
to pay premiums due on a timely basis, the Trustee shall not be obligated to
take any further action with respect to any life insurance contract on the
Participant's life, whether as regards continuing insurance on a paid-up basis,
effecting a reduction of the insurance in force, or otherwise, except at the
direction of the Participant.
7.3.8 Prior to such time as a Participant becomes entitled to receive a
distribution of any benefits under this Plan for any reason other than the
Participant's death, the Trustee shall, pursuant to the written direction of
the Participant delivered to the Administrator within such period of time as is
acceptable to the Administrator, either convert all life insurance contracts on
the Participant's life into cash or an annuity to provide current or future
retirement income to the Participant or distribute the contracts to the
Participant as a part of a benefit distribution; provided, however, that:
(A) the contracts shall not be distributed unless, if the Participant is
married at the time the distribution of the contracts is to be made, and the
Plan is a money purchase pension plan, a target benefit plan or a
profit-sharing plan to which Section 6.1.2 does not apply, the Participant's
Spouse at that time consents to a distribution in the manner prescribed by
Section 6.2.4; and
(B) if the cash value of any contracts at the time they become distributable to
a Participant exceeds a Participant's vested interest in his or her Employer
Accounts at that time, the Participant shall be entitled to receive a
distribution of such contracts only if the Participant promptly pays such
excess in cash by the Trust Fund.
Life insurance contracts on a Participant's life shall not continue to be
maintained under the Plan following the Participant's termination of Employment
or after Employer contributions have ceased.
If a Participant on whose life an insurance contract is held does not make a
timely and proper direction regarding the contract under this Section 7.3.8,
the Participant shall be deemed to have directed that the contract be converted
into cash to be distributed in the manner in which the Participant's benefit is
to be distributed.
7.3.9 Anything contained herein to the contrary notwithstanding, in the event
of any conflict between the terms of the Plan and the terms of any insurance
contract purchased under this Section 7.3, the provisions of the Plan shall
control.
ARTICLE VIII
FIDUCIARIES
8.1 NAMED FIDUCIARIES
8.1.1 The Administrator shall be a "named fiduciary" of the Plan, as that term
is defined in ERISA Section 402(a)(2), with authority to control and manage
the operation and administration of the Plan, other than authority to manage
and control Plan assets.
The Administrator shall also be the "administrator" and "plan administrator"
with respect to the Plan, as those terms are defined in ERISA Section 3(16)(A)
and in Code Section 414(g), respectively.
8.1.2 The Trustee, or Investment Committee if appointed by the Employer, shall
be a "named fiduciary" of the Plan, as that term is defined in ERISA Section
402(a)(2), with authority to manage and control all Trust Fund assets and to
select an Investment Manager or Investment Managers. If Merrill Lynch Trust
Company is the Trustee, it shall be a nondiscretionary trustee; an Investment
Committee shall be appointed and shall be the Employer, who may also remove
such Investment Committee; and the Investment Committee shall be the "named
fiduciary" with respect to Trust Fund assets. Anything in this Section 8.1.2
to the contrary notwithstanding, with respect to Participant-Directed Assets,
the Participant or Beneficiary having the power to direct the investment of
such assets shall be the "named fiduciary" with respect thereto.
8.1.3 The Trustee, or Investment Committee if appointed by the Employer, shall
have the power to make and deal with any investment of the Trust Fund permitted
in Section 10.4, except Participant-Directed Assets or assets for which an
Investment Manager has such power, in any manner which it deems advisable and
shall also:
(A) establish and carry out a funding policy and method consistent with the
objectives of the Plan and the requirements of ERISA;
(B) have the power to select Annuity Contracts, if applicable;
(C) have the power to determine, if applicable, what investments specified in
Section 10.4, including, without limitation, Qualified Employer Securities and
regulated investment company shares, are available as Participant-Directed
Assets; and
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(D) have all the rights, powers, duties and obligations granted or imposed upon
it elsewhere in the Plan.
8.2 EMPLOYMENT OF ADVISERS
A "named fiduciary", with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any "fiduciary" (as defined in ERISA Section 3(4)) appointed by
such a "named fiduciary", may employ one or more persons to render advice with
regard to any responsibility of such "named fiduciary" or "fiduciary" under the
Plan.
8.3 MULTIPLE FIDUCIARY CAPACITIES
Any "named fiduciary" with respect to the Plan (as defined in ERISA Section
402(a)(2)) and any other "fiduciary" (as defined in ERISA Section 3(4)) with
respect to the Plan may serve in more than one fiduciary capacity.
8.4 INDEMNIFICATION
To the extent not prohibited by state or federal law, the Employer agrees to,
and shall indemnify and save harmless, as the case may be, each Administrator
(if a person other than the Employer), Trustee, Investment Committee and/or any
Employee, officer or director of the Employer, or an Affiliate, from all claims
for liability, loss, damage or expense (including payment of reasonable
expenses in connection with the defense against any such claim) which result
from any exercise or failure to exercise any of the indemnified person's
responsibilities with respect to the Plan, other than by reason of gross
negligence.
8.5 PAYMENT OF EXPENSES
8.5.1 All Plan expenses, including without limitation, expenses and fees
(including fees for legal services rendered and fees to the Trustee) of the
Sponsor, Administrator, Investment Manager, Trustee, and any insurance company,
shall be charged against and withdrawn from the Trust Fund; provided, however,
the Employer may pay any of such expenses or reimburse the Trust Fund for any
payment.
8.5.2 All transactional costs or charges imposed or incurred (if any) for
Participant-Directed Assets shall be charged to the Account of the directing
Participant or Beneficiary. Transactional costs and charges shall include, but
shall not be indebted to, charges for the acquisition or sale or exchange of
Participant-Directed Assets, brokerage commissions, service charges and
professional fees.
8.5.3 Any taxes which may be imposed upon the Trust Fund or the income
therefrom shall be deducted from and charged against the Trust Fund.
ARTICLE IX
PLAN ADMINISTRATION
9.1 THE ADMINISTRATOR
9.1.1 The Employer may appoint one or more persons as Administrator, who may
also be removed by the Employer. If any individual is appointed as
Administrator, and the individual is an Employee, the individual will be
considered to have resigned as Administrator if he or she terminates Employment
and at least one other person continues to serve as Administrator. Employees
shall receive no compensation for their services rendered to or as
Administrator.
9.1.2 If more than one person is designated as Administrator, the
Administrator shall act by a majority of its members at the time in office and
such action may be taken either by a vote at a meeting or in writing without a
meeting. However, if less than three members are appointed, the Administrators
shall act only upon the unanimous consent of its members. An Administrator who
is also a Participant shall not vote or act upon any matter relating to himself
or herself, unless such person is the sole Administrator.
9.1.3 The Administrator may authorize in writing any person to execute any
document or documents on the Administrator's behalf, and any interested person,
upon receipt of notice of such authorization directed to it, may thereafter
accept and rely upon any document executed by such authorized person until the
Administrator shall deliver to such interested person a written revocation of
such authorization.
9.2 POWERS AND DUTIES OF THE ADMINISTRATOR
9.2.1 The Administrator shall have the power to construe the Plan and to
determine all questions of fact or interpretation that may arise thereunder,
and any such construction or determination shall be conclusively binding upon
all persons interested in the Plan.
9.2.2 The Administrator shall have the power to promulgate such rules and
procedures, to maintain or cause to be maintained such records and to issue
such forms as it shall deem necessary and proper for the administration of the
Plan.
9.2.3 Subject to the terms of the Plan, the Administrator shall determine the
time and manner in which all elections authorized by the Plan shall be made or
revoked.
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9.2.4 The Administrator shall have all the rights, powers, duties and
obligations granted to or imposed upon it elsewhere in the Plan.
9.2.5 The Administrator shall exercise all of its responsibilities in a
uniform and nondiscriminatory manner.
9.3 DELEGATION OF RESPONSIBILITY
The Administrator may designate persons, including persons other than "named
fiduciaries" (as defined in ERISA Section 402(a)(2)) to carry out the
specified responsibilities of the Administrator and shall not be liable for
any act or omission of a person so designated.
ARTICLE X
TRUSTEE AND INVESTMENT COMMITTEE
10.1 APPOINTMENT OF TRUSTEE AND INVESTMENT COMMITTEE
10.1.1 The Employer shall appoint one or more persons as a Trustee who shall
serve as such for all or a portion of the Trust Fund. By executing the
Adoption Agreement: (i) the Employer represents that all necessary action has
been taken for the appointment of the Trustee; (ii) the Trustee acknowledges
that it accepts such appointment; and (iii) both the Employer and the Trustee
agree to act in accordance with the Trust provisions contained in this
Article X.
10.1.2 An Employee appointed as Trustee or to the Investment Committee shall
receive no compensation for services rendered in such capacity and will be
considered to have resigned if he or she terminates Employment and at least
one other person continues to act as Trustee or as the Investment Committee,
as the case may be. If Merrill Lynch Trust Company is the Trustee, the
Employer shall appoint an Investment Committee and Merrill Lynch Trust
Company shall be a nondiscretionary trustee.
10.1.3 If more than one person is acting as the Trustee, or as an Investment
Committee, such Trustee, or Investment Committee, shall act by a majority of
the persons at the time so acting and such action may be taken either by a
vote at a meeting or in writing without a meeting. If less than three members
are serving, the Trustee or Investment Committee, shall act only upon the
unanimous consent of those serving. The Trustee, or Investment Committee, may
authorize in writing any person to execute any document or documents on its
behalf, and any interested person, upon receipt of notice of such
authorization directed to it, may thereafter accept and rely upon any
document executed by such authorized person until the Trustee, or Investment
Committee, shall deliver to such interested person a written revocation of
such authorization.
10.2 THE TRUST FUND
The Trustee shall receive such sums of money or other property acceptable to
the Trustee which shall from time to time be paid or delivered to the Trustee
under the Plan. The Trustee shall hold in the Trust Fund all such assets,
without distinction between principal and income, together with all property
purchased therewith and the proceeds thereof and the earnings and income
thereon. The Trustee shall not be responsible for, or have any duty to
enforce, the collection of any contributions or assets to be paid or
transferred to it, or for verifying whether contributions or transfers to it
are allowable under the Plan, nor shall the Trustee be responsible for the
adequacy of the Trust Fund to meet or discharge liabilities under the Plan.
10.2.1 The Trustee shall receive in cash or other assets acceptable to
the Trustee, so long as such assets received do not constitute a prohibited
transaction, all contributions paid or delivered to it which are allocable
under the Plan and to the Trust Fund and all transfers paid or delivered
under the Plan to the Trust Fund from a predecessor trustee or another trust
(including a trust forming part of another plan qualified under Code Section
401(a); provided, however, that the Trustee shall not be obligated to receive
any such contribution or transfer unless prior thereto or coincident
therewith, as the Trustee may specify, the Trustee has received such
reconciliation, allocation, investment or other information concerning, or
such direction, contribution or representation with respect to,
the contribution or transfer or the source thereof as the Trustee may
require. The Trustee shall have no duty or authority to (a) require any
contributions or transfers to be made under the Plan or to the Trustee, (b)
compute any amount to be contributed or transferred under the Plan to the
Trustee, or (c) determine whether amounts received by the Trustee comply with
the Plan.
10.2.2 The Trust Fund shall consist of all money and other property received
by the Trustee pursuant to Section 10.2, increased by any income or gains on
or increment in such assets and decreased by any investment loss or expense,
benefit or disbursement paid pursuant to the Plan.
10.3 RELATIONSHIP WITH ADMINISTRATOR
10.3.1 Neither the Trustee, nor the Investment Committee, if any, shall be
responsible in any respect for the administration of the Plan. Payments of
money or property from the Trust Fund shall be made
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by the Trustee upon direction from the Administrator or its designee.
