PROSPECTUS
288,000 Shares
U.S. LONG DISTANCE CORP.
Common Stock
The 288,000 shares (the "Shares") of common stock, par value
$.01 per share (the "Common Stock"), of U.S. Long Distance Corp.
(the "Company") to which this Prospectus relates are being offered
on behalf of and for the account of certain stockholders (the
"Selling Stockholders") of the Company. The Company anticipates
that the Shares will be offered for sale until the earlier of (i)
the sale of all of the Shares, or (ii) the two-year anniversary of
the issuance of the Shares after the effectiveness of this
Registration Statement. The Company has agreed to pay all expenses
of registration in connection with this offering, but will not
receive any of the proceeds from the sale of the Shares being
offered hereby. All fees and disbursements of counsel for each of
the Selling Stockholders, and all brokerage commissions and other
similar expenses incurred by such Selling Stockholders will be
borne by such Selling Stockholders. The aggregate proceeds to the
Selling Stockholders from the sale of the Shares will be the
purchase price of the Shares sold, less the aggregate brokerage
commissions and underwriters' discounts, if any, and other expenses
of issuance and distribution not borne by the Company. See "Use of
Proceeds," "Plan of Distribution" and "Selling Stockholders."
The Common Stock is included in the Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol
"USLD." On February 18, 1997, the last reported sales price for the
Common Stock was $9.6875 per share.
This offering of the Shares is currently not being
underwritten. However, the Selling Stockholders, brokers, dealers
or underwriters that participate with the Selling Stockholders in
the distribution of the Shares may be deemed "underwriters," as
that term is defined in the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by broker-dealers,
agents or underwriters and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Although neither the Company
nor the Selling Stockholders have entered into any arrangement or
underwriting agreement with any broker-dealer or agent, the Shares
being offered hereby, when sales thereof are made, may be made in
one or more transactions (which may involve one or more block
transactions) through customary brokerage channels, either through
brokers acting as brokers or agents for the sellers, or through
dealers or underwriters acting as principals who may resell the
Shares in the Nasdaq National Market or in privately negotiated
sales, or otherwise, or by a combination of such methods of
offering. Each sale may be made either at market prices prevailing
at the time of the sale or at negotiated prices.
If and to the extent required, the specific number of Shares
to be sold, the names of the Selling Stockholders, the purchase
price, the public offering price, the names of any such agents,
dealers or underwriters and any applicable commissions or discounts
with respect to a particular offer will be set forth in an
accompanying Prospectus Supplement.
SEE "RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
MARCH 6, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports,
proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the
Commission may be inspected and copied at the Public Reference
Section of the Commission at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following Regional
Offices of the Commission: Chicago Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of such materials also
may be obtained by mail at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, such materials
filed electronically by the Company with the Commission are
available at the Commission's World Wide Web site at
http://www.sec.gov.
The Common Stock is listed on the Nasdaq National Market, and
reports and other information concerning the Company may be
inspected and copied at the offices of the Nasdaq National Market
at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration
Statement on Form S-3 under the Securities Act with respect to the
Shares of Common Stock offered hereby. As permitted by the rules
and regulations of the Commission, this Prospectus omits certain
information contained in that Registration Statement. For further
information with respect to the Company and the Shares offered
hereby, reference is hereby made to the Registration Statement and
its exhibits and schedules. The Registration Statement may be
inspected without charge at the Public Reference Section of the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained therefrom at
prescribed rates. Statements contained herein concerning provisions
of documents are necessarily summaries of such documents, and each
statement is qualified in its entirety by reference to the copy of
the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission under the Exchange Act are hereby incorporated by
reference in this Prospectus: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1996, and (ii)
the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996.
All reports and other documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares made hereby shall be
deemed to be incorporated by reference herein and to be a part
hereof from the date of filing of such reports and documents. Any
statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus and the Registration Statement of which it is a part to
the extent that a statement contained herein or in a subsequently
filed document modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or
the Registration Statement.
Upon written or oral request, the Company will provide without
charge to each person to whom a copy of this Prospectus is
delivered, a copy of any and all of the documents incorporated
herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to U.S. Long Distance
Corp., 9311 San Pedro, Suite 100, San Antonio, Texas 78216,
Attention: Investor Relations (210) 525-9009.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS OR IN
THE DOCUMENTS INCORPORATED BY REFERENCE.
