-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0Qmv0gSDGtHHk1EvxXkmbOHuuapCoRk2yWCQXKlm5dCzRuzIhWqM9yDCjryEgXR zQeKl2wc2yZBXEjZw9Rs9w== 0000912057-96-009459.txt : 19960607 0000912057-96-009459.hdr.sgml : 19960607 ACCESSION NUMBER: 0000912057-96-009459 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BILLING INFORMATION CONCEPTS INC CENTRAL INDEX KEY: 0001013706 STANDARD INDUSTRIAL CLASSIFICATION: FILING VALUES: FORM TYPE: 10-12G SEC ACT: 1934 Act SEC FILE NUMBER: 000-28536 FILM NUMBER: 96563158 BUSINESS ADDRESS: STREET 1: 9311 SAN PEDRO STREET 2: STE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78216 MAIL ADDRESS: STREET 1: 9311 SAN PEDRO STREET 2: STE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-12B 1 10-12B AS FILED WITH THE SECURITIES EXCHANGE COMMISSION ON MAY 14, 1996 REGISTRATION NO. 0- - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ BILLING INFORMATION CONCEPTS CORP. (Exact name of registrant as specified in its charter) DELAWARE 74-2781950 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9311 SAN PEDRO, SUITE 400, SAN ANTONIO, TEXAS 78216 (Address of principal executive offices) (Zip Code)
(210) 348-8188 Registrant's Telephone Number, Including Area Code ------------------------ Securities to be Registered Pursuant to Section 12(b) Of the Act: Name of each exchange on which Title of each class to be registered: each class is to be registered: NONE NOT APPLICABLE
Securities to be Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class) SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS (INITIALLY CARRIED AND TRADED WITH THE COMMON STOCK) (Title of Class) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- BILLING INFORMATION CONCEPTS, CORP. CROSS REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10 ITEM 1. BUSINESS The information required by this item is contained under "Summary"; "Management's Discussion and Analysis of Financial Condition and Results of Operations"; and "Business" of the Information Statement (the "Information Statement") attached hereto as Exhibit 99.1. Those sections are incorporated herein by reference. ITEM 2. FINANCIAL INFORMATION The information required by this item is contained under "Summary"; "Pro Forma Condensed Consolidated Balance Sheet"; "Selected Historical Financial Data"; and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Information Statement. Those sections are incorporated herein by reference. ITEM 3. PROPERTIES The information required by this item is contained under "Business" of the Information Statement. That section is incorporated herein by reference. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is contained under "Security Ownership of Certain Beneficial Owners and Management" of the Information Statement. That section is incorporated herein by reference. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS The information required by this item is contained under "Management" and "Liability and Indemnification of Officers and Directors" of the Information Statement. Those sections are incorporated herein by reference. ITEM 6. EXECUTIVE COMPENSATION The information required by this item is contained under "Executive Compensation" of the Information Statement. That section is incorporated herein by reference. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is contained under "Summary"; "The Distribution"; "Preliminary Transactions"; "Relationship Between Billing and USLD After the Distribution"; "Management"; "Executive Compensation"; and "Liability and Indemnification of Officers and Directors" of the Information Statement. Those sections are incorporated herein by reference. ITEM 8. LEGAL PROCEEDINGS The information required by this item is contained under "Business" of the Information Statement. That section is incorporated herein by reference. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information required by this item is contained under "Summary"; "The Distribution"; and "Description of Capital Stock" of the Information Statement. Those sections are incorporated herein by reference. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES The only securities of Billing Information Concepts Corp. ("Billing") that are outstanding were issued to U.S. Long Distance Corp. ("USLD") in connection with the organization of Billing and the Preliminary Transactions in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. Certain information required by this item is contained under "Preliminary Transactions." R-2 ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED The information required by this item is contained under "Description of Capital Stock" and "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law" of the Information Statement. Those sections are incorporated herein by reference. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The information required by this item is contained under "Liability and Indemnification of Officers and Directors" of the Information Statement. That section is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is contained under "Summary"; "Pro Forma Condensed Consolidated Balance Sheet"; "Selected Historical Financial Data"; "Management's Discussion and Analysis of Financial Condition and Results of Operations"; and "Index to Financial Statements" of the Information Statement. Those sections are incorporated herein by reference. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this item is not applicable. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS (a) See "Index to Financial Statements" on page F-1 of the Information Statement (1) Financial Statement Schedules: None (b) Exhibits (1) See "Index to Exhibits" on page R-6 of this Form 10 R-3 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. BILLING INFORMATION CONCEPTS CORP. (Registrant) By: /s/ ALAN W. SALTZMAN ----------------------------------- Alan W. Saltzman, President Date: May 13, 1996 R-4 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBITS PAGE - - ---------- --------------------------------------------------------------------------------------- --------------- 3.1 -- Form of Amended and Restated Certificate of Incorporation of Billing (filed herewith) 3.2 -- Form of Bylaws of Billing (filed herewith) 4.1 -- Form of Stock Certificate of Common Stock (See also Exhibits 3.1 and 3.2)* 8.1 -- Form of the Tax Opinion of Arter & Hadden (filed herewith) 10.1 -- Form of Distribution Agreement between USLD and Billing (filed herewith) 10.2 -- Form of Tax Sharing Agreement between USLD and Billing (filed herewith) 10.3 -- Form of Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing (filed herewith) 10.4 -- Form of Transitional Services and Sublease Agreement between USLD and Billing* 10.5 -- Form of Zero Plus -- Zero Minus Billing and Information Management Services Agreement between USLD and Billing (filed herewith) 10.6 -- Form of Expense Sharing Agreement between USLD and Billing* 10.7 -- Form of Telecommunications Agreement between USLD and Billing (filed herewith) 10.8 -- Form of Billing's 1996 Employee Comprehensive Stock Plan (filed herewith) 10.9 -- Form of Billing's 1996 Non-Employee Director Plan (filed herewith) 10.10 -- Form of Billing's 1996 Employee Stock Purchase Plan (filed herewith) 10.11 -- Form of Billing's 401(k) Retirement Plan* 10.12 -- Form of Billing's Executive Compensation Deferral Plan (filed herewith) 10.13 -- Form of Billing's Director Compensation Deferral Plan (filed herewith) 10.14 -- Form of Billing's Executive Qualified Disability Plan (filed herewith) 10.15 -- Form of Employment Agreement to be entered into between Billing and Parris H. Holmes, Jr.* 10.16 -- Form of Employment Agreement to be entered into between Billing and Alan W. Saltzman* 10.17 -- Form of Employment Agreement to be entered into between Billing and Kelly E. Simmons* 10.18 -- Amended and Restated Loan and Security Agreement dated May 22, 1991 between Zero Plus Dialing Inc. ("ZPDI"), U.S. Long Distance, Inc. ("USLDI"), U.S. Long Distance Corp. ("USLD") and Bell Atlantic Capital Corp. (f/k/a Bell Atlantic -- Tricon Leasing Corporation and currently FINOVA Capital Corporation) ("Lender"); Revolving Credit Note dated May 24, 1991 payable by ZPDI to the order of Lender; Replacement Term Note dated May 24, 1991 payable by USLDI to the order of Lender; First Amendment and Joinder to Amended and Restated Loan and Security Agreement dated December 28, 1992 among ZPDI, USLD, USLDI, U.S. Billing, Inc. ("USBI") and Lender; Second Amendment to Amended and Restated Loan and Security Agreement dated April 2, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Third Amendment to Amended and Restated Loan and Security Agreement dated October 15, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Fourth Amendment and Joinder to
R-5
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBITS PAGE - - ---------- --------------------------------------------------------------------------------------- --------------- Amended and Restated Loan and Security Agreement dated October 1, 1993 among ZPDI, USLD, USLDI, USBI, USLD Acquisition Corp. ("USAcq") and Lender; Fifth Amendment and Joinder to Amended and Restated Loan and Security Agreement dated November 16, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS Telecommunications, Inc. ("STS") and Lender; Sixth Amendment to Amended and Restated Loan and Security Agreement dated December 7, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS and Lender; Seventh Amendment to Amended and Restated Loan and Security Agreement dated March 17, 1994 among ZPDI, USLD, USLDI, USBI, USAcq, STS, Enhanced Services Billing, Inc. ("ESBI"), California Acquisition Corp. ("CAC") and Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLDI for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by ZPDI for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender; Corporate Guaranty dated October 1993 executed by USAcq for the benefit of Lender; Corporate Guaranty dated November 1993 executed by STS for the benefit of Lender; Corporate Guaranty executed by Telecom Acquisition Corp. for the benefit of Lender; Corporate Guaranty executed by ESBI for the benefit of Lender; Corporate Guaranty executed by CAC for the benefit of Lender; Escrow and Disbursing Agreement dated May 24, 1991 among ZPDI, Lender and Texas Commerce Bank, N.A. (filed herewith) 21.1 -- List of Subsidiaries (filed herewith) 23.1 -- Consent of Arter & Hadden (to be included in their opinion to be filed as Exhibit 8.1) 27.1 -- Financial Data Schedule (filed herewith) 99.1 -- Schedule 14C Information Statement of U.S. Long Distance Corp. (filed herewith)