Payments by the Trustee shall be transmitted to the Administrator or its
designee for delivery to the proper payees or to payee addresses supplied by
the Administrator or its designee, and the Trustee's obligation to make such
payments shall be satisfied upon such transmittal. The Trustee shall have no
obligation to determine the identity of persons entitled to payments under
the Plan or their addresses.
10.3.2 Directions from or on behalf of the Administrator or its designee
shall be communicated to the Trustee or the Trustee's designee for that
purpose only in a manner and in accordance with procedures acceptable to the
Trustee. The Trustee's designee shall not, however, be empowered to
implement any such directions except in accordance with procedures acceptable
to the Trustee. The Trustee shall have no liability for following any such
directions or failing to act in the absence of any such directions. The
Trustee shall have no liability for the acts or omissions of any person
making or failing to make any direction under the Plan or the provisions of
this Article X nor any duty or obligation to review any such direction, act
or omission.
10.3.3 If a dispute arises over the propriety of the Trustee making any payment
from the Trust Fund, the Trustee may withhold the payment until the dispute has
been resolved by a court of competent jurisdiction or settled by the parties to
the dispute. The Trustee may consult legal counsel and shall be fully protected
in acting upon the advice of counsel.
10.4 INVESTMENT OF ASSETS
10.4.1 Except as provided in Section 10.4.2, investments of the Trust Fund
shall be made in the following, but only if compatible with the Sponsor's
administrative and operational requirement and framework:
(A) shares of any regulated investment company managed in whole or in part by
the Sponsor or any affiliate of the Sponsor;
(B) any property purchased through the Sponsor or any affiliate of the
Sponsor, whether or not productive of income or consisting of wasting assets,
including, without limitation by specification, governmental, corporate or
personal obligations, trust and participation certificates, leaseholds, fee
titles, mortgages and other interests in realty, preferred and common stocks,
convertible stocks and securities, shares of regulated investment companies,
certificates of deposit, put and call options and other option contracts of
any type, foreign or domestic, whether or not traded on any exchange, futures
contracts and options on futures contracts traded on or subject to the rules
of an exchange which has been designated as a contract market by the
Commodity Futures Trading Commission, an independent U.S. government agency,
contracts relating to the lending of property, evidences of indebtedness or
ownership in foreign corporations or other enterprises, or indebtedness of
foreign governments, group trust participations, limited or general
partnership interests, insurance contracts, annuity contracts, any other
evidences of indebtedness or ownership including oil, mineral or gas
properties, royalty interests or rights (including equipment pertaining
thereto); and
(C) Qualifying Employer Securities or "qualifying employer real properties" (as
that term is defined in ERISA Section 407(d) to the extent permitted in Section
10.4.3).
10.4.2(A) Up to 25% or with the written consent of the Sponsor or its
representative, an additional percentage of each Plan Year's contributions may
be invested in property as specified in Section 10.4.1(B) acquired through a
person other than the Sponsor or an affiliate of the Sponsor.
(B) Except as permitted by Section 10.4.2 and except as may result from a
Rollover Contribution or a trust to trust transfer, without the written consent
of the Sponsor or its representative, property may not be acquired through a
person other than the Sponsor or an affiliate of the Sponsor if following such
acquisitions the value of the property so acquired would exceed 25% of the value
of the Trust Fund.
10.4.3 In its sole discretion, the Investment
Committee, or Trustee if there is no Investment
Committee:
(A) may permit the investment of up to 10% of the Trust Fund in Qualifying
Employer Securities or "qualifying employer real property" (as that term is
defined in ERISA Section 407(d)), to the extent such investment is compatible
with the Sponsor's administrative and operational requirements and framework;
and
(B) may determine, subject to Section 10.4.2, that a percentage of assets in
excess of 10% of the Trust Fund may be invested in Qualifying Employer
Securities or "qualifying employer real property" by a profit-sharing plan.
10.4.4 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the provisions of this Section 10.4.
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10.5 INVESTMENT DIRECTION, PARTICIPANT-DIRECTED ASSETS AND QUALIFYING
EMPLOYER INVESTMENTS
10.5.1
The Trustee, or Investment Committee if appointed, shall manage the
investment of the Trust Fund except insofar as (a) an Investment Manager has
authority to manage Trust assets, or (b) Participant-Directed Assets are
permitted as specified in the Adoption Agreement. Except a required by ERISA,
if an Investment Committee is acting, the Trustee shall invest the Trust Fund
as directed by the Investment Committee, an Investment Manager or a
Participant or Beneficiary, as the case may be, and the Trustee shall have no
discretionary control over, nor any other discretion regarding, the
investment or reinvestment of any asset of the Trust.
Participant-Directed Assets shall be invested in accordance with the
direction of the Participant or, in the event of the Participant's death
before an Account is fully paid out, the Participant's Beneficiary with
respect to the assets involved; provided, however, the Participant-Directed
Assets may not be invested in "collectibles" (as defined in Code Section
408(m)(2)). If there are Participant-Directed Assets, the investment of these
assets shall be made in accordance with such rules and procedures established
by the Administrator which must be consistent with the rules and procedures
of the Sponsor or its affiliate, as the case may be.
10.5.2 With respect to Participant-Directed Assets, neither the
Administrator, the Investment Committee nor the Trustee shall:
(A) make any investments or dispose of any investments without the direction
of the Participant or Beneficiary for whom the Participant-Directed Assets
are maintained, except as provided in Section 8.5 so as to pay fees or
expenses of the Plan;
(B) be responsible for reviewing any investment direction with respect to
Participant-Directed Assets or for making recommendations on acquiring,
retaining or disposing of any assets or otherwise regarding any assets;
(C) have any duty to determine whether any investment is an authorized or
proper one; or
(D) be liable for following any investment direction or for any losses, taxes
or other consequences incurred as a consequence of investments selected by
any Participant or Beneficiary or for holding assets uninvested until it
receives proper instructions.
10.5.3 If Participant-Directed Assets are permitted, a list of the
Participants and Beneficiaries and such information concerning them as the
Trustee may specify shall be provided by the Employer or the Administrator to
the Trustee and/or such person as are necessary for the implementation of the
direction in accordance with the procedure acceptable to the Trustee.
10.5.4 It is understood that the Trustee may, from time to time, have on hand
funds which are received as contributions or transfers to the Trust Fund
which are awaiting investment or funds from the sale of Trust Fund assets
which are awaiting reinvestment. Absent receipt by the Trustee of a direction
from the proper person for the investment or reinvestment of such funds or
otherwise prior to the application of funds in implementation of such a
direction, the Trustee shall cause such funds to be invested in shares of
such money market fund or other short term investment vehicle as the Trustee,
or Investment Committee of appointed, may specify for this purpose from
time to time. Any such investment fund may be sponsored, managed or
distributed by the Sponsor or an affiliate of the Sponsor.
10.5.5 Directions for the investment or reinvestment of Trust assets of a
type referred to in Section 10.4 from the Investment Committee, an Investment
Manager or a Participant or Beneficiary, as the case may be, shall, in a
manner and in accordance with procedures acceptable to the Trustee, be
communicated to and implemented by, as the case may be, the Trustee, the
Trustee's designee or, with the Trustee's consent and if an Investment
Committee is operating, a broker/dealer designated for the purpose by the
Investment Committee. Communication of any such direction to such a designee
or broker/dealer shall conclusively be deemed an authorization to the
designee or broker/dealer to implement the direction even though coming from
a person other than the Trustee. The Trustee shall have no liability for its
or any other person's following such directions or failing to act in the
absence of any such directions. The Trustee shall have no liability for the
acts or omissions of any person directing the investment or reinvestment of
Trust Fund assets or making or failing to make any direction referred to in
Section 10.5.6.
10.5.6 The voting and other rights in securities or other assets held in the
Trust shall be exercised by the Trustee provided, however, that if an
Investment Committee is appointed, the Trustee shall act as directed by such
person who at the time has the right to direct the investment or reinvestment
of the security or other asset involved.
10.5.7 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing
as to
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the manner in which Qualifying Employer Securities are to be voted.
10.5.8 With respect to any Qualifying Employer Securities allocated to an
Account, each Participant shall be entitled to direct the Trustee in writing as
to the manner in which to respond to a tender or exchange offer or other
decisions with respect to the Qualifying Employer Securities.
The Administrator shall utilize its best efforts to timely distribute or cause
to be distributed to each Participant such information received from the Trustee
as will be distributed to shareholders of the Employer in connection with any
such tender or exchange offer or other similar matter or any vote referred to in
Section 10.5.7.
10.5.9 If an Investment Committee is appointed, notwithstanding any provision
hereof to the contrary, in the event the person with the right to direct a
voting or other decision with respect to any security, Qualifying Employer
Securities, or other asset held in the Trust does not communicate any decision
on the matter to the Trustee or the Trustee's designee by the time prescribed by
the Trustee or the Trustee's designee for that purpose or if the Trustee
notifies the Investment Committee, if applicable, either that it does not have
precise information as to the securities, Qualifying Employer Securities, or
other assets involved allocated on the applicable record date to the accounts of
all Participants and Beneficiaries or that time constraints make it unlikely
that Participant, Beneficiary or Investment Manager direction, as the case may
be, can be received on a timely basis, the decision shall be the responsibility
of the Investment Committee and shall be communicated to the Trustee on a timely
basis. In the event an Investment Committee with any right under the Plan to
direct a voting or other decision with respect to any security, Qualifying
Employer Securities, or other asset held in the Trust, does not communicate any
decision on the matter to the Trustee or the Trustee's designee by the time
prescribed by the Trustee for that purpose, the Trustee may, at the cost of the
Employer, retain an Investment Manager with full discretion to make the
decision. Except as required by ERISA, the Trustee shall (a) follow all
directions above referred to in this Section and (b) shall have no duty to
exercise voting or other rights relating to any such security,
Qualifying Employer Security or other asset,
10.5.10 The Administrator shall establish, or cause to be established, a
procedure acceptable to the Trustee for the timely dissemination to each person
entitled to direct the Trustee or its designee as to a voting or other decision
called for thereby or referred to therein of all proxy and other materials
bearing on the decision.
10.5.11 Any person authorized to direct the investment of Trust assets may, if
the Trustee and the Investment Committee, if applicable, so permit, direct the
Trustee to invest such assets in a common or collective trust maintained by the
Trustee for the investment of assets of qualified trusts under section 401(a)
of the Code, individual retirement accounts under section 408(a) of the Code and
plans or governmental units described in section 818(a)(6) of the Code. The
documents governing any such common or collective trust fund maintained by the
Trustee, and in which Trust assets have been invested, are hereby incorporated
into this Article X by reference.
10.6 VALUATION OF ACCOUNTS
10.6.1 A Participant's Accounts shall be valued at fair market value on each
Valuation Date. Subject to Section 10.6.2(A), as of each Valuation Date, the
earnings and losses and expenses of the Trust Fund shall be allocated to each
Participant Account in the ratio that such Account Balance in that category
of Accounts bears to all Account Balances in that category. With respect to
Participant-Directed Assets, the earnings and losses and expenses (including
transactional expenses pursuant to Section 8.5.2) of such
Participant-Directed Assets shall be allocated to the Account of the
Participant or Beneficiary having authority to direct the investment of the
assets in his or her Account.
10.6.2 The Valuation Date with respect to any distributions (including, without
limitation, loan distributions and purchase of annuities) from any Account upon
the occurrence of a Benefit Commencement Date or otherwise, shall be:
(A) with respect to Participant-Directed Asset, the date as of which the Account
distribution is made; and
(B) with respect to other assets, the Valuation Date immediately preceding the
Benefit Commencement Date, if applicable, or immediately preceding the proposed
date of any other distribution from an Account.