THE COMPANY
General
U.S. Long Distance Corp. (the "Company") is a fully-integrated
long distance communications company offering an integrated group
of communication services including direct dial long distance,
prepaid calling cards, travel cards, data transmission and calling
center services.
On July 10, 1996, the Company's Board of Directors approved a
plan to spinoff the Company's commercial billing clearinghouse and
information management services business ("Billing Group Business")
as a separate public company (the "Distribution"). To effect the
spinoff, 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 spinoff
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 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. 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 800/888 service,
travel and prepaid calling card services, private line services,
data transmission services, wholesale carrier services and other
customer-specific products.
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.
3
<PAGE>
THE OFFERING
Common Stock Offered by the
Selling Stockholders..................288,000 shares
Percent of Outstanding Common
Stock of the Company held by
the Selling Stockholders..............1.9%(1)
Nasdaq National Market Symbol.........USLD
Use of Proceeds.......................The Company will not receive
any of the proceeds from the
sale of the Shares being
offered hereby
_______________
(1) Percentage indicated is based upon 15,336,614 shares of Common
Stock outstanding as of February 18, 1997.
4
<PAGE>
RISK FACTORS
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND
ITEMS DISCUSSED IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-
LOOKING STATEMENTS. IN ADDITION TO OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, THE FOLLOWING FACTORS COULD CONTRIBUTE TO SUCH
DIFFERENCES. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS AND CAUTIONARY STATEMENTS IN DETERMINING WHETHER
TO PURCHASE SHARES OF COMMON STOCK IN THE OFFERING MADE HEREBY.
ALL FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS
PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE.
SEE "DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS."
GOVERNMENT REGULATION; PROPOSED ACTIONS. The Company's
activities are subject to the regulations of the Federal
Communications Commission (the "FCC") and the public utility
commissions of the various states in which the Company operates.
These regulatory agencies are governed by respective federal or
state legislation, and therefore, any change or modification to
such regulation or legislation can result in positive or negative
effects upon the Company. State and federal regulatory actions
have had, and are expected to continue to have, both positive and
negative effects upon the Company. Decisions by the state or
federal legislative or regulatory bodies with respect to the
permissible business activities or pricing practices of the
Company's dominant competitors, such as American Telephone and
Telegraph Company ("AT&T") and the seven Regional Bell Operating
Companies ("RBOCs"), also may have an adverse impact on the
Company's operations. Moreover, any significant change in
regulations by federal or state governmental agencies could
significantly increase the Company's costs or otherwise have an
adverse effect on the Company's activities and on its expansion
efforts.
ACQUISITION PROGRAM. The Company is actively engaged in an
acquisition program, focusing primarily on acquisitions in the
direct dial long distance industry. 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 program will depend upon, among other things, 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. No
assurance can be given that the Company will succeed in
consummating any additional acquisitions or that the Company will
be able to successfully integrate and manage any acquisitions.
While the Company has, from time to time, had discussions with
direct dial long distance companies, other than as described in the
documents incorporated herein by reference, the Company has no
pending negotiations or agreements for any acquisitions at the date
of this Prospectus.
As consideration for any acquisitions, in addition to or in
lieu of the payment of cash, the Company may issue Common Stock,
preferred stock, convertible debt or other securities that could
result in substantial 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. See
"Description of Capital Stock."
TECHNOLOGICAL CHANGE AND NEW SERVICES. The telecommunications
industry has been characterized by steady technological change,
frequent new service introductions and evolving industry standards.
The Company believes that its future success will depend on its
ability to anticipate such changes and to offer on a timely basis
market responsive services that meet these evolving industry
standards. There can be no assurance that the Company will have
sufficient resources to make the investments necessary to acquire
new technology or to introduce new services that would satisfy an
expanded range of customer needs.
DEPENDENCE UPON THIRD PARTY TRANSMISSION FACILITIES. The
Company currently owns only a portion of the transmission
facilities needed to complete long distance telephone calls.
Therefore, the Company's operator services and direct dial long
distance telephone businesses are dependent upon contractual
arrangements, both long and short-term, with facilities-based
carriers for the transmission of calls. While the Company believes
that it has ample access to transmission facilities at competitive
rates and expects to continue to have such access in the
foreseeable future, this ongoing availability cannot be assured.
5
<PAGE>
SERVICE INTERRUPTIONS; EQUIPMENT FAILURES. The Company's
business requires that transmission and switching facilities and
other equipment be operational 24 hours per day, 365 days per year.