- - ------------------------ * To be filed by amendment R-6 EX-3.1 2 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BILLING INFORMATION CONCEPTS CORP. This document constitutes an amendment and restatement of the original Certificate of Incorporation of BILLING INFORMATION CONCEPTS CORP. which was filed with the Secretary of State of Delaware on April 26, 1996. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 245(c) of the Delaware General Corporation Law and shall become effective at midnight on ________________, 1996. ARTICLE I. NAME The name of the corporation (the "corporation") is BILLING INFORMATION CONCEPTS CORP. ARTICLE II. ADDRESS OF REGISTERED OFFICE, NAME OF REGISTERED AGENT The address, including street, number, city and county, of the registered office of the corporation in the State of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle 19801; and the name of the registered agent of the corporation in the State of Delaware at such address is RL&F Service Corp. ARTICLE III. PURPOSE AND POWERS The purpose of the corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Delaware General Corporation Law. It shall have all powers that may now or hereafter be lawful for a corporation to exercise under the Delaware General Corporation Law. ARTICLE IV. CAPITAL STOCK 4.1 TOTAL NUMBER OF SHARES OF STOCK. The total number of shares of all classes of stock which the corporation shall have authority to issue is seventy million (70,000,000). Of such shares, (i) sixty million (60,000,000) shall be common stock, par value $0.01 per share ("Common Stock"), and (ii) ten million (10,000,000) shall be preferred stock, par value $0.01 per share ("Preferred Stock"). 4.2 PREFERRED STOCK. 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; and (h) any other relative rights, preferences and limitations of that series. 4.3 DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. There is hereby established from among the Preferred Stock authorized above Series A Junior Participating Preferred Stock ("Series A Preferred Stock"). The designation and number of shares, and the relative rights, preferences and limitations of the Series A Preferred Stock is as follows: (a) DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 5,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the corporation convertible into Series A Preferred Stock. 2 (b) DIVIDENDS AND DISTRIBUTIONS. (i) Subject to the rights of the holders of any shares of any other series of Preferred Stock (or any similar stock) of the corporation, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock of the corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, cumulative preferential dividends, payable in cash on the first day of January, April, July and October in each year (each such date, a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, at a rate per annum (rounded to the nearest cent) equal to the greater of (a) $1.00 per share, or (b) subject to the provision for adjustment hereinafter set forth, 10,000 times the aggregate per share amount of all cash dividends, and 10,000 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions (other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise)), declared on the Common Stock during the immediately preceding fiscal year. In the event the corporation shall at any time after ________, 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 3 (c) VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (i) Each share of Series A Preferred Stock shall entitle the holder thereof to 10,000 votes on all matters submitted to a vote of the stockholders of the corporation. In the event the corporation shall at any time after ___________, 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the number of votes to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Except as otherwise provided herein, in any other Certificate of Designation, Preferences and Rights in respect of a series of preferred stock (or any similar stock) of the corporation, in the Amended and Restated Certificate of Incorporation of the corporation, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (iii) Except as set forth herein, in the Amended and Restated Certificate of Incorporation of the corporation or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (d) CERTAIN RESTRICTIONS. (i) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 4.3(b) are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the corporation shall not: (1) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; 4 (2) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (3) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (4) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (ii) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under paragraph (e) of this Section 4.3, purchase or otherwise acquire such shares at such time and in such manner. (e) REACQUIRED SHARES. Any shares of Series A Preferred Stock redeemed, purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designation, Preferences and Rights in respect of a series of preferred stock (or any similar stock) of the corporation, or as otherwise required by law. 5 (f) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the corporation, no distribution shall be made to (1) the holders of shares of Common Stock or any other stock ranking junior to the Series A Preferred Stock upon liquidation, distribution or winding up, unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the corporation shall at any time after ________, 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (g) CONSOLIDATION, MERGER, ETC. In the event the corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or converted or changed into other stock or securities, cash and/or any other property, then in any such event proper provision shall be made so that each share of Series A Preferred Stock shall at the same time be similarly exchanged for or converted or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each share of Common Stock is exchanged for or converted or changed. In the event the corporation shall at any time after ________, 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such event the amount set forth in the preceding sentence with respect to the exchange or conversion or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 6 (h) NO REDEMPTION. Shares of the Series A Preferred Stock shall not be redeemable. (i) AMENDMENT. This Section 4.3 shall not be amended in any manner that would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. 4.4 COMMON STOCK. The shares of Common Stock of the corporation shall be identical in all respects and shall have equal rights and privileges. The holders of Common Stock shall have one vote per share of Common Stock on all matters on which holders of Common Stock are entitled to vote. 4.5 NO PREEMPTIVE RIGHTS. No holder of stock of any class of the corporation, whether now or hereafter authorized or issued, shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any securities convertible into stock of any class, or any character or to which are attached or with which are issued warrants or rights to purchase any such stock, whether now or hereafter authorized, issued or sold, or whether issued for money, property or services, or by way of dividend or otherwise, or any right or subscription to any thereof, other than such, if any, as the board of directors in its direction may from time to time fix, pursuant to authority hereby conferred upon it; and any shares of stock or convertible obligations with warrants or rights to purchase any such stock, which the board of directors may determine to offer for subscription, may be sold without being first offered to any of the holders of the stock of the corporation of any class or classes or may, as such board of directors shall determine, be offered to holders of any class or classes of stock exclusively or to the holders of all classes of stock, and if offered to more than one class of stock, in such proportions as between such classes of stock as the board of directors, in its discretion, may determine. ARTICLE V. PLACE OF BOOKS AND RECORDS; STOCKHOLDER INSPECTION RIGHTS 5.1 PLACE OF BOOKS AND RECORDS. The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the corporation outside the State of Delaware, at such places as may be from time to time designated by the Bylaws or by resolution of the stockholders or directors. 5.2 STOCKHOLDER INSPECTION RIGHTS. The Bylaws shall determine whether and to what extent the accounts and books of this corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right of inspecting any account, book, or document of this corporation, except as conferred by law or the Bylaws, or by resolution of the stockholders or directors. 7 ARTICLE VI. EXISTENCE The corporation is to have perpetual existence. ARTICLE VII. LIMITED LIABILITY OF SHAREHOLDERS The private property of the stockholders shall not be subject to the payment of the corporate debts to any extent whatsoever. ARTICLE VIII. BOARD OF DIRECTORS 8.1 NUMBER OF DIRECTORS. Except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the corporation shall be fixed from time to time by or pursuant to the Bylaws of the corporation. 8.2 CLASSIFIED BOARD OF DIRECTORS. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the Bylaws of the corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and another class to be originally elected for a term expiring at the annual meeting of stockholders in 1999, with each class to hold office until its successor is elected and qualified. At each annual meeting of the stockholders of the corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. 8.3 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the Bylaws of the corporation. 8.4 INCREASE IN NUMBER OF DIRECTORS; VACANCIES. Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any directors elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. 8 8.5 REMOVAL OF DIRECTORS. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, with or without cause and only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. 8.6 AMENDMENT OF ARTICLE VIII. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent voting (66 2/3%) of the voting power of all the shares of the corporation generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provisions inconsistent with or repeal this Article VIII. 8.7 WRITTEN BALLOTS. Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE IX. COMPROMISE Whenever a compromise or arrangement is proposed between this corporation or its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of the Delaware General Corporation Law, order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing seventy five percent (75%) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agrees to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. ARTICLE X. TRANSACTIONS WITH OFFICERS AND DIRECTORS The corporation may enter into contracts or transact business with one or more of its officers or directors, or with any firms of which one or more of its directors is a member, or may invest its funds in the securities of and may enter into contracts, or transact business with any corporation or association in which any one or more of its officers or directors is a stockholder, officer or director, and in the absence of bad faith, or unfair dealing, such contract or transaction or investment shall not be invalidated or to any extent affected by the fact that any such officer or officers or any such director or directors has or may have interests that are or might be adverse to the interests of the corporation, provided that the remaining directors are sufficient in number to ratify and approve the transaction. 