With respect to any contribution allocable to an Account which has not been
made as of a Valuation Date determined pursuant to this Section 10.6.2, the
principal amount of such contribution distributable because of the occurrence
of a Benefit Commencement Date shall be distributed as soon as practicable
after the date paid to the Trust Fund.
10.6.3 The assets of the Trust shall be valued at fair market value as
determined by the Trustee based upon such sources of information as it may
deem
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reliable, including, but not limited to, stock market quotations, statistical
evaluation services, newspapers of general circulation, financial
publications, advice from investment counselors or brokerage firms, or any
combination of sources. The recoverable costs incurred in establishing values
of the Trust Fund shall be a charge against the Trust Fund, unless paid by
the Employer.
When the Trustee is unable to arrive at a value based upon information from
independent sources, if may rely upon information from the Employer,
Administrator, Investment Committee, appraisers or other sources, and shall
not incur any liability for inaccurate valuation based in good faith upon
such information.
10.7 INSURANCE CONTRACTS
The Trustee, if an Investment Committee is not appointed, Investment
Committee, or Participant or Beneficiary with respect to Participant-Directed
Assets, may appoint one or more insurance companies to hold assets of the
Plan, and may direct, subject to Section 7.3, the purchase of insurance
contracts or policies from one or more insurance companies with assets of the
Plan. Neither the Investment Committee, Trustee nor the Administrator shall
be liable for the validity of any such contract or policy, the failure of any
insurance company to make any payments or for any act or omission of an
insurance company with respect to any duties delegated to any insurance
company.
10.8 THE INVESTMENT MANAGER
10.8.1 The Trustee, if an Investment Committee is not appointed, Investment
Committee, or the Participant or Beneficiary with respect to
Participant-Directed Assets, may, by an instrument in writing, appoint one or
brokerage Investment Managers, who may be an affiliate of the Merrill Lynch
Trust Company, to direct the Trustee in the investment of all or a specified
portion of the assets of the Trust in property specified in Section 10.4. Any
such Investment Manager shall be directed by the Trustee, if an Investment
Committee is not appointed, Investment Committee, Participant or Beneficiary,
as the case may be, to act in accordance with the procedures referred to in
Section 10.5.5. If appointed, the Investment Committee shall notify the
Trustee in writing before the effectiveness of the appointment or removal of
any Investment Manager. If there is more than one Investment Manager whose
appointment is effective under the plan at any one time, the Trustee shall,
upon written instructions from the Investment Committee, Participant or
Beneficiary, establish separate levels for control by each such Investment
Manager. The funds shall consist of those Trust Fund assets designated by the
Investment Committee, Participant or Beneficiary.
10.8.2 Each person appointed as an investment manager shall be:
(A) an investment adviser registered under the Investment Advisers Act of
1940,
(B) a bank as defined in that Act, or
(C) an insurance company qualified to manage, acquire or dispose of any asset
of the Plan under the laws of more than one state.
10.8.3 Each Investment Manager shall acknowledge in writing that it is a
"fiduciary" (as defined in ERISA Section 3(21)) with respect to the Plan. The
Trustee, or the Investment Committee if appointed, shall enter into an
agreement with each Investment Manager specifying the duties and compensation
of such Investment Manager and the other terms and conditions under which
such Investment Manager shall be retained. Neither the Trustee nor the
Investment Committee, if appointed, shall be liable for any act or omission
of any Investment Manager and shall not be liable for following the advice of
any Investment Manager with respect to any duties delegated to any Investment
Manager.
10.8.4 The Trustee, or Investment Committee if appointed, or the Participant
or Beneficiary, if applicable with respect to Participant-Directed Assets,
shall have the power to determine the amount of Trust Fund assets to be
invested pursuant to the direction of a designated Investment Manager and to
set investment objectives and guidelines for the Investment Manager.
10.8.5 Second Trust Fund. The Employer may appoint a second trustee under the
Plan with respect to assets which the Employer desires to contribute or have
transferred to the Trust Fund, but which the other Trustee does not choose to
accept, provided, however, that if a Merrill Lynch Trust Company is a
Trustee, the consent (which consent may be widespread by its acceptance of
its appointment as Trustee) shall be required. In the event and upon the
effectiveness of the acceptance of the second Trustee's appointment, the
Employer shall be deemed to have created two trust funds under the Plan, each
with its own Trustee, each governed separately by this Article X. Each
Trustee under such an arrangement shall, however, discharge its duties and
responsibilities solely with respect to those assets of the Trust delivered
into its possession and except pursuant to ERISA, shall have no duties,
responsibilities or obligations with respect to property of the other Trust
nor any liability for the acts or omissions of the other Trustee. As a
condition to its consent to the appointment of a second trustee, Merrill
Lynch Trust Company shall assume that recordkeeping
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distribution and reporting procedures are established on a coordinated basis
between it and the second trustee as considered necessary or appropriate with
respect to the Trusts.
10.9 POWERS OF TRUSTEE
10.9.1 At the direction of the person authorized to direct such action as
referred to in Section 10.5.1, but limited to those assets or categories of
assets acceptable to the Trustee as referred to in Section 10.4, or at its
own discretion if no such person is so authorized, the Trustee, or the
Trustee's designee or a broker/dealer as referred to in Section 10.5.5, is
authorized and empowered:
(A) To invest and reinvest the Trust Fund, together with the income
therefrom, in assets specified in Section 10.4;
(B) To deposit or invest all or any part of the assets of the Trust in
savings accounts or certificates of deposit or other deposits in a bank or
savings and loan association or other depository institution, including the
Trustee or any of its affiliates, provided with respect to such deposits with
the Trustee or an affiliate the deposits bear a reasonable interest rate;
(C) To hold, manage, improve, repair and control all property, real or
personal, forming part of the Trust Fund; to sell, convey, transfer,
exchange, partition, lease for any term, even extending beyond the duration
of this Trust, and otherwise dispose of the same from time to time;
(D) To have, respecting securities, all the rights, powers and privileges of
an owner, including the power to give proxies, pay assessments and other sums
deemed by the Trustee necessary for the protection of the Trust Fund; to vote
any corporate stock either in person or by proxy, with or without power of
substitution, for any purpose; to participate in voting trusts, pooling
agreements, foreclosures, reorganizations, consolidations, mergers and
liquidations, and in connection therewith to deposit securities with or
transfer title to any protective or other committee; to exercise or sell
stock subscriptions or conversion rights; and, regardless of any limitation
elsewhere in this instrument relative to investments by the Trustee, to
accept and retain as an investment any securities or other property received
through the exercise of any of the foregoing powers;
(E) Subject to Section 10.5.4 hereof, to hold in cash, without liability for
interest, such portion of the Trust Fund which it is directed to so hold
pending investments, or payment of expenses, or the distribution of benefits;
(F) To take such actions as may be necessary or desirable to protect the
Trust from loss due to the default on mortgages held in the Trust including
the appointment of agents or trustees in such other jurisdictions as may seem
desirable, to transfer property to such agents or trustees, to grant to such
agents such powers as are necessary or desirable to protect the Trust Fund,
to direct such agent or trustee, or to delegate such power to direct, and to
remove such agent or trustee;
(G) To settle, compromise or abandon all claims and demands in favor of or
against the Trust Fund;
(H) To invest in any common or collective trust fund of the type referred to
in Section 10.5.8 hereof maintained by the Trustee;
(I) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws of the
State of New Jersey, so that the powers conferred upon the Trustee herein
shall not be in limitation of any authority conferred by law, but shall be in
addition thereto;
(J) To borrow money from any source and to execute promissory notes,
mortgages or other obligations and to pledge or mortgage any trust assets as
security, subject to applicable requirements of the Code and ERISA; and
(K) To maintain accounts at, execute transactions through, and lend on an
adequately secured basis stocks, bonds or other securities to, any brokerage
or other firm, including any firm which is an affiliate of the Trustee.
10.9.2 To the extent necessary or which it deems appropriate to implement its
powers under Section 10.9.1 or otherwise to fulfill any of its duties and
responsibilities as trustee of the Trust Fund, the Trustee shall have the
following additional powers and authority:
(A) to register securities, or any other property, in its name or in the name
of any nominee, including the name of any affiliate or the nominee name
designated by any affiliate, with or without indication of the capacity in
which property shall be held, or to hold securities in bearer form and to
deposit any securities or other property in a depository or clearing
corporation;
(B) to designate and engage the services of, and to delegate powers and
responsibilities to, such agents, representatives, advisers, counsel and
accountants as the Trustee considers necessary or appropriate, any of whom
may be an affiliate of the Trustee or a person
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who renders services to such an affiliate, and, as a part of its expenses
under this Trust Agreement, to pay their reasonable expenses and compensation;
(C) to make, execute and deliver, as Trustee, any and all deeds, leases,
mortgages, conveyances, waivers, releases or other instruments in writing
necessary or appropriate for the accomplishment of any of the powers listed
in this Trust Agreement; and
(D) generally to do all other acts which the Trustee deems necessary or
appropriate for the protection of the Trust Fund.
10.9.3 The Trustee shall have no duties or responsibilities other than those
specified in the Plan.
10.10 ACCOUNTING AND RECORDS
10.10.1 The Trustee shall maintain or cause to be maintained accurate records
and accounts of all Trust transactions and assets. The records and accounts
shall be available at reasonable times during normal business hours for
inspection or audit by the Administrator, Investment Committee, if appointed,
or any person designated for the purpose by either of them.
10.10.2 Within 60 days following the close of each fiscal year of the Plan or
the effective date of the removal or resignation of the Trustee, the Trustee
shall file with the Administrator a written accounting setting forth all
transactions since the end of the period covered by the last previous
accounting. The accounting shall include a listing of the assets of the Trust
showing the value of such assets at the close of the period covered by the
accounting. On direction of the Administrator, and if previously agreed to by
the Trustee, the Trustee shall submit to the Administrator interim
valuations, reports or other information pertaining to the Trust.
The Administrator may approve the accounting by written approval delivered to
the Trustee or by failure to deliver written objections to the Trustee within
60 days after receipt of the accounting. Any such approval shall be binding
on the Employer, the Administrator, the Investment Committee and, to the
extent permitted by ERISA, all other persons.
10.11 JUDICIAL SETTLEMENT OF ACCOUNTS
The Trustee can apply to a court of competent jurisdiction at any time for
judicial settlement of any matter involving the Plan including judicial
settlement of the Group Trustee's account. If it does so, the Trustee must
give the Administrator the opportunity to participate in the court
proceedings, but the Trustee can also involve other persons. Any expenses the
Trustee incurs in legal proceedings involving the Plan, including attorney's
fees, are chargeable to the Trust Fund as an administrative expense. Any
judgment or decree which may be entered in such a proceeding, shall, subject
to the provision of ERISA, be conclusive upon all persons having or claiming
to have any interest in the Trust Fund or under any Plan.
10.12 RESIGNATION AND REMOVAL OF TRUSTEE
10.12.1 The Trustee may resign at any time upon at least 30 days' written
notice to the Employer.
10.12.2 The Employer may remove the Trustee upon at least 30 days' written
notice to the Trustee.
10.12.3 Upon resignation or removal of the Trustee, the Employer shall
appoint a successor trustee. Upon failure of the Employer to appoint, or the
failure of the effectiveness of the appointment by the Employer of, a
successor trustee by the effective date of the resignation or removal, the
Trustee may apply to any court of competent jurisdiction for the appointment
of a successor.
Promptly after receipt by the Trustee of notice of the effectiveness of the
appointment of the successor trustee: (a) the Trustee shall deliver to the
successor trustee such records as may be reasonably requested to enable the
successor trustee to properly administer the Trust Fund and all property of
the Trust after deducting therefrom such amounts as the Trustee deems
necessary to provide for expenses, taxes, compensation or other amounts due
to or by the Trustee not paid by the Employer prior to the delivery; and (b)
except if the second Trustee is removed or resigns, the Plan will no longer
be considered a prototype plan.