Long distance telephone companies such as the Company on occasion
may experience temporary service interruptions or equipment
failures, in some cases resulting from causes beyond their control.
Any such event experienced by the Company would impair the
Company's ability to service its customers and could have a
material adverse effect on the Company's business.
INCREASED EXPENDITURES FOR ANTICIPATED EXPANSION. To
facilitate and support the growth anticipated in its business, the
Company is significantly expanding its level of operations, and
thus increasing its investments in personnel and facilities. Due
to the increases in the Company's overhead and operating expenses
resulting from this expansion, the Company's operating results may
be adversely affected if its revenues remain flat or do not
increase to the extent expected.
SEASONAL VARIATIONS IN REVENUES. Approximately 95% of the
Company's direct dial long distance revenues are 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
Thanksgiving, Christmas and New Year's 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 historically has 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
quarter, the Company's profitability is also, generally, at its
lowest level for any quarter of the year.
CUSTOMER ATTRITION. The Company believes that a high level of
customer attrition is common in the direct dial long distance and
operator services industries. Although the Company has not
experienced significant attrition in its various businesses, the
Company's historical levels of customer attrition may not be
indicative of future attrition levels, and there can be no
assurance that any steps taken by the Company to counter increased
customer attrition would accomplish the Company's objectives. In
addition, recent acquisitions and consolidations in the
telecommunications industry have resulted in, and may in the future
result in, the loss of customers by the Company because of the
acquisition of these customers by large companies that have
existing contractual relationships with the Company's competitors.
COMPETITION. The long distance telecommunications industry is
intensely competitive and is significantly affected by new service
introductions and the market activities of major industry
participants. Competition in the operator services and direct dial
long distance businesses is based upon pricing, customer service,
network quality and value-added services. In operator services,
the Company competes with AT&T, MCI Telecommunications Corporation
("MCI"), Sprint Incorporated ("Sprint") and approximately 125 other
operator services companies across the continental United States.
AT&T continues to dominate competition in the direct dial long
distance telecommunications market, with other competitors in this
business being MCI and Sprint as well as a large number of regional
and local providers of long distance services. Additionally, the
Telecommunications Act of 1996 allows the RBOCs to compete in the
long distance industry. Some of the Company's competitors have
greater name recognition, more extensive transmission networks and
greater engineering and marketing capabilities than the Company and
have, or have access to, substantially greater financial and
personnel resources than those available to the Company. The
ability of the Company to compete effectively in the
telecommunications industry will depend upon its continued ability
to maintain high quality, market driven services at prices
generally equal to or below those charged by its competitors.
There can be no assurance that the Company will be able to compete
successfully with existing or future competitors.
SHARES ELIGIBLE FOR FUTURE SALE. Upon the sale of all of the
Shares of Common Stock offered hereby, and assuming no further
issuance of shares of Common Stock by the Company, 15,624,614
shares of Common Stock will be outstanding, substantially all of
which will be freely tradeable without restriction (except to the
extent
6
<PAGE>
owned by affiliates of the Company). In addition to the foregoing,
at February 18, 1997, 2,242,696 shares of Common Stock were
issuable upon the exercise of outstanding employee and director
stock options (of which 1,111,046 were exercisable on such date)
and options exercisable for 1,375,077 shares of Common Stock and
grants for 312,000 shares of Common Stock remained available for
grant under the Company's employee and non-employee director stock
option plans and restricted stock plans, respectively. Any shares
issued upon the exercise of stock options may be freely sold in the
public market (except to the extent issued to affiliates of the
Company).
Pursuant to certain telecommunications service agreements, the
Company agreed, among other things, to grant contingent warrants,
exercisable for a period of seven years, to purchase up to an
aggregate of 225,000 shares of the Company's Common Stock at an
exercise price of $3.24 per share. The right to acquire such
shares is contingent upon the respective grantees generating and
causing the Company to bill certain threshold numbers of calls.
The Company has agreed to use its best efforts to register for sale
with the Commission the number of shares, if any, that may be
issued pursuant to the exercise of the contingent warrants.
Any future sales of substantial amounts of Common Stock in the
open market by the Selling Stockholders, by employees or directors
exercising stock options, by stockholders whose shares have been
registered with the Commission by the Company or by other
stockholders may adversely impact the market price of the Common
Stock.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements"
within the meaning of the Section 27A of the Securities Act and
Section 21E of 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 limitation, 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.