9 ARTICLE XI. INDEMNIFICATION Every director, officer or employee of the corporation shall be indemnified by the corporation against all expenses and liabilities, including counsel fees, reasonably incurred by or imposed upon him in connection with any proceeding to which he may be made a party, or in which he may become involved, by reason of his being or having been a director, officer or employee of the corporation, or any settlement thereof, whether or not he is a director, officer or employee at the time such expenses are incurred or liability incurred, except in such cases where the director, officer or employee is adjudged guilty of willful misfeasance or malfeasance in the performance of his duties; provided that in the event of a settlement the indemnification herein shall apply only when the board of directors approves such settlement and reimbursement as being for the best interests of the corporation. The foregoing right of indemnification shall be in addition to and not exclusive of all other rights to which such director, officer or employee may be entitled. ARTICLE XII. REQUIRED VOTE FOR CERTAIN TRANSACTIONS The affirmative vote of the holders of shares representing not less than sixty-six and two-thirds percent (66 2/3%) of the voting power of the corporation shall be required for the approval of any proposal for the corporation to reorganize, merge, or consolidate with any other corporation, or sell, lease, or exchange substantially all of its assets or business. The amendment, alteration or repeal of this Article XII, or any portion hereof, shall require the approval of the holders of shares representing at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the corporation. ARTICLE XIII. LIMITATION ON STOCKHOLDER ACTION BY WRITTEN CONSENT Notwithstanding the provisions of Article XII, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, except that an amendment to this Certificate of Incorporation in order to change the name of the corporation may be approved without a meeting, by consent in writing of the holders of the outstanding stock of the corporation having not less than the minimum number of votes that would be necessary to approve such amendment at a meeting at which all shares entitled to vote thereon were present and voted pursuant to the provisions of Section 228 of the Delaware General Corporation Law. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the corporation may be called only by the board of directors pursuant to a resolution approved by a majority of the entire board of directors. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent entitled to vote (66 2/3%) of the voting power of all the shares of the generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provision inconsistent with or repeal this Article XIII. 10 ARTICLE XIV. AMENDMENTS 14.1 CERTIFICATE OF INCORPORATION.This corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter set forth herein or, in the absence of specific provision herein, in the manner prescribed in the statutes of the State of Delaware, and all rights conferred on officers, directors and stockholders herein are granted subject to this reservation. 14.2 AMENDMENT OF BYLAWS. The board of directors shall have power to make, alter, amend and repeal the Bylaws of the corporation (except insofar as the Bylaws of the corporation adopted by the stockholders shall otherwise provide). Any Bylaws made by the directors under the powers conferred hereby may be altered, amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provision inconsistent with or repeal this Article XIV. ARTICLE XV. LIMITATION ON LIABILITY OF DIRECTORS No person shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any amendment, repeal or modification of this Article XV shall not adversely affect any right or protection of a director of the corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. ARTICLE XVI. SEVERABILITY In the event that any of the provisions of this Amended and Restated Certificate of Incorporation (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. THE UNDERSIGNED, being the Chairman of the Board of Directors of the corporation, for the purpose of amending and restating the Certificate of Incorporation of the corporation pursuant to the Delaware General Corporation Law, does make this Certificate, hereby declaring and certifying that this 11 is the act and deed of the corporation and that the facts herein stated are true, and accordingly have hereunto set my hand as of this ___________ day of _____________, 1996. ---------------------------------------- Parris H. Holmes, Jr., Chairman ATTEST: ---------------------------------------- , Secretary ------------------ 12 EX-3.2 3 EXHIBIT 3.2 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (a Delaware corporation) - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (a Delaware Corporation) __________________________________ ARTICLE I. OFFICES 1.1 The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 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. STOCKHOLDER MEETINGS 2.1 The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the Corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. 2.2 All meetings of the stockholders for the election of directors shall be held at such place 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 meetings or in a duly executed waiver of notice thereof. 2.3 Annual meetings may be called by the directors or by any officer instructed by the directors to call the meeting. Special meetings may be called only as provided by Section 10.1 of Article X of these Bylaws. 2.4 Written notice of all meetings shall be given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the Corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business that may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or 1 purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the Delaware General Corporation Law. Except as otherwise provided by the Delaware General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address that he may have furnished by request in writing to the Secretary of the Corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver signed by him or her before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. 2.5 Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.6 The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote at any meeting of stockholders. 2.7 Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairperson of the Board, if any, the Vice-Chairperson of the Board, if any, the Chief Executive Officer, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairperson to be chosen by the stockholders. The Secretary of the Corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the chairperson of the meeting shall appoint a secretary of the meeting. 2 2.8 Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it means that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. 2.9 The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him, her or them and execute a certificate of any fact so found. 2.10 The holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. 2.11 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 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 of such question. ARTICLE III. DIRECTORS 3.1 The business of the Corporation shall be managed by its board of directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are 3 not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. The use of the phrase "whole board of directors" herein refers to the total number of directors that the Corporation would have if there were no vacancies. 3.2 A director need not be stockholder, a citizen of the United States, or a resident of the State of Delaware. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by the board of directors, but shall not be less than three. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the board of directors of the Corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each class to hold office until its successors is elected and qualified. At each annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in Section 3.13 of this Article III of these Bylaws. 3.3 Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any directors elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, with or without cause, only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 4 3.4 The board of directors shall choose from among the directors a Chairperson of the Board and a Vice-Chairperson of the Board. Unless otherwise provided in the resolution choosing him or her, the Chairperson of the Board and the Vice-Chairperson of the Board shall be chosen for a term that shall continue until the meeting of the board of directors following the next annual meeting of stockholders and until his or her successor shall have been chosen and qualified. THE CHAIRPERSON OF THE BOARD 3.5 The Chairperson of the Board shall preside at all meetings of stockholders and directors. THE VICE-CHAIRPERSON OF THE BOARD 3.6 The Vice-Chairperson of the Board shall preside at meetings of stockholders and directors if the Chairperson of the Board is absent or unable to serve as chairperson at any such meeting. MEETINGS OF DIRECTORS 3.7 Meetings shall be held at such time as the board of directors shall fix, except that the first meeting of a newly elected board of directors shall be held as soon after its election as the directors may conveniently assemble. 3.8 Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the board of directors. 3.9 No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairperson of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of the Secretary on the written request of any two directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegraph not less than twenty-four (24) hours notice before the date of the meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. 3.10 No notice shall be required for regular meetings for which the time and place have been fixed. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any notice or written waiver of notice. 5 3.11 A majority of the whole board of directors shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one third of the whole board of directors. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as otherwise specifically provided herein or in the Certificate of Incorporation, and except as otherwise provided by the Delaware General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the Delaware General Corporation Law or these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the board of directors or action of disinterested directors. Any member or members of the board of directors, or of any committee designated by the board of directors, may participate in a meeting of the board of directors, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 3.12 The Chairperson of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairperson of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the board of directors, shall preside. COMMITTEES 3.13 Any action required or permitted to be taken at any meeting of the board of directors or 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. 3.14 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 of directors 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 the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she 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 the powers and authority of the board of directors in the management of the business and affairs of the Corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the Delaware General Corporation Law, and may authorize the seal of the Corporation to be affixed to all papers that may require it. 6 COMPENSATION 3.15 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 and/or a stated salary or other compensation 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. NOMINATION 3.16 Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the board of directors or a proxy committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors. However, any stockholder entitled to vote in the election of directors at a meeting may nominate a director only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety days in advance of the date established by the Bylaws for the holding of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at each meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or person (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairperson of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. STOCKHOLDER PROPOSAL 3.17 Any stockholder entitled to vote in the election of directors and who/which meets the requirements of the proxy rules under the Securities Exchange Act of 1934, as amended, may submit to the directors proposals to be considered for submission to the stockholders of the Corporation for their vote. The introduction of any stockholder proposal that the directors decide should be voted on by the stockholders of the Corporation shall be made by notice in writing delivered or mailed by first-class United States mail, postage prepaid, to the Secretary of the Corporation, and received by the Secretary not less than (i) with respect to any proposal 7 to be introduced at an annual meeting of stockholders, one hundred and twenty days in advance of the date of the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting, and (ii) with respect to any proposal to be introduced at a special meeting of stockholders, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the proposal and the text of the proposal to be introduced; (b) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice; and (c) a representation that the stockholder intends to appear in person or by proxy at the meeting to introduce the proposal or proposals, specified in the notice. The Chairperson of the meeting may refuse to acknowledge the introduction of any stockholder proposal not made in compliance with the foregoing procedure. ARTICLE IV. NOTICES 4.1 Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, 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. 4.2 Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V. OFFICERS 5.1 The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the board of directors, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the board of directors choosing them shall designate. Any number of offices may be held by the same person, as the directors may determine. 5.2 Unless otherwise provided in the resolution choosing him or her, each officer shall be chosen for a term that shall continue until the meeting of the board of directors following the 8 next annual meeting of stockholders and until his or her successor shall have been chosen and qualified. 5.3 All officers of the Corporation shall have such authority and perform such duties in the management and operation of the Corporation as shall be prescribed in the resolutions of the board of directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the Corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors and committees of directors, and shall exercise such additional authority and perform such additional duties as the board of directors shall assign to him or her. Any officer may be removed, with or without cause, by the board of directors. Any vacancy in any office may be filled by the board of directors. CHIEF EXECUTIVE OFFICER 5.4 The Chief Executive Officer shall be the head of the Corporation and shall have general and active supervision of the business of the Corporation and shall see that all orders and resolutions of the board of directors are carried into effect and shall be responsible to the board of directors for the execution of such duties and powers. The Chief Executive Officer shall, in the absence or inability to act of the Chairperson of the Board and Vice-Chairperson of the Board, assume and carry out all responsibilities set forth with respect to such Chairperson of the Board and Vice-Chairperson of the Board. THE PRESIDENT 5.5 The President shall be the chief operating officer of the Corporation. The President shall, in the absence or inability to act of the Chief Executive Officer, assume and carry out all responsibilities set forth with respect to such Chief Executive Officer. 5.6 The Chief Executive Officer or the President shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. THE VICE PRESIDENTS 5.7 Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, and Assistant Vice Presidents shall have duties and powers as the board of directors may designate. THE SECRETARY AND ASSISTANT SECRETARIES 5.8 The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties 9 for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or President, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. 5.9 The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the board of directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other person as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURER 5.10 The Treasurer shall have the custody of the corporate funds and securities and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. 5.11 The Treasurer shall have the authority to invest the normal funds of the Corporation in the purchase and acquisition and to sell and otherwise dispose of these investments upon such terms as the Treasurer may deem desirable and advantageous, and shall, upon request, render to the President and the directors an accounting of all such normal investment transactions. 5.12 The Treasurer shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the President and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. 5.13 If required by the board of directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the Corporation. 5.14 The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 10 5.15 The controller shall keep the Corporation's accounting records and shall prepare accounting reports of the operating results as required by the board of directors and governmental authorities. The controller shall establish systems of internal control and accounting procedures for the protection of the Corporation's assets and funds. ARTICLE VI. CERTIFICATES OF STOCK 6.1 Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chief Executive Officer, or the President or a Vice-President, and by the Secretary or an Assistant Secretary, or by the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of shares owned by him in the Corporation. All certificates shall also be signed by a transfer agent and by a registrar. 6.2 All signatures that appear on the certificate may be facsimile including, without limitation, signatures of officers of the Corporation or the signatures of the stock transfer agent or registrar. 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 such person were such officer, transfer agent or registrar at the date of issue. 6.3 If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the 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 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, however, that except as otherwise provided in Section 202 of the Delaware General Corporation Law, 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 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. LOST CERTIFICATES 6.4 The board of directors may direct a new certificate or certificates 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, 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 legal 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 11 any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK 6.5 Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person's attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby, which certificate shall be cancelled before the new certificate is issued. FIXING RECORD DATE 6.6 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, in advance, a record date, which shall not be less than ten days before the date of such meeting, nor more than sixty days prior to any other action. 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. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the Delaware General Corporation 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 by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the Delaware General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days nor less than ten days prior to such action. If no record date is 12 fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. REGISTERED STOCKHOLDERS 6.7 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 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 notice thereof, except as otherwise provided by the laws of the State of Delaware. MEANING OF CERTAIN TERMS 6.8 As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the Corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the Certificate of Incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the Delaware General Corporation Law confers such rights notwithstanding that the Certificate of Incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the Certificate of Incorporation, except as any provision of law may otherwise require. ARTICLE VII. GENERAL PROVISIONS DIVIDENDS 7.1 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. 