10.12.4 Upon resignation or removal of the Trustee, the Trustee shall have
the right to a settlement of its account, which settlement shall be made, at
the Trustee's option, either by an agreement of settlement between the
Trustee and the Employer or by a judicial settlement in an action instituted
by the Trustee. The Employer shall bear the cost of any such judicial
settlement, including reasonable attorneys fees.
10.12.5 The Trustee shall not be obligated to transfer Trust assets until the
Trustee is provided insurance by the Employer satisfactory to the Trustee
that all fees and expenses reasonably anticipated will be paid.
10.12.6 Upon settlement of the account and transfer of the Trust Fund to the
successor trustees, all rights and privileges under the Trust Agreement shall
vest in the successor trustee and all responsibility and liability of the
Trustee with respect to the Trust and
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assets thereof shall, except as otherwise required by ERISA, terminate subject
only to the requirement that the Trustee execute all necessary documents to
transfer the Trust assets to the successor trustee.
10.13 GROUP TRUST
10.13.1 If elected by the Employer in the Adoption Agreement, the Trustee shall
be the Trustee for this Plan and for each other qualified plan specified in the
Adoption Agreement; provided, however, that such other qualified plan is in
effect pursuant to an Adoption Agreement under this Prototype Plan. Any
reference to Trustee and to the Trust Fund in this Plan shall mean the Trustee
as the trustee of a Group Trust consisting of the assets of each such plan. The
Plan and each other qualified plan specified in the Adoption Agreement shall be
deemed to join in and adopt the Trust as the trust for each such plan. By
executing the Adoption Agreement, the Trustee accepts designation as Trustee of
this Group Trust.
10.13.2 The Trustee shall establish and maintain such accounting records for
each of the Plans as shall be necessary to reflect the interest in the Group
Trust applicable at any time or from time to time to each Plan. No part of
the corpus or income of the Group Trust allocable to an individual Plan may
be used for or diverted to any purposes other than for the exclusive benefit
of Participants and their Beneficiaries entitled to benefits under that Plan.
The allocable interest of a Plan in the Group Trust may not be assigned.
ARTICLE XI
PLAN AMENDMENT OR TERMINATION
11.1 PROTOTYPE PLAN AMENDMENT
11.1.1 The mass submitter, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and any successor thereto, may amend any part of the Prototype Plan. For
purposes of sponsoring organization amendments, the mass submitter shall be
recognized as the agent of the sponsoring organization. If the sponsoring
organization does not adopt the amendments made by the mass submitter, it
will no longer be identical to or a minor modifier of the mass submitter plan.
11.1.2 An Employer shall have the right at any time, by an instrument in
writing, effective retroactively or otherwise, to (A) change the choice of
options in the Adoption Agreement, in whole or in part; (B) add overriding
language in the Adoption Agreement when such language is needed to satisfy
Code Section 415 or Code Section 416 because of the required aggregation of
multiple plans; and (C) add certain model amendments published by the
Internal Revenue Service which specifically provide that their adoption will
not cause the Plan to be treated as individually designed. No such
amendment, however, shall have any of the effects specified in Section
11.2.1. If the adopting Employer amends the Plan or i portions of the
Adoption Agreement except as previously provided, it will no longer
participate in the Prototype Plan, but will be considered to have an
individually designed plan for purposes of qualification under Code Section
401 (a). In the event the Employer is switching from an individually
designed plan or from one prototype plan to another, a list of the Section
"411(d)(6) protected benefits" that must be preserved may be attached, and
such a list would not be considered an amendment to the plan.
11.1.3 This Plan will be recognized as a Prototype Plan by the Sponsor only by
complying with the registration requirements as specified in the Adoption
Agreement.
11.2 PLAN AMENDMENT
11.2.1 Except as provided in Section 11.2.2, no amendment pursuant to Section
11.1 shall:
(A) authorize any part of the Trust Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants or their
Beneficiaries;
(B) decrease the accrued benefits of any Participant or his or her
Beneficiary under the Plan; An amendment which has the effect of (1)
eliminating or reducing an Early Retirement benefit or a retirement-type
subsidy, or (2) eliminating an optional form of benefit payment, with respect
to benefits attributable to service before the amendment shall be treated as
reducing accrued benefits. In the case of a retirement-type subsidy, the
preceding sentence shall apply only with respect to a Participant who
satisfies (either before or after the amendment) the preamendment conditions
for the subsidy. In general, a retirement-type subsidy is a subsidy that
continues after retirement, but does not include a qualified disability
benefit, a medical benefit, a social security supplement, a death benefit
(including life insurance), or a plant shutdown benefit (that does not
continue after retirement age).
(C) reduce the vested percentage of any Participant determined without regard to
such amendment as of the later of the date such amendment is adopted or the date
it becomes effective;
(D) eliminate an optional form of benefit distribution with respect to benefits
attributable to service before the amendment; or
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(E) change the vesting schedule, or in any way amend the Plan to either
directly or indirectly affect the computation of a Participant's vested
percentage, unless each Participant having not less than 3 years of Vesting
Service is permitted to elect, within a reasonable period specified by the
Administrator after the adoption of such amendment, to have his or her vested
percentage computed without regard to such amendment.
For Participants who do not have at least one Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be applied by
substituting "5 Years of Vesting Service" for "3 Years of Vesting Service"
where such language appears. The period during which the election may be made
shall commence with the date the amendment is adopted and shall end on the
later of:
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii) 60 days after the Participant is issued written notice by the
Administrator.
11.2.2 Anything contained in this Section 11.2 to the contrary
notwithstanding, a Participant's benefit may be reduced to the extent permitted
under Code Section 412(c)(8).
11.3 RIGHT OF THE EMPLOYER TO TERMINATE PLAN
11.3.1 The Employer intends and expects that from year to year it will be able
to and will deem it advisable to continue this Plan in effect and to make
contributions as herein provided. The Employer reserves the right, however, to
terminate the Plan with respect to its Employees at any time by an instrument
in writing delivered to the Administrator and the Trustee, or to completely
discontinue its contributions thereto at any time.
11.3.2 The Plan will also terminate: (A) if the Employer is a sole
proprietorship, upon the death of the sole proprietor; (B) if the Employer is a
partnership, upon termination of the partnership; (C) if the Employer is
judicially declared bankrupt or insolvent; (D) upon the sale or other
disposition of all or substantially all of the assets of the business; or (E)
upon any other termination of the business. Any successor to or purchaser of
the Employer's trade or business, after any event specified in the prior
sentence, may continue the Plan, in which case the successor or purchaser will
thereafter be considered the Employer for purposes of the Plan. Such a
successor or purchaser shall execute an appropriate Adoption Agreement if and
when requested by the Administrator.
11.3.3 Anything contained herein to the contrary notwithstanding, if the
Employer fails to attain or retain qualification of the Plan under Code Section
401(a), the Plan will not participate in this Prototype Plan and will, instead,
be considered an individually designed plan for purposes of such qualification.
11.4 EFFECT OF PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS
11.4.1 DETERMINATION OF DATE OF COMPLETE OF PARTIAL TERMINATION. The date of
complete or partial termination shall be established by the Administrator in
accordance with the directions of the Employer (if then in existence) in
accordance with applicable law.
11.4.2 EFFECT OF TERMINATION:
(A) As of the date of a partial termination of the Plan;
(i) the accrued benefit of each affected Participant, to the extent funded,
shall become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid to affected Participants after such date shall not be
taken into account; and
(iv) no contributions by affected Participants shall be required or permitted.
(B) As of the date of the complete termination of the Plan or of a complete
discontinuance of contributions:
(i) the accrued benefit of each affected Participant to the extent funded,
shall become nonforfeitable;
(ii) no affected Participant shall be granted credit based on Hours of Service
after such date;
(iii) Compensation paid after such date shall not be taken into account;
(iv) no contributions by affected Participants shall be required or permitted;
(v) no Eligible Employee shall become a Participant after such date; and
(vi) except as may otherwise be required by applicable law, all obligations
of the Employer and Participating Affiliates to fund the Plan shall terminate.
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(C) All other provisions of the Plan shall remain in effect unless otherwise
amended.
11.4.3 Upon the complete discontinuance of profit-sharing contributions under
the Plan, at the Employer's election, either the Trust Fund shall continue to
be held and distributed as if the Plan had not been terminated (in which case
such Plan shall continue to be subject to all requirements under Title I of
ERISA, and qualification requirements under the Code) or any and all assets
remaining in the Trust Fund as of the date of such termination or
discontinuance, together with any earnings subsequently accruing thereon, shall
be distributed by the Trustee to the Participants at the Administrator's
direction. Upon the complete termination of the Plan, the Trust Fund shall be
distributed to Participants within one year after the date of termination.
If the Plan does not offer an annuity option (purchased from a commercial
provider) and if the Employer or any Affiliate does not maintain another
Defined Contribution Plan (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7)), the Participant's benefit may, without
the Participant's consent, be distributed to the Participant. However, if any
Affiliate maintains another Defined Contribution Plan (other than an employee
stock ownership plan as defined in Code Section 4975(e)(7)), then the
Participant's Account(s) will be transferred, without the Participant's
consent, to the other plan if the participant does not consent to an immediate
distribution. Distributions shall be made in compliance with the applicable
provisions, including restrictions, of Articles VI and VII. The Trust Fund
shall continue in effect until all distributions therefrom are complete. Upon
the completion of such distributions, the Trustee shall be relieved from all
further liability with respect to all amounts so paid or distributed.
11.5 BANKRUPTCY
In the event that the Employer shall at any time be judicially declared
bankrupt or insolvent without any provisions being made for the continuation of
this Plan, the Plan shall be completely terminated in accordance with this
Article XI.
ARTICLE XII MISCELLANEOUS PROVISIONS
12.1 EXCLUSIVE BENEFIT OF PARTICIPANTS
Notwithstanding anything in the Plan to the contrary, the Trust Fund shall be
held for the benefit of all persons who shall be entitled to receive payments
under the Plan. Subject to Section 3.10, it shall be prohibited at any time
for any part of the Trust Fund (other than such part as is required to pay
expenses) to be used for, or diverted to, purposes other than for the exclusive
benefit of Participants or their Beneficiaries.
12.2 PLAN NOT A CONTRACT OF EMPLOYMENT
The Plan is not a contract of Employment, and the terms of Employment of any
Employee shall not be affected in any way by the Plan or related instruments
except as specifically provided therein.
12.3 ACTION BY EMPLOYER
Any action by an Employer which is a corporation shall be taken by the board of
directors of the corporation or any person or persons duly empowered to
exercise the powers of the corporation with respect to the Plan. In the case
of an Employer which is a partnership, action shall be taken by any general
partner of the partnership, and in the case of an Employer which is a sole
proprietorship, action shall be taken by the sole proprietor.
12.4 SOURCE OF BENEFITS
Benefits under the Plan shall be paid or provided for solely from the Trust
Fund, and neither the Employer, any Participating Affiliate, the Trustee, the
Administrator, nor any Investment Manager or insurance company shall assume any
liability under the Plan therefor.
12.5 BENEFITS NOT ASSIGNABLE
Benefits provided under the Plan may not be assigned or alienated, either
voluntarily or involuntarily. In the event that a Participant or Beneficiary
becomes individually liable with respect to any expenses listed in Section 8.5,
the provision of Section 401(a)(13) of the Code shall be applicable with
respect to any claim the Plan may have against the Participant or Beneficiary
individually with respect to such expenses. The preceding sentence shall also
apply to the creation, assignment or recognition of a right to any benefit
payable with respect to a Participant pursuant to a "domestic relations order"
(as defined in Code Section 414(p)) unless such order is determined by the
Administrator to be a "qualified domestic relations order" (as defined in Code
Section 414(p)) or, in the case of a "domestic relations order" entered before
January 1, 1985, if either payment of benefits pursuant to the order has
commenced as of that date or the Administrator decides to treat such order as a
"qualified domestic relations order" within the meaning of Code Section 414(p)
even if it does not otherwise qualify as such.