7
<PAGE>
THE COMPANY
OTHER THAN HISTORICAL AND FACTUAL STATEMENTS, THE MATTERS AND
ITEMS DISCUSSED HEREIN ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ACTUAL RESULTS OF THE COMPANY MAY DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. CERTAIN FACTORS THAT COULD CONTRIBUTE TO SUCH
DIFFERENCES ARE DISCUSSED IN "RISK FACTORS", WITH THE FORWARD-
LOOKING STATEMENTS THROUGHOUT THIS PROSPECTUS AND IN "DISCLOSURE'S
REGARDING FORWARD-LOOKING STATEMENTS."
GENERAL
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, data transmission and calling
center services.
The long distance telephone industry has changed significantly
since the mandated divestiture by 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 and 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
RBOCs. The Company is actively pursuing its entrance into the
local service industry. The Company is currently certified to
offer local service in four 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. The Company also has
entered into a local resale agreement with BellSouth
Telecommunications for their nine-state service territory.
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 spinoff the Company's Billing Group Business as a separate
public company. To effect the Distribution, the Board approved the
distribution of the outstanding shares of common stock of 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 spinoff 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 December
31, 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 800/888 service, travel and prepaid calling card services,
private line services, data transmission services, wholesale
carrier services and other customer-specific products.
8
<PAGE>
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 December 31, 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 year 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.
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 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 also has customized
prepaid calling cards to be used as promotional marketing tools.
The Company also markets directly 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] 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-
subscriber 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
designation 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, which it took possession of in January 1997.
9
<PAGE>
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 the Company 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 issued 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 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 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 is already
utilizing this service from the local exchange carrier in each
locality. The Company believes that it has the potential to
capitalize on its
10
<PAGE>
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 business 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 upon, among other things, 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.
At December 31, 1996, the Company provided operator services
to approximately 135,900 hotel, motel, hospital and dormitory
rooms. In addition, at December 31, 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 and $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
11
<PAGE>
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
December 31, 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
operator 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 December 31, 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 operations allow it to offer customized
commission programs to its customers as compared to larger operator
services providers.
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
12
<PAGE>
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 phones lines, yet limited number of
customers. These characteristics will allow the Company to quickly
and efficiently enter the local services market in targeted areas.
USE OF PROCEEDS
The Shares being offered hereby are for the account of the
Selling Stockholders. Accordingly, the Company will not receive any
of the proceeds from the sale of the Shares by the Selling
Stockholders. See "Selling Stockholders."
DILUTION
The net tangible book value of the Company at December 31,
1996 was ($45.8) million, or ($3.04) per share. "Net tangible book
value per share" is equal to the Company's total tangible assets
less total liabilities (excluding deferred income taxes), divided
by the number of shares of Common Stock outstanding. Based on an
assumed public offering price of $9.6875 (the closing price of the
Common Stock on the Nasdaq National Market on February 18, 1997),
new investors purchasing shares at the public offering price would
experience an immediate dilution of $6.6475 in net tangible book
value per share.
The following table illustrates the per-share dilution at
December 31, 1996:
Assumed public offering price $9.6875
Net tangible book value $3.04
Assumed dilution to new investors in the offering $6.6475
SELLING STOCKHOLDERS
The following table sets forth the name of each of the Selling
Stockholders and the number of shares that may be offered by each.
The number of Shares that may be actually sold by the Selling
Stockholders will be determined by each Selling Stockholder, and
may depend upon a number of factors, including, among other things,
the market price of the Common Stock. Because each Selling
Stockholder may offer all, some or none of the Shares that each
holds, and because the offering contemplated by this Prospectus is
currently not being underwritten, no estimate can be given as to
the number of Shares that will be held by any Selling Stockholder
upon or prior to termination of this offering. See "Plan of
Distribution." The table below sets forth information as of
February 18, 1997, concerning the beneficial ownership of the
Shares of each Selling Stockholder. All information as to
beneficial owners has been furnished by each of the Selling
Stockholders.