7.2 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 13 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 7.3 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 7.4 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. CORPORATE SEAL 7.5 The corporate seal shall be in such form as the board of directors shall prescribe. FISCAL YEAR 7.6 The fiscal year of the Corporation shall end on September 30. ARTICLE VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS 8.1 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner that such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. 14 8.2 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 8.3 To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 8.1 and 8.2 of this Article VIII, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. For purposes of determining the reasonableness of any such expenses, a certification to such effect by any member of the Bar of the State of Delaware, which member of the Bar may have acted as counsel to any such director, officer or employee, shall be binding upon the Corporation unless the Corporation establishes that the certification was made in bad faith. 8.4 Any indemnification under Sections 8.1 and 8.2 of this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because any such person has met the applicable standard of conduct set forth in Sections 8.1 and 8.2 of this Article VIII. Such determination shall be made (1) by the board of directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 8.5 Expenses (including attorneys' fees) incurred by an officer, director, employee or agent of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that any such person is not entitled to be indemnified by the Corporation as authorized by this Article VIII. 8.6 The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VIII shall not be deemed exclusive of any other 15 rights to which any person seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. 8.7 The Corporation may but shall not be required to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under this Article VIII. 8.8 For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. 8.9 For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries, and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. 8.10 The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 8.11 This Article VIII shall be interpreted and construed to accord, as a matter of right, to any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, the full measure of indemnification and advancement of expenses permitted by Section 145 of the Delaware General Corporation Law. 16 8.12 Any person seeking indemnification or advancement of expenses by virtue of such person being or having been a director, officer, employee or agent of the Corporation may seek to enforce the provisions of this Article VIII by an action in law or equity in any court of the United States or any state or political subdivision thereof having jurisdiction of the parties. Without limitation of the foregoing, it is specifically recognized that remedies available at law may not be adequate if the effect thereof is to impose delay on the immediate realization by any such person of the rights conferred by this Article VIII. Any costs incurred by any person in enforcing the provisions of this Article VIII shall be an indemnifiable expense in the same manner and to the same extent as other indemnifiable expenses under this Article VIII. 8.13 No amendment, modification or repeal of this Article VIII shall have the effect of or be construed to limit or adversely affect any claim to indemnification or advancement of expenses made by any person who is or was a director, officer, employee or agent of the Corporation with respect to any statement of facts that existed prior to the date of such amendment, modification or repeal. Accordingly, any amendment, modification or repeal of this Article VIII shall be deemed to have prospective application only and shall not be applied retroactively. ARTICLE IX. BYLAW AMENDMENTS 9.1 Subject to the provisions of the Certificate of Incorporation, these Bylaws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at such meeting; provided that in the notice of such special meeting notice of such purpose shall be given. Subject to the laws of the State of Delaware, the Certificate of Incorporation and these Bylaws, the board of directors may by majority vote of those present at any meeting at which a quorum is present amend these Bylaws, or enact such other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation, except that Sections 3.3 and 3.13 of Article III and Articles IX and X of the Bylaws may be amended only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE X. STOCKHOLDER ACTION 10.1 Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, except that an amendment to the Certificate of Incorporation of the Corporation in order to change the name of the Corporation may be approved without a meeting, by consent in writing of the holders of the outstanding 17 stock of the Corporation having not less than the minimum number of votes that would be necessary to approve such amendment at a meeting at which all shares entitled to vote thereon were present and voted pursuant to the provisions of Section 228 of the Delaware General Corporation Law. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preferences over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the board of directors pursuant to a resolution approved by a majority of the entire board of directors. I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of the Bylaws of BILLING INFORMATION CONCEPTS CORP., a Delaware corporation, as in effect on the date hereof. WITNESS my hand and seal of the Corporation. Dated: , 1996 -------------------------------- ----------- SECRETARY of BILLING INFORMATION CONCEPTS CORP. (SEAL) 18 EX-8.1 4 EXHIBIT 8.1 Writer's Direct Dial Number: (216) 696-2487 ______, 1996 U.S. Long Distance Corp. 9311 San Pedro, Suite 100 San Antonio, Texas 78216 Billing Information Concepts Corp. 9311 San Pedro, Suite 400 San Antonio, Texas 78216 Ladies and Gentlemen: You have requested our opinion regarding the federal income tax consequences of the distribution (the "Distribution") by U.S. Long Distance Corp. ("USLD") of 100% of the outstanding capital stock (the "Billing Stock") of Billing Information Concepts Corp., a wholly-owned subsidiary of USLD ("Billing"), to the holders of outstanding shares of common stock of USLD ("USLD Stock"). Specifically, you have requested our opinion whether for federal income tax purposes any income, gain or loss will be recognized by USLD, Billing, or the USLD stockholders solely as a result of such Distribution. Subject to the qualifications and limitations described below, it is our opinion that the Distribution will be a distribution of stock within the meaning of section 355(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and, if challenged by the Internal Revenue Service, it is more likely than not that a court would so hold. Accordingly, it is our opinion that for federal income tax purposes: (1) No gain or loss will be recognized by USLD or by Billing as a result of the Distribution; (2) No gain or loss will be recognized by, and no amount will be required to be included in the income of, the USLD stockholders as a result of the receipt of the Billing Stock in the Distribution; (3) The tax basis of the USLD Stock held by a USLD stockholder immediately before the Distribution will be allocated between the USLD Stock and the Billing Stock received by such stockholder in the Distribution based upon the relative fair market values of the USLD Stock and the Billing Stock as of the date of the Distribution; and (4) The holding period of the Billing Stock in the hands of a USLD stockholder will include the period during which such stockholder held the USLD Stock, provided the USLD Stock is held as a capital asset by such stockholder on the date of the Distribution. In connection with rendering this opinion, we have examined and are relying upon (without any independent investigation or review thereof) the truth and accuracy, at all relevant times, of the statements, covenants, representations and warranties contained in the following documents: 1. The Registration Statement on Form 10 of Billing (including Exhibits thereto) dated as of __________, 1996 and filed with the United States Securities and Exchange Commission ("SEC") ("Form 10 Registration Statement"); 2. The Information Statement on Schedule 14C of USLD filed with the SEC (including the Annexes and Exhibits thereto); 3. The Distribution Agreement between USLD and Billing dated _____________,1996; 4. Representations made to us by USLD and Billing as set forth in Officers' Certificates from Michael E. Higgins, Senior Vice president and Chief Financial Officer of USLD and Alan W. Saltzman, President of Billing (the "Officers' Certificates"); 5. A "Best Interest of Shareholders" Opinion to the Board of Directors of USLD by Chicago Corporation dated _________, 1996; and 6. Such other instruments and documents related to the Distribution as we have deemed necessary or appropriate. In rendering the opinion, we have been advised of (and are specifically relying upon) the following representations: (1) Neither USLD nor Billing is under the jurisdiction of a court in a Title 11 or similar case within the meaning of section 368(a)(3)(A) of the Code. (2) Each of USLD and Billing and the USLD stockholders will pay their own expenses, if any, incurred in connection with the Distribution. (3) After the Distribution, the same individuals will not serve as officers of both USLD and Billing. The Chairman of the Board of Directors of USLD will not be an officer of USLD, but will be Chairman of the Board and Chief Executive Officer of Billing(the position of Chairman of the Board is not an officer position in either corporation). A majority of the members of the Board of Directors of each of USLD and Billing will not be members of the other corporation's Board. (4) Immediately following the Distribution, USLD and Billing or their respective subsidiaries will continue the conduct of their respective active businesses, independently and with their own employees except as described in the Officers' Certificates. Each such active business will have been continuously conducted for at least a five-year period ending on the date of the Distribution and will not have been acquired within such five-year period in a transaction in which gain or loss was recognized in whole or in part. (5) Following the Distribution, at least 90% of the fair market value of the gross assets of each of USLD and Billing will consist of (i) stock in controlled corporations, which controlled corporations are engaged in the active conduct of a trade or business or (ii) assets that are used in the active conduct of a trade or business. (6) There will be no indebtedness between USLD or its affiliates and Billing or its affiliates immediately after the Distribution except as described in the Officers' Certificates. Any indebtedness between the two corporate groups owned by USLD and Billing respectively after the Distribution will be incurred