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12.6 DOMESTIC RELATIONS ORDERS
Any other provision of the Plan to the contrary notwithstanding, the
Administrator shall have all powers necessary with respect to the Plan for
the proper operation of Code Section 414(p) with respect to "qualified
domestic relations orders" (or "domestic relations orders" treated as such)
referred to in Section 12.5, including, but not limited to, the power to
establish all necessary or appropriate procedures, to authorize the
establishment of new accounts with such assets and subject to much investment
control by the Administrator as the Administrator may deem appropriate, and
the Administrator may decide upon and direct appropriate distributions
therefrom.
12.7 CLAIMS PROCEDURE
In the event that a claim by a Participant, Beneficiary, or other person for
benefits under the Plan is denied, the Administrator will so notify the
claimant, giving the reasons for the denial. The notice will also refer to the
specific provisions of the Plan on which the denial was based, will specify
whether any additional information is needed from the Participant or
Beneficiary and will explain the review procedure.
Within 60 days after receiving the denial, the claimant may submit, directly or
through a duly authorized representative, a written request for reconsideration
of the application to the Administrator. Documents or records relied on by the
claimant should be filed with the request. The person making the request may
review relevant documents and submit issues and additional comments in writing.
The Administrator will review the claim within 60 days (or 120 days if a
hearing is held because special circumstances exist) and provide a written
response to the appeal. The response will explain the reasons for the decision
and will refer to the Plan provisions on which the decision is based. The
decision of the Administrator is the final one under this claims procedure.
12.8 RECORDS AND DOCUMENTS; ERRORS
Participants and Beneficiaries must supply the Administrator with such personal
history data as may be required by the Administrator in the operation of the
Plan. Proof of age, when required, must be established by evidence
satisfactory to the Administrator, and the records of the Employer and
Participating Affiliates concerning length of service and compensation may be
accepted by the Administrator as conclusive for the purposes of the Plan.
Should any error in the records maintained under the Plan result in any
Participant or Beneficiary receiving from the Plan more or less than he or she
would have been entitled to receive had the records been correct, the
Administrator, in its discretion, may correct such error and, as far as
practicable, may adjust benefits in such manner that the aggregate value of the
benefit under the Plan shall be the amount to which such Participant or
Beneficiary was properly entitled.
12.9 BENEFITS PAYABLE TO MINORS, INCOMPETENTS AND OTHERS
In the event any benefit is payable to a minor or to a Participant or
Beneficiary declared incompetent by a court having jurisdiction over such
matters and a guardian, committee, conservator or other legal representative of
the estate of such a person is appointed, benefits to which he or she is
entitled shall be paid to the legally appointed person. The receipt by any
such person to whom any such payment on behalf of any Participant or
Beneficiary is made shall be sufficient discharge thereof.
12.10 PLAN MERGER OR TRANSFER OF ASSETS
12.10.1 The merger or consolidation of the Employer with any other person, or
the transfer of the assets of the Employer to any other person, or the merger
of the Plan with any other plan shall not constitute a termination of the Plan
if provision is made for the continuation of the Plan.
12.10.2 The Plan may not merge or consolidate with, or transfer any assets or
liabilities to, any other plan, unless each Participant would (if the Plan had
then terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he or she would have
been entitled to receive immediately before the merger, consolidation or
transfer (if the Plan had then terminated). Any merger or consolidation shall
not constitute a termination of a Plan or require the acceleration of vesting
of Participant's Account Balances.
12.11 PARTICIPATING AFFILIATES
12.11.1 With the consent of the Employer and by duly authorized action, any
Affiliate may adopt the Plan. Such Affiliate shall determine the classes of
its Employees who shall be Eligible Employees and the amount of its
contribution to the Plan on behalf of such Employees.
12.11.2 With the consent of the Employer and by duly authorized action, a
Participating Affiliate may terminate its participation in the Plan or withdraw
from the Plan. Any such withdrawal shall be deemed an adoption by such
Participating Affiliate of a plan and trust identical to the Plan and the
Trust, except
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that all references to the Employer shall be deemed to refer to such
Participating Affiliate. At such time and in such manner as the Employer
directs, the assets of the Trust allocable to Employees of such Participating
Affiliate shall be transferred to the trust deemed adopted by such
Participating Affiliate.
12.11.4 A Participating Affiliate shall have no power with respect to the Plan
except as specifically provided herein.
12.12 CONTROLLING LAW
The Plan is intended to qualify under Code Section 401(a) and to comply with
ERISA, and its terms shall be interpreted accordingly. Otherwise, to the
extent not preempted by ERISA, the laws of the State of New York shall control
the interpretation and performance of the terms of the Plan.
12.13 SINGULAR AND PLURAL AND ARTICLE AND SECTION REFERENCES
As used in the Plan, the singular includes the plural, and the plural includes
the singular, unless qualified by the context. Titles of Articles and Sections
of the Plan are for convenience of reference only and are to be disregarded in
applying the provisions of the Plan. Any reference in this Prototype Plan to
an Article or Section is to the Article or Section so specified of the
Prototype Plan, unless otherwise indicated.
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------------------------------------------
MERRILL LYNCH
-------
SPECIAL
-------
PROTOTYPE DEFINED
CONTRIBUTION PLAN
ADOPTION AGREEMENT
------------------------------------------
401(k) PLAN
EMPLOYEE THRIFT PLAN
PROFIT-SHARING PLAN
Letter Serial Number: D359287b
National Office Letter Date: 6/29/93
THIS PROTOTYPE PLAN AND ADOPTION AGREEMENT ARE IMPORTANT LEGAL INSTRUMENTS
WITH LEGAL AND TAX IMPLICATIONS FOR WHICH THE SPONSOR, MERRILL LYNCH,
PIERCE, FENNER & SMITH, INCORPORATED, DOES NOT ASSUME RESPONSIBILITY. THE
EMPLOYER IS URGED TO CONSULT WITH ITS OWN ATTORNEY WITH REGARD TO THE
ADOPTION OF THIS PLAN AND ITS SUITABILITY TO ITS CIRCUMSTANCES.
<PAGE>
ADOPTION OF PLAN
The Employer named below hereby establishes or restates a profit-sharing plan
that includes a /X/ 401(k), / / profit-sharing and/or / / thrift plan feature
(the "Plan") by adopting the Merrill Lynch Special Prototype Defined
Contribution Plan and Trust as modified by the terms and provisions of this
Adoption Agreement.
EMPLOYER AND PLAN INFORMATION
Employer Name:* U.S. LONG DISTANCE CORP.
Business Address: 9311 SAN PEDRO, SUITE 300
SAN ANTONIO, TX 78216
Telephone Number: (210) 525-6231
Employer Taxpayer ID Number: 721-2522103
Employer Taxable Year ends on: DECEMBER 31ST
Plan Name: U.S. LONG DISTANCE CORP. 401(k) RETIREMENT PLAN
Plan Number : 001
401(k) Profit - Thrift
Sharing
Effective Date of Adoption
or Restatement: 07/01/94
-------- ---------- ---------
Tax Reform Act of 1986
Restatement Date:
-------- ---------- ---------
Original Effective Date: 01/01/92
-------- ---------- ---------
IF THIS PLAN IS A CONTINUATION OR AN AMENDMENT OF A PRIOR PLAN, ALL OPTIONAL
FORMS OF BENEFITS PROVIDED IN THE PRIOR PLAN MUST BE PROVIDED UNDER THIS PLAN
TO ANY PARTICIPANT WHO HAD AN ACCOUNT BALANCE, WHETHER OR NOT VESTED, IN THE
PRIOR PLAN.
- ---------------------------
* If there are any Participating Affiliates in this Plan, list below the
proper name of each Participating Affiliate.
2
<PAGE>
ARTICLE I. DEFINITIONS
A. "COMPENSATION:"
(1) With respect to each Participant, except as provided below, Compensation
shall mean the (select all those applicable for each column):
401(k) AND/ PROFIT
OR THRIFT SHARING
/X/ / / (a) amount reported in the "Wages Tips and Other
Compensation" Box on Form W-2 for the applicable period
selected in Item 5 below.
/ / / / (b) compensation for Code Section 415 safe-harbor
purposes (as defined in Section 3.9.1 (H)(i) of basic
plan document #03) for the applicable period selected
in Item 5 below.
/ / / / (c) amount reported pursuant to Code Section 3401(a) for
the applicable period selected in Item 5 below.
/X/ / / (d) all amounts received (under either option (a) or (b)
above) for personal services rendered to the Employer
but excluding (select all those applicable):
/X/ overtime
/X/ bonuses
commissions
/ / amounts in excess of $_____
/X/ other (specify): ALL OTHER EXTRAORDINARY
COMPENSATION.
(2) Treatment of Elective Contributions (select one):
/X/ (a) For purposes of contributions, Compensation shall include Elective
Deferrals and amounts excludable from the gross income of the
Employee under Code Section 125, Code Section 402(e)(3), Code
Section 402(h) or Code Section 403(b) ("elective contributions").
/ / (b) For purposes of contributions, Compensation shall not include
"elective contributions."
(3) CODA Compensation (select one):
/X/ (a) For purposes of the ADP and ACP Tests, Compensation shall
include "elective contributions."
/ / (b) For purposes of the ADP and ACP Tests, Compensation shall not
include 'elective contributions.'
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(4) With respect to Contributions to an Employer Contributions Account,
Compensation shall include all Compensation (select one):
/ / (a) during the Plan Year in which the Participant enters the Plan.
/X/ (b) after the Participant's Entry Date.
(5) The applicable period for determining Compensation shall be (select one):
/X/ (a) the Plan Year.
/ / (b) the Limitation Year.
/ / (c) the consecutive 12-month period ending on _____.
B. "DISABILITY"
(1) DEFINITION
Disability shall mean a condition which results in the Participant's
(select one):
/X/ (a) inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment that
can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months.
/ / (b) total and permanent inability to meet the requirements of the
Participant's customary employment which can be expected to last
for a continuous period of not less than 12 months.
/ / (c) qualification for Social Security disability benefits.
/ / (d) qualification for benefits under the Employer's long-term
disability plan.
(2) CONTRIBUTIONS DUE TO DISABILITY (select one):
/X/ (a) No contributions to an Employer Contributions Account will be
made on behalf of a Participant due to his or her Disability.
/ / (b) Contributions to an Employer Contributions Account will be made on
behalf of a Participant due to his or her Disability PROVIDED that:
the Employer elected option (a) or (c) above as the definition of
Disability, contributions are not made on behalf of a Highly
Compensated Employee, the contribution is based on the Compensation
each such Participant would have received for the Limitation Year
if the Participant had been paid at the rate of Compensation paid
immediately before his or her Disability, and contributions made on
behalf of such Participant will be nonforfeitable when made.
4
<PAGE>
C "EARLY RETIREMENT" IS (select one):
/X/ (1) not permitted.
/ / (2) permitted if a Participant terminates Employment before Normal
Retirement Age and has (select one):
/ / (a) attained age.
/ / (b) attained age __ and completed __ Years of Service.
/ / (c) attained age __ and completed __ Years of Service
as a Participant.
D. "ELIGIBLE EMPLOYEES" (select one):
/ / (1) All Employees are eligible to participate in the Plan.