13
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Common Stock Common Stock
Stock Beneficially Owned Offered in Beneficially Owned After
Before Offering The Offering Offering (1)
----------------------------------- ------------ ---------------------
Name Number Percent Number Number Percent
- ---- ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Parris H. Holmes, Jr. 481,219 (2) 3.1 105,000 (3) 376,219 (2) 2.4
Larry M. James 237,568 (4) 1.5 38,000 (5) 199,568 (4) 1.3
W. Audie Long 164,000 (6) 1.1 22,000 (7) 142,000 (6) *
Alan W. Saltzman 163,672 (8) 1.1 23,000 (9) 140,672 (8) *
Neil J. Gaeta 25,500 * 22,500(10) 3,000 *
Jason P. Judge 22,500 * 22,500(10) 0 0
Louis A. Gaeta, Jr. 16,500 * 16,500(10) 0 0
Mathew B. Sellers 21,500(11) * 16,500(10) 5,000(11) *
Jack W. Nicklaus 8,250 * 8,250(10) 0 0
Gary T. Nicklaus 8,250 * 8,250(10) 0 0
Burton W. Lewis 5,500 * 5,500(10) 0 0
____________
* Represents less than 1%.
</TABLE>
(1) Assumes all shares of Common Stock offered hereby are sold.
(2) Includes 245,000 shares that Mr. Holmes has the right to
acquire upon the exercise of stock options, exercisable within 60
days.
(3) Parris H. Holmes, Jr. has been Chairman of the Board of the
Company since September 1986. Mr. Holmes served as Chief Executive
Officer of the Company from September 1986 until August 1996, when
he resigned as Chief Executive Officer to become Chairman of the
Board and Chief Executive Officer of Billing. On July 2, 1996 and
July 16, 1996, the Company issued to Mr. Holmes 55,000 and 50,000
shares of Common Stock, respectively, in connection with grants of
restricted stock under Restricted Stock Award Agreements dated
January 26, 1996 and July 16, 1996, respectively.
(4) Includes 143,000 shares that Mr. James has the right to
acquire upon the exercise of stock options, exercisable within 60
days, and 3,000 shares owned by Mr. James's wife.
(5) Larry M. James has served as Chief Executive Officer and
President of the Company since August 1996 and has been a director
of the Company since February 1991. Mr. James served as Chief
Operating Officer of the Company from February 1991 to August 1996
and was named President of the Company in March 1993. On July 2,
1996 and July 16, 1996, the Company issued to Mr. James 28,000 and
10,000 shares of Common Stock, respectively, in connection with
grants of restricted stock under Restricted Stock Award Agreements
dated December 14, 1995 and July 16, 1996, respectively.
(6) Includes 142,000 shares that Mr. Long has the right to acquire
upon the exercise of stock options, exercisable within 60 days.
(7) W. Audie Long has been General Counsel and Senior Vice
President - Legal Counsel & Regulatory Affairs of the Company since
February 1991 and Corporate Secretary of the Company since August
1993. On July 2, 1996 and July 16, 1996, the Company issued to Mr.
Long 16,000 and 6,000 shares of Common Stock, respectively, in
connection with grants of restricted stock under Restricted Stock
Award Agreements dated December 14, 1995 and July 16, 1996,
respectively.
(8) Includes 103,000 shares that Mr. Saltzman has the right to
acquire upon the exercise of stock options, exercisable within 60
days, and 350 shares owned by Mr. Saltzman's wife.
14
<PAGE>
(9) Alan W. Saltzman was Executive Vice President - Operations,
Billing and Information Management of the Company from May 1993
until August 2, 1996, the effective date of the Distribution. On
July 2, 1996 and July 16, 1996, the Company issued to Mr. Saltzman
16,000 and 7,000 shares of Common Stock, respectively, in
connection with grants of restricted stock under Restricted Stock
Award Agreements dated March 8, 1996 and July 16, 1996,
respectively. Mr. Saltzman now serves as President and Chief
Operating Officer of Billing.
(10) On January 21, 1997, the Company consummated the acquisition
of Omni Communications, Inc., a direct dial long distance telephone
company ("Omni") headquartered in Palm Beach Gardens, Florida and
owned by Neil J. Gaeta (22.5%), Jason P. Judge (22.5%), Louis A.