only in the ordinary course of business and on an arm's length basis. (7) Neither USLD nor Billing fit the description of an investment company as set forth in section 368(a)(2)(F)(iii) and (iv) of the Code. (8) The financial information contained in USLD's most recent Form 10-Q and in the Form 10 Registration Statement is representative of the respective business operations of USLD and Billing, and there have been no substantial operational changes since the dates thereof. (9) There is no current plan or intention on the part of USLD or Billing, as applicable, to (i) liquidate USLD (or any of its subsidiaries) or Billing (or any of its subsidiaries) subsequent to the Distribution, (ii) merge any of these corporations with another corporation subsequent to the Distribution, or (iii) sell or otherwise dispose of their respective assets or the stock or substantially all of the assets of their respective subsidiaries subsequent to the Distribution, except, in each case, in the ordinary course of business. (10) No part of the Billing Stock to be distributed by USLD in the Distribution will be received by a USLD stockholder as a creditor or employee or in any capacity other than that of a stockholder of USLD. (11) To the best knowledge of the management of USLD, the USLD stockholders have no current plan or intent to sell, exchange, transfer by gift, or otherwise dispose of, subsequent to the Distribution, any of their USLD Stock held as of the date of the Distribution or any of their Billing Stock to be received in the Distribution. To the best knowledge of management of USLD, there is no person who is directly or indirectly, or together with related persons, the owner of five percent or more of any class of USLD stock and who actively participates in the management or operations of USLD or Billing. (12) Payments made in connection with all continuing transactions between USLD (or any of its subsidiaries) and Billing (or any of its subsidiaries) will be for fair market value based upon terms and conditions arrived at by the parties bargaining at arm's length. (13) Following the Distribution, it is anticipated that Billing will derive no more than _________ percent (__%) of its gross revenues from the rendering of services to or other transactions with USLD and/or any of USLD's affiliates. (14) Immediately prior to the Distribution, USLD will not have an excess loss account (within the meaning of Treasury Regulation Section 1.1502-19(a)(2)) with respect to the Billing Stock that it then holds. In addition, there are no deferred intercompany transactions or deemed intercompany transactions as described in Treasury Regulations issued under Code section 1502 (dealing with consolidated federal income tax returns) which would trigger the recognition of income for federal income tax purposes as a result of the Distribution. (15) The Board of Directors of USLD (the "Board") has considered the Distribution and explored alternatives that might achieve the corporate business purposes of USLD for undertaking the Distribution, and, after due consideration and in accordance with advice received from third-party advisors, the Board has determined that the business purposes of USLD cannot be achieved through an alternative nontaxable transaction which is neither impractical nor unduly expensive and, accordingly, has approved the Distribution as the best means of achieving such corporate business purposes. In addition to the representations and assumptions set forth above, this opinion is subject to the exceptions, limitations and qualifications set forth below. To be tax-free under the Internal Revenue Code, the Distribution must be motivated by one or more corporate business purposes of USLD. This means that USLD must have identified one or more business purposes, germane to it (as opposed to its stockholders) for the Distribution and that such business purposes create an immediate need for the Distribution and cannot be achieved through any suitable, nontaxable alternative arrangement. USLD has identified several business purposes for the Distribution. These include among others described in the Form 10 Registration Statement: (1) addressing concerns from Billing's customers regarding the current relationship between USLD and Billing; (2) better access to capital markets for Billing; and (3) enhancing stockholder value for both USLD stockholders and, post Distribution, Billing stockholders. Concerns of key customers and better access to capital markets have been recognized by the Internal Revenue Service as legitimate business purposes but enhancement of stockholder value has not been so recognized. However, the Board of USLD received an opinion from The Chicago Corporation, dated ______, 1996, to the effect that the Distribution is in the best interest of USLD stockholders from a financial point of view. In light of this opinion, USLD has identified the enhancement of stockholder value as one of the business purposes for the Distribution. We believe it is more likely than not that if challenged by the Internal Revenue Service, USLD would prevail in its assertion that enhancement of stockholder value is a legitimate corporate business purpose for the Distribution. In light of the foregoing, the fact that the Internal Revenue Service does not consider the enhancement of stockholder value a corporate business purpose does not alter our opinion expressed above concerning the tax consequences of the Distribution. On April 21, 1996 the Internal Revenue Service issued Revenue Procedure 96- 30 setting forth guidelines for obtaining an advance ruling that a spin-off transaction meets the standards for tax-free treatment under Code section 355. Included in the Revenue Procedure are detailed requirements for supporting certain specified corporate business purposes (including customer concerns and capital market access) for a spin-off transaction for purposes of obtaining an advance ruling. Neither USLD nor Billing have sought an advance ruling from the Internal Revenue Service and the requirements set forth in Revenue Procedure 96- 30 are procedural guidelines for advance ruling purposes only and are not substantive law requirements to establish a business purpose where a ruling is not requested. In addition, Appendix A to the Revenue Procedure states that the failure of a transaction to meet these guidelines does not, in and of itself, mean there is not a valid business purpose. Therefore, while offering no opinion on whether or not any specific requirements of the Revenue Procedure would be met with respect to the Distribution, we have concluded that the issuance of Revenue Procedure 96-30 does not affect or alter our opinion expressed above concerning the tax consequences of the Distribution. This opinion represents and is based upon our best judgment regarding the application of federal income tax laws, existing judicial decisions, administrative regulations and published rulings and procedures as published as of _____, 1996. Our opinion is not binding upon the Internal Revenue Service or the courts, and the Internal Revenue Service is not precluded from successfully asserting a contrary position. Only an advance ruling from the Internal Revenue Service will give a taxpayer assurance as to the tax consequences of a transaction such as the Distribution. Furthermore, no assurance can be given that future legislative, judicial or administrative changes, on either a prospective or retroactive basis, would not adversely affect the accuracy of the conclusions stated herein. Nevertheless, we undertake no responsibility to advise you of any new developments in the application or interpretation of the federal income tax laws subsequent to _____, 1996. This opinion addresses only the specific tax consequences set forth above, and does not address any other federal, state, local or foreign tax consequences that may result from the Distribution or any other transaction (including any transaction undertaken in connection with the Distribution). In particular, we express no opinion regarding (i) the survival and/or availability, after the Distribution, of any of the federal income tax attributes or elections of USLD or Billing; and (ii) the tax consequences of any transaction in which an option or other right to (a) acquire Billing stock was received or adjusted or (b) acquire USLD stock was received or adjusted. No opinion is expressed as to any transaction other than the Distribution. No opinion is expressed as to any transaction whatsoever, including the Distribution, if all the transactions described in the Billing Registration Statement on Form 10 are not consummated in accordance with the terms thereof and without departure from any material provision thereof or if all of the representations, warranties, statements and assumptions upon which we have relied are not true and accurate at all relevant times. In the event any one of the statements, representations, warranties or assumptions upon which we have relied to issue this opinion is incorrect, our opinion might be adversely affected and, therefore, may not be relied upon. This opinion is intended solely for your benefit. It may not be relied upon for any other purpose or by any other person or entity, and may not be made available to any other person or entity without our prior written consent. We hereby consent to the inclusion of this opinion as an exhibit in the Billing Registration Statement on Form 10 and to the references to our name therein in the discussions entitled "Summary-Tax Consequences, Special Factors-Uncertainty of Tax Consequences" or "Certain Federal Income Tax Consequences of the Distribution" or in the summary thereof. We are members of the Bar of the State of Texas and, for purposes of this opinion, we do not purport to be experts on the law of any jurisdiction other than Texas and the United States of America. We call your attention to the fact that the opinion set forth in this letter is an expression of professional judgment and not a guarantee of a result. Very truly yours, ARTER & HADDEN EX-10.1 5 EXHIBIT 10.1 DISTRIBUTION AGREEMENT between U.S. LONG DISTANCE CORP. and BILLING INFORMATION CONCEPTS CORP. dated as of _________, 1996 TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS..................................................... 1 Section 1.01. General.............................................. 1 Section 1.02. Terms Defined Elsewhere in Agreement................. 9 ARTICLE II. PRELIMINARY TRANSFERS.......................................... 9 Section 2.01. Preliminary Transfers................................ 9 Section 2.02. Transfers of Assets from Billing Group Subsidiaries to USLD or Telecommunications Group Subsidiaries... 10 Section 2.03. Transfers Not Effected Prior to the Distribution..... 10 Section 2.04. Cooperation Regarding Assets......................... 10 Section 2.05. No Representations or Warranties; Consents........... 