/X/ (2) The following Employees are not eligible to participate in the Plan
(select all those applicable):
/X/ (a) Employees included in a unit of Employees covered by a
collective bargaining agreement between the Employer or a
Participating Affiliate and the Employee representatives (not
including any organization more than half of whose members are
Employees who are owners, officers, or executives of the
Employer or Participating Affiliate) in the negotiation of
which retirement benefits were the subject of good faith
bargaining, unless the bargaining agreement provides for
participation in the Plan.
/X/ (b) non-resident aliens who received no earned income from the
Employer or a Participating Affiliate which constitutes income
from sources within the United States.
/ / (c) Employees of an Affiliate.
/ / (d) Employees employed in or by the following specified division,
plant, location, job category or other identifiable individual
or group of Employees.
If item (c) or (d) above is checked, certain employees who are not
Eligible Employees shall become Participants under the following
circumstances: If, in any calendar quarter, there is no day on which
the percentage test described in Internal Revenue Code section
410(b) is met, additional Employees shall become Participants (or,
if an Employee previously became a Participant, shall resume
participation) as of the beginning of the Plan Year, or if later,
the date such Employee would have become a Participant under
Article I, Section E, below. Said Employees shall become
Participants in order of decreasing length of service beginning
with such Employees having the longest service as of the end of
such calendar quarter, until the percentage test is met.
5
<PAGE>
E. "ENTRY DATE"
Entry Date shall mean (select as applicable):
401(k)
and/or Profit-
Thrift Sharing
/ / / / (1) If the initial Plan Year is less than twelve months, the __
day of __ and thereafter:
/ / / / (2) the first day of the Plan Year following the date the
Employee meets the eligibility requirements. If the
Employer elects this option (2) establishing only one
Entry Date, the eligibility "age and service"
requirements elected in Article II must be no more than
age 20-1/2 and 6 months of service.
/ / / / (3) the first day of the month following the date the Employee
meets the eligibility requirements.
/X/ / / (4) the first day of the Plan Year and the first day of the
seventh month of the Plan Year following the date the
Employee meets the eligibility requirements.
/ / / / (5) the first day of the Plan Year, the first day of the fourth
month of the Plan Year, the first day of the seventh
month of the Plan Year, and the first day of the tenth
month of the Plan Year following the date the Employee
meets the eligibility requirements.
/ / / / (6) other:
provided that the Entry Date or Dates selected are no later
than any of the options above.
F. "HOURS OF SERVICE"
Hours of Service for the purpose of determining a Participant's Period of
Severance and Year of Service shall be determined on the basis of the method
specified below:
(1) ELIGIBILITY SERVICE: For purposes of determining whether a Participant
has satisfied the eligibility requirements, the following method shall
be used (select one):
401(k)
and/or Profit-
Thrift Sharing
/ / / / (a) elapsed time method
/X/ / / (b) hourly records method
6
<PAGE>
(2) VESTING SERVICE: A Participant's nonforfeitable interest shall be determined
on the basis of the method specified below (select one):
/ / (a) elapsed time method
/X/ (b) hourly records method
/ / (c) If this item (c) is checked, the Plan only provides for
contributions that are always 100% vested and this item (2) will
not apply.
(3) HOURLY RECORDS: For the purpose of determining Hours of Service under
the hourly record method (select one):
/X/ (a) only actual hours for which an Employee is paid or entitled to
payment shall be counted.
/ / (b) an Employee shall be credited with 45 Hours of Service if such
Employee would be credited with at least 1 Hour of Service during
the week.
G. "INTEGRATION LEVEL"
/X/ (1) This Plan is not integrated with Social Security.
/ / (2) This Plan is integrated with Social Security. The Integration
Level shall be (select one):
/ / (a) the Taxable Wage Base.
/ / (b) $__ (a dollar amount less than the Taxable Wage Base).
/ / (c) __ % of the Taxable Wage Base (not to exceed 100%).
/ / (d) the greater of $10,000 or 20% of the Taxable Wage Base.
H. "LIMITATION COMPENSATION"
For purposes of Code Section 415, Limitation Compensation shall be compensation
as determined for purposes of (select one):
/ / (1) Code Section 415 Safe-Harbor as defined in Section 3.9.1(H)(i) of
basic plan document #03.
/X/ (2) the "Wages, Tips and Other Compensation" Box on Form W-2.
/ / (3) Code Section 3401(a) Federal Income Tax Withholding.
I. "LIMITATION YEAR"
For purposes of Code Section 415, the Limitation Year shall be (select one):
/X/ (1) the Plan Year.
/ / (2) the twelve consecutive month period ending on the ___ day of the
month of ___
7
<PAGE>
J. "NET PROFITS" are (select one):
/X/ (1) not necessary for any contribution.
/ / (2) necessary for (select all those applicable):
/ / (a) Profit-Sharing Contributions.
/ / (b) Matching 401(k) Contributions.
/ / (c) Matching Thrift Contributions.
K. "NORMAL RETIREMENT AGE"
Normal Retirement Age shall be (select one):
/X/ (1) attainment of age 65 (not more than 65) by the Participant.
/X/ (2) attainment of age __ (not more than 65) by the Participant or
the __ anniversary (not more than the 5th) of the first day
of the Plan Year in which the Eligible Employee became a
Participant, whichever is later.
/ / (3) attainment of age __ (not more than 65) by the Participant
or the __ anniversary (not more than the 5th) of the first
day on which the Eligible Employee performed an Hour of
Service, whichever is later.
L. "PARTICIPANT DIRECTED ASSETS" ARE:
401(k) AND/ PROFIT-
OR THRIFT SHARING
/X/ / / (1) permitted.
/ / / / (2) not permitted.
M. "PLAN YEAR"
The Plan Year shall end on the 31st day of December.
N. "PREDECESSOR SERVICE"
Predecessor service will be credited (select one):
/ / (1) only as required by the Plan.
/X/ (2) to include, in addition to the Plan requirements and subject to the
limitations set forth below, service with the following predecessor
employer(s) determined as if such predecessors were the Employer:
See List Attached.
8
<PAGE>
Service with such predecessor employer applies [select either or both (a)
and/or (b) (c) is only available in addition to (a) and/or (b)]:
/X/ (a) for purposes of eligibility to participate;
/X/ (b) for purposes of vesting;
/ / (c) except for the following service.
O. "VALUATION DATE"
Valuation Date shall mean (select one for each column, as applicable):
401(k) and/ Profit-
or Thrift Sharing
/ / / / (1) the last business day of each month.
/ / / / (2) the last business day of each quarter within the Plan
Year.
/ / / / (3) the last business day of each semi-annual period within
the Plan Year.
/ / / / (4) the last business day of the Plan Year.
/X/ / / (5) other: DAILY.
ARTICLE II. PARTICIPATION
PARTICIPATION REQUIREMENTS
An Eligible Employee must meet the following requirements to become a
Participant (select one or more for each column, as applicable):
401(k) and/ Profit-
or Thrift Sharing
/ / / / (1) Performance of one Hour of Service.
/ / / / (2) Attainment of age __(maximum 20 1/2) and completion
of __(not more than 1/2) Years of Service. If this
item is selected, no Hours of Service shall be
counted.
/X/ / / (3) Attainment of age 21 (maximum 21) and completion of
1 Year(s) of Service. If more than one Year of
Service is selected, the immediate 100% vesting
schedule must be selected in Article VII of this
Adoption Agreement.
9
<PAGE>
401(k) and/ Profit-
or Thrift Sharing
/ / / / (4) Attainment of age __ (maximum 21) and completion of
__ Years of Service. If more than one Year of Service
is selected, the immediate 100% vesting schedule must
beselected in Article VII of this Adoption Agreement.
/ / / / (5) Each Employee who is an Eligible Employee on __ will
be deemed to have satisfied the participation
requirements on the effective date without regard to
such Eligible Employee's actual age and/or service.
ARTICLE III. 401(k) CONTRIBUTIONS AND ACCOUNT ALLOCATION
A. ELECTIVE DEFERRALS
If selected below, a Participant's Elective Deferrals will be (select
all applicable):
/X/ (1) a dollar amount or a percentage of Compensation, as
specified by the Participant on his or her 401(k) Election
form, which may not exceed 15% of his or her Compensation.
/ / (2) with respect to bonuses, such dollar amount or
percentage as specified by the Participant on his or
her 401(k) Election form with respect to such bonus.
B. MATCHING 401(k) CONTRIBUTIONS
If selected below, the Employer may make Matching 401(k) Contributions for each
Plan Year (select one):
/X/ (1) Discretionary Formula:
Discretionary Matching 401(k) Contribution equal to such a dollar amount
or percentage of Elective Deferrals, as determined by the Employer, which
shall be allocated (select one):
/ / (a) based on the ratio of each Participant's Elective Deferral for
the Plan Year to the total Elective Deferrals of all
Participants for the Plan Year. If inserted, Matching
401(k) Contributions shall be subject to a maximum
amount of $__________ for each Participant or ______%
of each Participant's Compensation.
10
<PAGE>
/X/ (b) in an amount not to exceed 50% of each Participant's first 6% of
Compensation contributed as Elective Deferrals for the Plan Year. If
any Matching 401(k) Contribution remains, it is allocated to each
such Participant in an amount not to exceed _____% of the next _____%
of each Participant's Compensation contributed as Elective Deferrals
for the Plan Year.
Any remaining Matching 401(k) Contribution shall be allocated to each such
Participant in the ratio that such Participant's Elective Deferral for the
Plan Year bears to the total Elective Deferrals of all such Participants for
the Plan Year. If inserted, Matching 401(k) Contributions shall be subject
to a maximum amount of $ for each Participant or % of each
Participant's Compensation.
/ / (2) Nondiscretionary Formula:
A nondiscretionary Matching 401(k) Contribution for each Plan Year equal to
(select one):
/ / (a) % of each Participant's Compensation contributed as Elective
Deferrals. If inserted, Matching 401(k) Contributions shall be
subject to a maximum amount of $ for each Participant or
% of each Participant's Compensation.
/ / (b) % of the first % of the Participant's Compensation
contributed as Elective Deferrals and % of the next % of the
Participant's Compensation contributed as Elective Deferrals. If
inserted, Matching 401(k) Contributions shall be subject to a maximum
amount of $ for each Participant or % of each
Participant's Compensation.
C. PARTICIPANTS ELIGIBLE FOR MATCHING 401(k) CONTRIBUTION ALLOCATION
The following Participants shall be eligible for an allocation to their
Matching 401(k) Contributions Account (select all those applicable):
/X/ (1) Any Participant who makes Elective Deferrals.
/ / (2) Any Participant who satisfies those requirements elected by the
Employer for an allocation to his or her Employer Contributions
Account as provided in Article IV Section C.
/ / (3) Solely with respect to a Plan in which Matching 401(k) Contributions
are made quarterly (or on any other regular interval that is more
frequent than annually) any Participant whose 401(k) Election is in
effect throughout such entire quarter (or other interval).
11
<PAGE>
D. QUALIFIED MATCHING CONTRIBUTIONS
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select ail those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
/ / (a) all Participants who make Elective Deferrals in that Plan
Year.
/X/ (b) only those Participants who are Nonhighly Compensated
Employees and who make Elective Deferrals for that Plan Year.
(2) Qualified Matching Contributions will be contributed and allocated to
each Participant in an amount equal to (select one):
/ / (a) % of the Participant's Compensation contributed as Elective
Deferrals. If inserted, Qualified Matching Contributions
shall not exceed % of the Participant's Compensation.
/X/ (b) Such an amount, determined by the Employer, which is needed to
meet the ACP Test.
(3) In its discretion, the Employer may elect to designate all or any part
of Matching 401(k) Contributions as Qualified Matching Contributions
that are taken into account as Elective Deferrals - included in the
ADP Test and excluded from the ACP Test - on behalf of (select one):
/ / (a) all Participants who make Elective Deferrals for that Plan
Year.