Gaeta, Jr. (16.5%), Mathew B. Sellers (16.5%), Jack W. Nicklaus
(8.25%), Gary T. Nicklaus (8.25%) and Burton W. Lewis (5.5%). Omni
had revenues of approximately $1.2 million for the year ended
December 31, 1996, and at December 31, 1996, served approximately
540 direct dial long distance customers. In connection with the
acquisition, Omni merged with and into a wholly owned subsidiary of
the Company, with the Omni shareholders receiving an aggregate of
100,000 shares of the Company's Common Stock, 4,500 of which were
deposited in an escrow account to satisfy certain post-closing
obligations of Omni. The Company granted certain registration
rights to the persons receiving its Common Stock in the
acquisition, and pursuant thereto, has registered for sale in the
offering made hereby 100,000 shares of Common Stock. The costs of
this registration (other than brokerage commissions and other
similar expenses) will be paid by the Company. The Company caused
a subsidiary to enter into one-year employment agreements with each
of Jason P. Judge and Neil J. Gaeta, with annual salaries of
$75,000 and $50,000, respectively, in addition to any sales
commissions and/or bonuses that each may receive. These agreements
automatically renew on their respective anniversary dates unless
notice of termination is given. In connection with their
employment, the Company granted to each of Messrs. Judge and Gaeta
an option to purchase 12,500 shares of Common Stock, such options
to vest as to one-third on each anniversary date of the acquisition
of Omni commencing on January 21, 1998.
(11) Includes 1,000 shares owned by Mr. Sellers' wife, Marilyn F.
Witt.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the sale of the
Shares by the Selling Stockholders. The Shares may be sold from
time to time to purchasers directly by each Selling Stockholder.
Alternatively, each Selling Stockholder may sell his Shares in one
or more transactions (which may involve one or more block
transactions) on the Nasdaq National Market, in privately
negotiated transactions or otherwise, or in a combination of such
transactions; each sale may be made either at market prices
prevailing at the time of such sale or at negotiated prices; some
or all of the Shares may be sold through broker-dealers acting as
brokers or agents on behalf of each Selling Stockholder or to
broker-dealers acting as principals for resale by such dealers; and
in connection with such sales, such broker-dealers may receive
compensation in the form of commissions, discounts or fees from
each Selling Stockholder and/or the purchasers of such Shares for
whom they may act as broker or agent. However, none of the Selling
Shareholders nor the Company have entered into any arrangements or
underwriting agreements with any broker-dealer or agent relative to
the Shares to be offered hereby. It is anticipated that each
Selling Stockholder will offer all of the Shares held by him for
sale. All expenses of registration incurred in connection with this
offering are being borne by the Company, but all brokerage
commissions and other similar expenses incurred by each Selling
Stockholder will be borne by such Selling Stockholder.
At the time a particular offer of Shares is made, if and to
the extent required, a supplement to this Prospectus (the
"Prospectus Supplement") will be distributed that will identify and
set forth the aggregate amount of Shares being offered and the
terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any
underwriter for Shares purchased from each Selling Stockholder, any
commissions, discounts and other items constituting compensation
from each Selling Stockholder and any commissions, discounts or
concessions allowed or reallowed or paid to dealers, including the
proposed selling price to the public.
Each Selling Stockholder and any dealer acting in connection
with the offering of any of the Shares or any broker executing or
selling orders on behalf of that Selling Stockholder may be deemed
to be an "underwriter"
15
<PAGE>
within the meaning of the Securities Act, in which event any profit
on the sale of any or all of the Shares and any commissions,
discounts or concessions received by any such dealers or brokers
may be deemed to be underwriting commissions and discounts under
the Securities Act. Any dealer or broker participating in any
distribution of the Shares may be required to deliver a copy of
this Prospectus, including the Prospectus Supplement, if any, to
any person who purchases any of the Shares from or through such
dealer or broker.
Under applicable rules and regulations under the Exchange Act,
any person engaged in a distribution of the Shares may not
simultaneously engage in market making activities with respect to
the Shares for a period of nine business days prior to the
commencement of such distribution. Each Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules
and regulations promulgated thereunder, including, without
limitation, Rules 10b-6 and 10b-7 of the Exchange Act, which
provisions may limit the timing of purchases and sales of the
Shares by such Selling Stockholder.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only
through registered or licensed brokers or dealers. In certain
states, the Shares may not be sold unless the Shares have been
registered and qualify for sale in such state, or unless an
exemption from registration or qualification is available and is
obtained.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company currently consists
of 50,000,000 shares of Common Stock, par value $.01 per share, and
10,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), which is subject to designation and issuance by
the Board in the future. On February 18, 1997, there were
15,336,614 shares of Common Stock outstanding and held of record by
approximately 618 stockholders. There are currently no outstanding
shares of Preferred Stock. At February 18, 1997, there were a
total of 2,585,196 shares of Common Stock reserved for issuance
upon the exercise of outstanding stock options under the Company's
employee stock option plan, director options under the option plan
for non-employee directors, compensation contract options and
certain outstanding warrants.