11 Section 2.06. Preliminary Transfer................................. 11 Section 2.07. Cash Allocation; Cash Management..................... 12 Section 2.08. Cancellation of Net USLD Intercompany Payable........ 13 ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES.................... 13 Section 3.01. Assumption and Satisfaction of Liabilities........... 13 Section 3.02. USLD and Billing Guarantees.......................... 13 ARTICLE IV. [RESERVED]..................................................... 14 ARTICLE V. OBLIGATIONS FOR NON-PLAN OPTIONS................................ 14 Section 5.01. Non-Plan Options Obligations......................... 14 Section 5.02. Adjustment of Exercise Price......................... 14 Section 5.03. Adjustment to Non-Plan Options Obligations........... 14 Section 5.04. Amendment to Non-Plan Option Agreement............... 14 ARTICLE VI. THE DISTRIBUTION............................................... 14 Section 6.01. Cooperation Prior to the Distribution................ 14 Section 6.02. USLD Board Action; Conditions Precedent to the Distribution....................................... 15 Section 6.03. The Distribution..................................... 16 Section 6.04. Securities Filings................................... 16 ARTICLE VII. INDEMNIFICATION............................................... 16 Section 7.01. Indemnification by USLD.............................. 16 Section 7.02. Indemnification by Billing........................... 17 Section 7.03. Insurance Proceeds................................... 17 Section 7.04. Procedure for Indemnification........................ 17 Section 7.05. Remedies Cumulative.................................. 19 Section 7.06. Survival of Indemnities.............................. 19 (i) ARTICLE VIII. CERTAIN ADDITIONAL MATTERS................................... 19 Section 8.01. Billing Board........................................ 19 Section 8.02. Resignations; USLD Board............................. 20 Section 8.03. Certificate and Bylaws............................... 20 Section 8.04. Certain Post-Distribution Transactions............... 20 Section 8.05. Billing Rights Plan.................................. 21 Section 8.06. Use of the "USLD" Name and the USLD Logo............. 21 Section 8.07. Noncompetition Agreement............................. 21 ARTICLE IX. ACCESS TO INFORMATION AND SERVICES............................. 22 Section 9.01. Provision of Corporate Records....................... 22 Section 9.02. Access to Information................................ 23 Section 9.03. Production of Witnesses.............................. 23 Section 9.04. Reimbursement........................................ 23 Section 9.05. Retention of Records................................. 24 Section 9.06. Confidentiality...................................... 24 Section 9.07. Privileged Matters................................... 24 ARTICLE X. INSURANCE....................................................... 26 Section 10.01. Policies and Rights Included Within the Billing Group Assets....................................... 26 Section 10.02. Post-Distribution Date Claims........................ 26 Section 10.03. Administration and Reserves.......................... 27 Section 10.04. Agreement for Waiver of Conflict and Shared Defense.. 27 ARTICLE XI. MISCELLANEOUS.................................................. 28 Section 11.01. Complete Agreement; Construction..................... 28 Section 11.02. Expenses............................................. 28 Section 11.03. Governing Law........................................ 28 Section 11.04. Notices.............................................. 28 Section 11.05. Amendments........................................... 29 Section 11.06. Successors and Assigns............................... 29 Section 11.07. Termination.......................................... 29 Section 11.08. Subsidiaries......................................... 29 Section 11.09. No Third-Party Beneficiaries......................... 29 Section 11.10. Titles and Headings.................................. 29 Section 11.11. Exhibits and Schedules............................... 29 Section 11.12. Legal Enforceability................................. 29 Section 11.13. Arbitration of Disputes.............................. 29 Section 11.14. Prompt Action........................................ 30 Section 11.15. Applicability to Related Agreements.................. 30 INDEX OF EXHIBITS AND SCHEDULES............................................ 32 (ii) DISTRIBUTION AGREEMENT This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this ____ day of _____________, 1996, between U.S. Long Distance Corp., a Delaware corporation ("USLD"), and Billing Information Concepts Corp., a Delaware corporation and wholly-owned subsidiary of USLD ("Billing"). RECITALS WHEREAS, USLD, through its subsidiaries, (i) provides direct dial long distance services, primarily to commercial customers, and operator services for the hospitality and private pay phone industries (the "Telecommunications Group") and (ii) provides billing clearinghouse and information management services for other direct dial long distance and operator services companies and for information providers, equipment suppliers and other telecommunication services providers (the "Billing Group"). WHEREAS, the Board of Directors of USLD has determined that it is in the best interests of USLD and the stockholders of USLD to separate the Telecommunications Group and the Billing Group, and, in order to effect such separation, to cause certain USLD subsidiaries conducting the business of the Billing Group to merge with and into two wholly owned subsidiaries of Billing and for the Telecommunications Group to transfer to Billing certain assets and liabilities relating principally to the Billing Group, and for the Billing Group to transfer to USLD and/or the Telecommunications Group certain assets and liabilities not relating principally to the Billing Group (the "Preliminary Transfers"), and thereafter to distribute all of the outstanding shares of common stock, par value $.01 per share, of Billing to the holders of USLD Common Stock (the "Distribution"); WHEREAS, in connection with the Distribution, Billing and USLD have determined that it is necessary and desirable to set forth the principal transactions required to effect the Distribution, and to set forth the agreements that will govern certain matters following the Distribution. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties hereby agree as follows: ARTICLE I. DEFINITIONS Section 1.01. GENERAL. As used in this Agreement, the following terms shall have the following meanings. 1 ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or investigation by or before any court, any government or other regulatory or administrative agency or commission or any arbitration tribunal. AFFILIATE: Means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" shall have meanings correlative to the foregoing. Notwithstanding the foregoing, (i) the Affiliates of USLD shall not include Billing, the Billing Group Subsidiaries or any other Person that otherwise would be an Affiliate of USLD by reason of USLD's ownership of the capital stock of Billing prior to the Distribution or the fact that any officer or director of Billing or any of the Billing Group Subsidiaries shall also serve as an officer or director of USLD or any of the Telecommunications Group Subsidiaries, and (ii) the Affiliates of Billing shall not include USLD, the Telecommunications Group Subsidiaries or any other Person that otherwise would be an Affiliate of Billing by reason of USLD's ownership of the capital stock of Billing prior to the Distribution or the fact that any officer or director of Billing or any of the Billing Group Subsidiaries shall also serve as an officer or director of USLD or any of the Telecommunications Group Subsidiaries. AGENT: Montreal Trust Company of Canada, as distribution agent appointed by USLD to distribute the Billing Common Stock pursuant to the Distribution. BENEFIT PLANS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT: The Benefit Plans and Employment Matters Allocation Agreement between Billing and USLD, which agreement shall be entered into on or prior to the Distribution Date in substantially the form of EXHIBIT A attached hereto. BILLING BOARD: The Board of Directors of Billing. BILLING BOOKS AND RECORDS: The books and records (including computerized records) of Billing and the Billing Group Subsidiaries and any other books and records of USLD's Subsidiaries that relate principally to the Billing Group, are necessary to conduct the Billing Group Business, or are required by law to be retained by Billing or a Billing Group Subsidiary, including, without limitation, all such books and records relating to Billing Group Employees, all files relating to any Action being assumed by Billing as part of the Billing Group Liabilities, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to Billing, the Billing Group Subsidiaries or the Billing Group Business (but not including the USLD Books and Records, provided that Billing shall have access to, and have the right to obtain duplicate copies of, the USLD Books and Records that pertain to the Billing Group Business in accordance with the provisions of this Agreement). 2 BILLING BYLAWS: The Bylaws of Billing, substantially in the form of EXHIBIT B, to be in effect at the Distribution Date. BILLING CERTIFICATE: The Amended and Restated Certificate of Incorporation of Billing, substantially in the form of EXHIBIT C, to be in effect at the Distribution Date. BILLING COMMON STOCK: The common stock, par value $.01 per share, of Billing (together with any rights issued pursuant to the Billing Rights Plan). BILLING GROUP: Billing and the Billing Group Subsidiaries, collectively. BILLING GROUP AGREEMENTS: All agreements to which USLD or any of the Telecommunications Group Subsidiaries is a party relating principally to the Billing Group Business. BILLING GROUP ASSETS: (i) The Billing Group Subsidiaries' Stock; (ii) the Transferred Intellectual Property; (iii) the Billing Books and Records; (iv) the Billing Group Agreements; (v) all other assets, absolute or contingent, expressly to be assigned or allocated to Billing or the Billing Group Subsidiaries under this Agreement or the Related Agreements; and (vi) any other assets of USLD and its Subsidiaries used principally in the Billing Group Business and not held by Billing or one of the Billing Group Subsidiaries, but excluding any assets related to the USLD Group's direct billing function for the billing of direct dial long distance charges. BILLING GROUP BUSINESS: The business conducted by the Billing Group, as referenced in the recitals to this Agreement. BILLING GROUP EMPLOYEES: The meaning specified in the Benefit Plans and Employment Matters Allocation Agreement. BILLING GROUP LIABILITIES: (i) All of the Liabilities of the Billing Group under, or to be retained or assumed by Billing or any of the Billing Group Subsidiaries pursuant to, this Agreement or any of the Related Agreements; (ii) all Liabilities for payment, after the Distribution Date, of outstanding drafts of USLD and its Subsidiaries existing as of the Distribution Date attributable to the conduct of the Billing Group Businesses by the Billing Group; (iii) all Liabilities of the Billing Group Subsidiaries, other than Liabilities transferred to USLD or to any Telecommunications Group Subsidiary as part of the Preliminary Transfers; and (iv) all other Liabilities arising out of, or in connection with, any of the Billing Group Assets or the Billing Group Business, including common area maintenance or other adjustments under applicable lease agreements, but excluding any liabilities related to the USLD Group's direct billing function for the billing of direct dial long distance charges; PROVIDED, HOWEVER, that the Billing Group Liabilities shall not include any Financing Obligations of USLD or the Telecommunications Group Subsidiaries, except to the extent otherwise set forth above or reflected in the Billing Pro Forma Balance Sheet. 