/X/ (b) Only Participants who are Nonhighly Compensated Employees who
make Elective Deferrals for that Plan Year.
E. QUALIFIED NONELECTIVE CONTRIBUTIONS
If selected below, the Employer may make Qualified Nonelective Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Nonelective
Contributions on behalf of (select one):
/ / (a) all Eligible Participants.
/X/ (b) only Eligible Participants who are Nonhighly Compensated
Employees.
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<PAGE>
(2) Qualified Nonelective Contributions will be contributed and allocated
to each Eligible Participant in an amount equal to (select one):
/ / (a) % (no more than 15%) of the Compensation of each Eligible
Participant eligible to share in the allocation.
/X/ (b) Such an amount determined by the Employer, which is needed
to meet either the ADP Test or ACP Test.
(3) At the discretion of the Employer, as needed and taken into account as
Elective Deferrals included in the ADP Test on behalf of (select one):
/ / (a) all Eligible Participants.
/X/ (b) only those Eligible Participants who are Nonhighly
Compensated Employees.
F. ELECTIVE DEFERRALS USED IN ACP TEST (select one):
/X/ (1) At the discretion of the Employer, Elective Deferrals may be used to
satisfy the ACP Test.
/ / (2) Elective Deferrals may not be used to satisfy the ACP Test.
G. MAKING AND MODIFYING A 401(k) ELECTION
An Eligible Employee shall be entitled to increase, decrease or resume his or
her Elective Deferral percentage with the following frequency during the Plan
Year (select one):
/ / (1) annually.
/ / (2) semiannually.
/X/ (3) quarterly.
/ / (4) monthly
/ / (5) other (specify):
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Elective
Deferrals at any time effective for the payroll period after written notice is
provided to the Administrator.
13
<PAGE>
ARTICLE IV. PROFIT-SHARING CONTRIBUTIONS AND ACCOUNT ALLOCATION
A. PROFIT-SHARING CONTRIBUTIONS
If selected below, the following contributions for each Plan Year will be
made:
Contributions to Employer Contributions Accounts (select one):
/ / (a) Such an amount, if any, as determined by the Employer.
/ / (b) % of each Participant's Compensation.
B. ALLOCATION OF CONTRIBUTIONS TO EMPLOYER CONTRIBUTIONS ACCOUNTS (select
one):
/ / (1) Non-Integrated Allocation
The Employer Contributions Account of each Participant eligible to
share in the allocation for a Plan Year shall be credited with a
portion of the contribution, plus any forfeitures if forfeitures
are reallocated to Participants, equal to the ratio that the
Participant's Compensation for the Plan Year bears to the
Compensation for that Plan Year of all Participants entitled to
share in the contribution.
/ / (2) Integrated Allocation
Contributions to Employer Contributions Accounts with respect to a
Plan Year, plus any forfeitures if forfeitures are reallocated to
Participants, shall be allocated to the Employer Contributions
Account of each eligible Participant as follows:
(a) First, in the ratio that each such eligible Participant's
Compensation for the Plan Year bears to the Compensation
for that Plan Year of all eligible Participants but not in
excess of 3% of each Participant's Compensation.
(b) Second, any remaining contributions and forfeitures will be
allocated in the ratio that each eligible Participant's
Compensation for the Plan Year in excess of the Integration
Level bears to all such Participants' excess Compensation
for the Plan Year but not in excess of 3%.
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<PAGE>
(c) Third, any remaining contributions and forfeitures will be
allocated in the ratio that the sum of each Participant's
Compensation and Compensation in excess of the Integration
Level bears to the sum of all Participants' Compensation
and Compensation in excess of the Integration Level, but
not in excess of the Maximum Profit-Sharing Disparity Rate
(defined below).
(d) Fourth, any remaining contributions or forfeitures will be
allocated in the ratio that each Participant's Compensation
for that year bears to all Participants' Compensation for
that year.
The Maximum Profit-Sharing Disparity Rate is equal to the
lesser of:
(a) 2.7% or
(b) The applicable percentage determined in accordance with the
following table:
IF THE INTEGRATION LEVEL IS
(AS A % OF THE TAXABLE WAGE
BASE ("TWB")) THE APPLICABLE PERCENTAGE IS:
20% (or $10,000 if greater)
or less of the TWB 2-7%
More than 20% (but not less
than $10,001 but not
more than 80% of the TWB 1.3%
More than 80% but not less than
100% of the TWB 2.4%
100% of the TWB 2.7%
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<PAGE>
C. PARTICIPANTS ELIGIBLE FOR EMPLOYER CONTRIBUTION ALLOCATION
The following Participants shall be eligible for an allocation to their
Employer Contributions Account (select all those applicable):
/ / (1) Any Participant who was employed during the Plan Year.
/ / (2) In the case of a Plan using the hourly record method for determining
Vesting Service, and Participant who was credited with a Year of
Service during the Plan Year.
/ / (3) Any Participant who was employed on the last day of the Plan Year.
/ / (4) Any Participant who was on a leave of absence on the last day of
the Plan Year.
/ / (5) Any Participant who during the Plan Year died or became Disabled
while an Employee or terminated employment after attaining Normal
Retirement Age.
/ / (6) Any Participant who was credited with at least 501 Hours of
Service whether or not employed on the last day of the Plan Year.
/ / (7) Any Participant who was credited with at least 1,000 Hours of
Service and was employed on the last day of the Plan Year.
ARTICLE V. THRIFT CONTRIBUTIONS
A. EMPLOYEE THRIFT CONTRIBUTIONS
If selected below, Employee Thrift Contributions, which are required for
Matching Thrift Contributions, may be made by a Participant in an amount
equal to (select one):
/ / (1) A dollar amount or a percentage of the Participant's Compensation
which may not be less than % nor may not exceed % of his or
her Compensation.
/ / (2) An amount not less than % of and not more than % of each
Participant's Compensation.
16
<PAGE>
B. MAKING AND MODIFYING AN EMPLOYEE THRIFT CONTRIBUTION ELECTION
A Participant shall be entitled to increase, decrease or resume his or her
Employee Thrift Contribution percentage with the following frequency during
the Plan Year (select one):
/ / (1) annually
/ / (2) semi-annually
/ / (3) quarterly
/ / (4) monthly
/ / (5) other (specify):
Any such increase, decrease or resumption shall be effective as of the first
payroll period coincident with or next following the first day of each period
set forth above. A Participant may completely discontinue making Employee
Thrift Contributions at any time effective for the payroll period after
written notice is provided to the Administrator.
C. THRIFT MATCHING CONTRIBUTIONS
If selected below, the Employer will make Matching Thrift Contributions for
each Plan Year (select one):
/ / (1) Discretionary Formula:
A discretionary Matching Thrift Contribution equal to such a dollar
amount or percentage as determined by the Employer, which shall be
allocated (select one):
/ / (a) based on the ratio of each Participant's Employee Thrift
Contribution for the Plan Year to the total Employee Thrift
Contributions of all Participants for the Plan Year. If
inserted, Matching Thrift Contributions shall be subject to a
maximum amount of $ for each Participant or % of each
Participant's Compensation.
/ / (b) in an amount not to exceed % of each Participant's
first % of Compensation contributed as Employee Thrift
Contributions for the Plan Year. If any Matching Thrift
Contribution remains, it is allocated to each such Participant
in an amount not to exceed % of the next % of each
Participant's Compensation contributed as Employee Thrift
Contributions for the Plan Year.
Any remaining Matching Thrift Contribution shall be allocated to each
such Participant in the ratio that such Participant's Employee Thrift
Contributions for the Plan Year bears to the total Employee Thrift
Contributions of all such Participants for the Plan Year. If inserted,
Matching Thrift Contributions shall be subject to a maximum amount of
$ for each Participant or % of each Participant's Compensation.
17
<PAGE>
/ / (2) Nondiscretionary Formula:
A nondiscretionary Matching Thrift Contribution for each Plan Year equal
to (select one):
/ / (a) % of each Participant's Compensation contributed as
Employee Thrift Contributions. If inserted, Matching Thrift
Contributions shall be subject to a maximum amount of $
for each Participant or % of each Participant's
Compensation.
/ / (b) % of the first % of the Participant's Compensation
contributed as Employee Thrift Contributions and % of
the next % of the Participant's Compensation contributed
as Employee Thrift Contributions. If inserted, Matching
Thrift Contributions shall be subject to a maximum amount of
$ for each Participant or % of each Participant's
Compensation.
D. QUALIFIED MATCHING CONTRIBUTIONS
If selected below, the Employer may make Qualified Matching Contributions for
each Plan Year (select all those applicable):
(1) In its discretion, the Employer may make Qualified Matching
Contributions on behalf of (select one):
/ / (a) all Participants who make Employee Thrift Contributions.
/ / (b) only those Participants who are Nonhighly Compensated
Employees and who make Employee Thrift Contributions.
(2) Qualified Matching Contributions will be contributed and allocated
to each Participant in an amount equal to:
/ / (a) % of the Participant's Employee Thrift Contributions. If
inserted, Qualified Matching Contributions shall not exceed
% of the Participant's Compensation.
/ / (b) such an amount, determined by the Employer, which is needed to
meet the ACP Test.
ARTICLE VI. PARTICIPANT CONTRIBUTIONS
PARTICIPANT VOLUNTARY NONDEDUCTIBLE CONTRIBUTIONS
Participant Voluntary Nondeductible Contributions are (select one):
/ / (a) permitted.
/X/ (b) not permitted.
18
<PAGE>
ARTICLE VII. VESTING
A. EMPLOYER CONTRIBUTION ACCOUNTS
(1) A Participant shall have a vested percentage in his or her
Profit-Sharing Contributions, Matching 401(k) Contributions and /
or Matching Thrift Contributions, if applicable, in accordance with
the following schedule (Select one):
MATCHING 401(k)
AND/OR MATCHING
THRIFT PROFIT-SHARING
CONTRIBUTIONS CONTRIBUTIONS
- ------------- -------------
/ / / / (a) 100% vesting immediately upon
participation.
/ / / / (b) 100% after (not more than 5) years
of Vesting Service.
/X/ / / (c) Graded vesting schedule:
0% _____% after 1 year of Vesting Service;
25% _____% after 2 years of Vesting Service;
50% _____% (not less than 20%) after 3 years of
Vesting Service;
75% _____% (not less than 40%) after 4 years of
Vesting Service;
100% _____% (not less than 60%) after 5 years
of Vesting Service;
100% _____% (not less than 80%) after 6 years
of Vesting Service;
100% after 7 years of Vesting Service.
19
<PAGE>
(2) Top Heavy Plan
MATCHING 401(k)
AND/OR MATCHING
THRIFT PROFIT-SHARING
CONTRIBUTIONS CONTRIBUTIONS
- ------------- -------------
Vesting Schedule (Select one):
/ / / / (a) 100% vesting immediately upon
participation.
/ / / / (b) 100% after (not more than 3) years of
Vesting Service.
/X/ / / (c) Graded vesting schedule:
0% _____% after I year of Vesting Service;
25% _____% (not less than 20%) after 2 years of
Vesting Service;
50% _____% (not less than 40%) after 3 years of
Vesting Service;
75% _____% (not less than 60%) after 4 years of
Vesting Service;
100% _____% (not less than 80%) after 5 years of
Vesting Service;
100% after 6 years of Vesting Service.
Top Heavy Ratio:
(a) If the adopting Employer maintains or has ever maintained a qualified
defined benefit plan, for purposes of establishing present value to
compute the top-heavy ratio, any benefit shall be discounted only for
mortality and interest based on the following:
Interest Rate: 8%
Mortality Table: UP'84
(b) For purposes of computing the top-heavy ratio, the valuation date shall
be the last business day of each Plan Year.