The following descriptions of capital stock are qualified in
all respects by reference to the Company's Restated Certificate of
Incorporation.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board from funds legally available
therefor. Each share of Common Stock entitles the holder thereof
to one vote upon matters voted upon by the stockholders.
Cumulative voting for the election of directors is not permitted,
which means that the holders of a majority of shares voting for the
election of directors can elect all members of each class of the
Board. Except as otherwise required by applicable Delaware law, a
majority vote is sufficient for any action that requires the vote
or concurrence of stockholders, except that a plurality vote is
sufficient to elect directors.
The holders of Common Stock do not have any preemptive,
subscription, redemption or conversion rights or privileges. Upon
liquidation or dissolution of the Company, the holders of Common
Stock are entitled to share ratably in the net assets of the
Company remaining after payment of liabilities and liquidation
preferences of any outstanding shares of Preferred Stock. All
shares of Common Stock now outstanding are, and the Shares of
Common Stock to be sold by the Selling Stockholders hereby will be,
upon issuance, fully paid and non-assessable.
16
<PAGE>
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the
Board in one or more series, without further stockholder approval
or action, with such designations, powers, limitations,
restrictions, qualifications, rights, preferences and privileges as
the Board may determine.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is
Montreal Trust Company of Canada, Vancouver, B.C., Canada.
INDEMNIFICATION
The Company's Certificate provides that the Company 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 may serve or at any time have served as directors or officers
of another corporation in which the Company at such time owned or
may own shares of stock or of which the Company was or may be a
creditor, and their respective heirs, administrators, successors
and assigns, against any and all expenses, including amounts paid
upon judgments, attorneys' 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 a director or officer of the Company, 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 is
adjudged in any action, suit or proceeding to be liable for his own
negligence or misconduct in the performance of his duties. Such
indemnification shall be in addition to any other rights to which
those indemnified may be entitled under any law, bylaw, amendment,
vote of stockholders or otherwise.
Additionally, the Company shall, to the extent required, and
may, to the extent permitted, by Section 145 of the Delaware
General Corporation Law ("DGCL"), as amended from time to time,
indemnify and reimburse all persons whom it may indemnify and
reimburse pursuant thereto. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or
proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company as authorized in Section
145(e) of the DGCL. The indemnification provided for in the
Certificate is not exclusive of any other rights to which those
entitled to receive indemnification or reimbursement thereunder may
be entitled.
LIMITATION OF LIABILITY
Section 102 of the DGCL authorizes a Delaware corporation to
include a provision in its certificate of incorporation limiting or
eliminating the personal liability of its directors to the
corporation and its stockholders for monetary damages for breach of
directors' fiduciary duty of care. The duty of care requires that,
when acting on behalf of the corporation, directors exercise an
informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by
such provision, directors are accountable to corporations and their
stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Although Section
102 of the DGCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable
remedies such as injunction or rescission. Pursuant to such
provision, the Company adopted an amendment to its Certificate at
the 1993 Annual Meeting of Stockholders limiting the personal
liability of directors of the Company (in their capacity as
directors but not in their capacity as officers) to the Company or
its stockholders to the fullest extent permitted by the DGCL. As
a result, a director of the Company may not be held personally
liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for (i) any breach
of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing
17
<PAGE>
violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions, and (iv) any
transaction from which the director derived an improper personal
benefit.
The adoption of this provision may have the effect of reducing
the likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a
lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have
benefitted the Company and its stockholders. However, the adoption
of this provision, together with the provision described above that
requires the Company to indemnify its officers and directors
against certain liabilities, is intended to enable the Company to
attract qualified persons to serve as directors who might otherwise
be reluctant to do so.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed
upon for the Company by Arter & Hadden, Dallas, Texas.
18
<PAGE>
=================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------------------
TABLE OF CONTENTS
-----------------
Page
Available Information 2
Incorporation of Certain Documents
by Reference 2
Prospectus Summary 3
Risk Factors 5
Disclosure Regarding Forward-Looking
Statement 7
The Company 8
Use of Proceeds 13
Dilution 13
Selling Stockholders 13
Plan of Distribution 15
Description of Capital Stock 16
Legal Matters 18
=================================================================
288,000 SHARES
U.S. LONG DISTANCE CORP.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
March 6, 1997
-----------------------