20
<PAGE>
B. ALLOCATION OF FORFEITURES
Forfeitures shall be (select one from each applicable column):
MATCHING 401(K)
AND/OR MATCHING PROFIT-SHARING
THRIFT CONTRIBUTIONS CONTRIBUTIONS
- -------------------- --------------
/x/ / / (1) used to reduce Employer
contributions for succeeding
Plan Year.
/ / / / (2) allocated in the succeeding Plan
Year in the ratio which the
Compensation of each Participant
for the Plan Year bears to the
total Compensation of all
Participants entitled to share in
the Contributions. If the Plan is
integrated with Social Security,
forfeitures shall be allocated in
accordance with the formula
elected by the Employer.
C. VESTING SERVICE
For purposes of determining Years of Service for Vesting
[select (1) or (2) and/or (3)]:
/x/ (1) All Years of Service shall be included.
/ / (2) Years of Service before the Participant attained age 18 shall
be excluded.
/ / (3) Service with the Employer prior to the effective date of the
Plan shall be excluded.
ARTICLE VIII. DEFERRAL OF BENEFIT DISTRIBUTIONS,
IN-SERVICE WITHDRAWALS AND LOANS
A. DEFERRAL OF BENEFIT DISTRIBUTIONS
401(K) AND/ PROFIT-
OR THRIFT SHARING
----------- -------
/ / / / If this item is checked, a Participant's
vested benefit in his or her Employer
Accounts shall be payable as soon as
practicable after the earlier of: (1) the
date the Participant terminates
Employment due to Disability or (2) the
end of the Plan Year in which a
terminated Participant attains Early
Retirement Age, if applicable, or Normal
Retirement Age.
21
<PAGE>
B. IN-SERVICE DISTRIBUTIONS
/x/ (1) In-service distributions may be made from any of the Participant's
vested Accounts, at any time upon or after the occurrence of the
following events (select all applicable):
/x/ (a) a Participant's attainment of age 59-1/2.
/x/ (b) due to hardships as defined in Section 5.9 of the Plan.
/ / (2) In-service distributions are not permitted.
C. LOANS ARE:
401(K) AND/ PROFIT-
OR THRIFT SHARING
- ----------- -------
/x/ / / (1) permitted.
/ / / / (2) not permitted.
ARTICLE IX. GROUP TRUST
/ / If this item is checked, the Employer elects to establish a Group
Trust consisting of such Plan assets as shall from time to time be
transferred to the Trustee pursuant to Article X of the Plan. The Trust
Fund shall be a Group Trust consisting of assets of this Plan plus assets
of the following plans of the Employer or of an Affiliate:
ARTICLE X. MISCELLANEOUS
A. IDENTIFICATION OF SPONSOR
The address and telephone number of the Sponsor's authorized
representative is 800 Scudders Mill Road, Plainsboro, New Jersey 08536;
(609) 282-2272. This authorized representative can answer inquiries
regarding the adoption of the Plan, the intended meaning of any Plan
provisions, and the effect of the opinion letter.
The Sponsor will inform the adopting Employer of any amendments made
to the Plan or the discontinuance or abandonment of the Plan.
22
<PAGE>
B. PLAN REGISTRATION
1. INITIAL REGISTRATION
This Plan must be registered with the Sponsor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, in order to be considered a
Prototype Plan by the Sponsor. Registration is required so that
the Sponsor is able to provide the Administrator with documents,
forms and announcements relating to the administration of the Plan
and with Plan amendments and other documents, all of which relate
to administering the Plan in accordance with applicable law and
maintaining compliance of the Plan with the law.
The Employer must complete and sign the Adoption Agreement. Upon
receipt of the Adoption Agreement, the Plan will be registered as a
Prototype Plan of Merrill Lynch, Pierce, Fenner & Smith
Incorporated. The Adoption Agreement will be countersigned by an
authorized representative and a copy of the countersigned Adoption
Agreement will be returned to the Employer.
2. REGISTRATION RENEWAL
Annual registration renewal is required in order for the Employer
to continue to receive any and all necessary updating documents.
There is an annual registration renewal fee in the amount set forth
with the initial registration material. The adopting Employer
authorizes Merrill Lynch, Pierce, Fenner & Smith Incorporated, to
debit the account established for the Plan for payment of agreed
upon annual fee; provided, however, if the assets of an account are
invested solely in Participant-Directed Assets, a notice for this
annual fee will be sent to the Employer annually. The Sponsor
reserves the right to change this fee from time to time and will
provide written notice in advance of any change.
C. PROTOTYPE REPLACEMENT PLAN
This Adoption Agreement is a replacement prototype plan for the (1)
Merrill Lynch Special Prototype Defined Contribution Plan and Trust -
401(k) Plan #03-004 and (2) Merrill Lynch Asset Management, Inc.,
Special Prototype Defined Contribution Plan and Trust - 401(k) Plan
Adoption Agreement #03-004.
D. RELIANCE
The adopting Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that
this Plan is qualified under Code Section 401. In order to obtain
reliance, the Employer must apply to the appropriate Key District
Director of the Internal Revenue Service for a determination letter
with respect to the Plan.
23
<PAGE>
EMPLOYER'S SIGNATURE
Name of Employer: U.S. Long Distance Corp. -x-
------------------------------------
By: /s/ DAVID S. HORNE -x-
------------------------------------
Authorized Signature
David S. Horne -x-
------------------------------------
Print Name
V.P., Human Resources -x-
------------------------------------
Title
Dated: 12/12, 1994 -x-
-------------------- ----
TO BE COMPLETED BY MERRILL LYNCH:
SPONSOR ACCEPTANCE:
Subject to the terms and conditions of the Prototype Plan and this Adoption
Agreement, this Adoption Agreement is accepted by Merrill Lynch, Pierce,
Fenner & Smith Incorporated as the Prototype Sponsor.
Authorized Signature: /s/ NAME ILLEGIBLE
--------------------------------------------------
24
<PAGE>
TRUSTEE(S) SIGNATURE
This Trustee Acceptance is to be completed only if the Employer appoints
one or more Trustees and does not appoint a Merrill Lynch Trust Company as
Trustee.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
AS TRUSTEE:
/s/ CARLTON L. COOKE, JR. C. LEE COOKE, JR. -x-
- ----------------------------------- -----------------------------------
(Signature) (print or type name)
/s/ DAVID S. HORNE DAVID S. HORNE -x-
- ----------------------------------- -----------------------------------
(Signature) (print or type name)
/s/ PHILLIP J. STORIN PHILLIP J. STORIN -x-
- ----------------------------------- -----------------------------------
(Signature) (print or type name)
-x-
- ----------------------------------- -----------------------------------
(Signature) (print or type name)
as TRUSTEE
Dated: 12/12, 1994 -x-
----------------------------
25
<PAGE>
MERRILL LYNCH TRUST COMPANY AS TRUSTEE
This Trustee Acceptance and designation of Investment Committee are to be
completed only when a Merrill Lynch Trust Company is appointed as Trustee.
ACCEPTANCE BY TRUSTEE:
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
SEAL MERRILL LYNCH TRUST COMPANY [______________]
BY:
------------------------------
Dated: , 19
-------------------- --
TO BE COMPLETED BY THE EMPLOYER:
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type names):
Name:
----------------------------------------------------------------------
Name:
----------------------------------------------------------------------
Name:
----------------------------------------------------------------------
Name:
----------------------------------------------------------------------
26
<PAGE>
MERRILL LYNCH TRUST COMPANY IS ONE OF THE TRUSTEES
This Trustee Acceptance is to be completed only if, in addition to a
Merrill Lynch Trust Companies as Trustee, the Employer appoints an
additional Trustee of a second trust fund.
The undersigned hereby accept all of the terms, conditions, and obligations
of appointment as Trustee under the Plan. If the Employer has elected a
Group Trust in this Adoption Agreement, the undersigned Trustee(s) shall be
the Trustee(s) of the Group Trust.
AS TRUSTEE
- -------------------------------- -------------------------------------
(Signature) (print or tape name)
Dated: , 19
-------------------- --
SEAL MERRILL LYNCH TRUST COMPANY [______________]
BY:
------------------------------
Dated: , 19
-------------------- --
DESIGNATION OF INVESTMENT COMMITTEE
The Investment Committee for the Plan is (print or type name):
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
27
<PAGE>
EXHIBIT 11.1
U.S. LONG DISTANCE CORP. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Primary Earnings:
Net loss from continuing operations .......$(13,754) $(2,083) $(2,475)
Net income from discontinued operations.... 15,161 14,118 8,565
-------- ------- -------
Net income applicable to common stock......$ 1,407 $12,035 $ 6,090
-------- ------- -------
-------- ------- -------
Shares:
Weighted average number of shares of common
stock outstanding......................... 14,607 13,322 12,602
Weighted average common share equivalents
applicable to stock options and warrants.. 791 1,265 1,467
-------- ------- -------
Weighted average shares used for
computation............................... 15,398 14,587 14,069
-------- ------- -------
-------- ------- -------
Primary earnings per common share:
Net loss from continuing operations........$ (0.89) $ (0.14) $ (0.18)
Income from discontinued operations........ 0.98 0.97 0.61
-------- ------- -------
Net income applicable to common stock......$ 0.09 $ 0.83 $ 0.43
-------- ------- -------
-------- ------- -------
Fully Diluted
Earnings:
Net loss from continuing operations........$(13,754) $(2,083) $(2,475)
Net income from discontinued operations.... 15,161 14,118 8,565
-------- ------- -------
Net income applicable to common stock......$ 1,407 $12,035 $ 6,090
-------- ------- -------
-------- ------- -------
Shares:
Weighted average number of shares of common
stock outstanding......................... 14,607 13,322 12,602
Weighted average common share equivalents
applicable to stock options and warrants.. 866 1,295 1,474
-------- ------- -------
Weighted average shares used for
computation............................... 15,473 14,617 14,076
-------- ------- -------
-------- ------- -------
Fully diluted earnings per common share:
Net loss from continuing operations........$ (0.89) $ (0.14) $ (0.18)
Net income from discontinued operations.... 0.98 0.96 0.61
-------- ------- -------
Net income applicable to common stock......$ 0.09 (a) $ 0.82 (a) $ 0.43 (a)
</TABLE>
- ------------------
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
<PAGE>
Page 1
SUBSIDIARIES OF U.S. LONG DISTANCE CORP.
U.S. Long Distance, Inc. (a Texas corporation)
CalTex Acquisition Corp. (a Texas corporation) - Inactive
USLD Acquisition Corp. II (a Texas corporation) - Inactive
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements (SEC File No. 33-41039, 33-46567,
33-51604, 33-77404, 33-77612, 33-81686, 33-91260, 33-93942 and 333-09723).
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
December 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR U.S. LONG DISTANCE CORP. AND
SUBSIDIARIES AS OF AND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 8,842
<SECURITIES> 0
<RECEIVABLES> 38,386
<ALLOWANCES> 2,519
<INVENTORY> 0
<CURRENT-ASSETS> 50,711
<PP&E> 60,110
<DEPRECIATION> 30,251
<TOTAL-ASSETS> 99,244
<CURRENT-LIABILITIES> 30,638
<BONDS> 10,289
0
0
<COMMON> 153
<OTHER-SE> 58,112
<TOTAL-LIABILITY-AND-EQUITY> 99,244
<SALES> 0
<TOTAL-REVENUES> 180,346
<CGS> 0
<TOTAL-COSTS> 118,493
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 8,388
<INTEREST-EXPENSE> 1,356
<INCOME-PRETAX> (17,104)
<INCOME-TAX> 3,350
<INCOME-CONTINUING> (13,754)
<DISCONTINUED> 15,161
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,407
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