3 BILLING GROUP POLICIES: All Policies, current or past, which are owned or maintained by or on behalf of USLD or any of its Affiliates or predecessors, which relate to the Billing Group Business and the Telecommunications Group Business, and which Policies are to be assigned to the Billing Group. BILLING GROUP SUBSIDIARIES: The Subsidiaries identified on SCHEDULE 1.01(a) and directly or indirectly controlled by Billing at the time of the Distribution. BILLING GROUP SUBSIDIARIES' STOCK: All of the issued and outstanding capital stock of the Billing Group Subsidiaries. BILLING GUARANTEE: (a) Any guarantee by Billing or any Billing Group Subsidiary of the performance or obligation of USLD or any Telecommunications Group Subsidiary under any agreement or obligation to which USLD or any Telecommunications Group Subsidiary is a party and (b) any continuing liability of Billing under any Billing Group Agreement transferred to USLD or any Telecommunications Group Subsidiary pursuant to this Agreement or retained by Billing and held by Billing in trust for USLD pursuant to Section 2.03 of this Agreement. BILLING PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance Sheet of Billing as of ____________, 1996, attached hereto as EXHIBIT D. CREDIT SUPPORT FEE: A fee equal to one percent (1%) per annum of the monthly average guaranteed rental, performance and other obligations to which the credit support applies. CUT OFF DATE: The day preceding the Record Date. DISTRIBUTION DATE: The date determined by the USLD Board as the date on which Distribution shall be effected, which Distribution Date is contemplated by the USLD Board to occur on or about __________________, 1996. DISTRIBUTION RECORD DATE: The date established by the USLD Board as the date for taking a record of the Holders of USLD Common Stock entitled to participate in the Distribution, which Distribution Record Date has been established as ________________, 1996, subject to the fulfillment on or before _____________, 1996 of certain conditions to the Distribution as provided in Section 6.02. EXERCISE PRICE SPREAD: The difference between the exercise price of a Non-Plan Option or Billing Non Plan Option, as applicable, and the USLD Closing Stock Price on the Cut-Off Date. EXPENSE SHARING AGREEMENT: The Expense Sharing Agreement between USLD and Billing, pursuant to which USLD and Billing will agree to pay certain usage charges and share certain expenses relating to the operation of an airplane, which agreement shall be entered into on or prior to the Distribution Date in substantially the form of EXHIBIT E attached hereto. FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, notes, debentures or similar instruments, (iii) obligations under capitalized leases and deferred purchase arrangements, (iv) reimbursement or other obligations relating to 4 letters of credit or similar arrangements, and (v) obligations to guarantee, directly or indirectly, any of the foregoing types of obligations on behalf of others. HOLDERS: The holders of record of USLD Common Stock as of the Distribution Record Date. INFORMATION STATEMENT: The Information Statement dated ___________, 1996 provided to holders of USLD Common Stock in connection with the Distribution. INSURANCE PROCEEDS: Those moneys (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of the insured, in either case net of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, cost or reserve paid or held by or for the benefit of such insured. INSURED CLAIMS: Those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Policies, whether or not subject to deductibles, co-insurance, uncollectibility or retrospectively-rated premium adjustments, but only to the extent that such Liabilities are within applicable Policy limits, including aggregates. IRS: The Internal Revenue Service. LIABILITIES: Any and all debts, liabilities and obligations, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including, without limitation, those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. NET USLD INTERCOMPANY PAYABLE: The net intercompany account payable owed by USLD to Billing which results from offsetting the USLD Intercompany Receivable against the USLD Intercompany Payable. PERSON: Any individual, corporation, partnership, association, trust, estate or other entity or organization, including any governmental entity or authority. POLICIES: Insurance policies and insurance contracts of any kind relating to the Billing Group Business or the Telecommunications Group Business as conducted prior to the Distribution Date, including without limitation primary and excess policies, comprehensive general liability policies, automobile, aircraft and workers' compensation insurance policies, and self-insurance arrangements, together with the rights and benefits thereunder. POST DISTRIBUTION BILLING CLOSING STOCK PRICE: The per share price equal to the average of the Billing Closing Stock Price for each of the ten consecutive trading days beginning on and including the Distribution Date. POST DISTRIBUTION USLD CLOSING STOCK PRICE: The per share price equal to the average of the USLD Closing Stock Price for each of the ten consecutive trading days beginning on and including the Distribution Date. 5 PRELIMINARY TRANSFER INSTRUMENTS: Collectively, the various agreements, instruments and other documents to be entered into to effect the Preliminary Transfers and the assignment of assets and the assumption of Liabilities contemplated by this Agreement and the Related Agreements in the manner contemplated herein and therein. PRIVILEGES: All privileges that may be asserted under applicable law including, without limitation, privileges arising under or relating to the attorney-client relationship (including but not limited to the attorney-client and work product privileges), the accountant-client privilege, and privileges relating to internal evaluative processes. PRIVILEGED INFORMATION: All information to which USLD, Billing or any of their respective Subsidiaries are entitled to assert the protection of a Privilege. BILLING RESTRUCTURING COSTS: All cash costs incurred or to be incurred by Billing or its Subsidiaries (i) directly related to establishing, restructuring or realigning the Billing Group, or (ii) for tax planning for the Billing Group regardless of whether any of these items are treated as expenses under generally accepted accounting principles. RELATED AGREEMENTS: All of the agreements, instruments, understandings, assignments or other arrangements set forth in writing, which are entered into in connection with the transactions contemplated hereby, including, without limitation, the Preliminary Transfer Agreements, the Benefit Plans and Employment Matters Allocation Agreement, the Tax Sharing Agreement, and the Transitional Services and Sublease Agreement and the Expense Sharing Agreement. SHARED POLICIES: All Policies, current or past, that are owned or maintained by or on behalf of USLD or any of its Subsidiaries or their respective predecessors, which relate to both the Telecommunications Group Business and the Billing Group Business. SUBSIDIARY: With respect to any Person, (a) any corporation of which at least a majority in interest of the outstanding voting stock (having by the terms thereof voting power under ordinary circumstances to elect a majority of the directors of such corporation, irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned or controlled by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more of its Subsidiaries, or (b) any corporate or non-corporate entity in which such Person and/or one or more Subsidiaries of such Person, directly or indirectly, at the date of determination thereof, has an ownership interest and which is included in the consolidated financial reports of such Person consistent with generally accepted accounting principles. SUPPLEMENTAL NON-PLAN OPTION AGREEMENTS: The Amendments to the Non-Plan Options executed by USLD and dated as of the Distribution Date reflecting the adjustments to the Non-Plan Options necessary to implement the agreements set forth in Article V. 6 TAX OPINION: The Tax Opinion given by Arter & Hadden in connection with the Distribution. TAX SHARING AGREEMENT: The Tax Sharing Agreement between Billing and USLD, which agreement shall be entered into on or prior to the Distribution Date in substantially the form of EXHIBIT F attached hereto. TELECOMMUNICATIONS GROUP AGREEMENTS: All agreements to which USLD or any of the Telecommunications Group Subsidiaries is a party relating principally to the Telecommunications Group Business. TELECOMMUNICATIONS GROUP ASSETS: The assets of USLD and the Telecommunications Group Subsidiaries including without limitation: (i) the capital stock of the Telecommunications Group Subsidiaries; (ii) the USLD Books and Records; (iii) all of the assets expressly to be retained by, or assigned or allocated to, USLD or any of the Telecommunications Group Subsidiaries under this Agreement or the Related Agreements, including assets relating to the USLD Group's direct billing function for the billing of direct dial long distance charges; and (iv) any other assets, absolute or contingent, of USLD and its Subsidiaries not comprising Billing Group Assets. TELECOMMUNICATIONS GROUP BUSINESS: The business conducted by the Telecommunications Group, as referenced in the recitals to this Agreement. TELECOMMUNICATIONS GROUP EMPLOYEES: The meaning specified in the Benefit Plans and Employment Matters Allocation Agreement. TELECOMMUNICATIONS GROUP LIABILITIES: (i) all of the Liabilities of USLD under, or to be retained or assumed by USLD or any of the Telecommunications Group Subsidiaries pursuant to, this Agreement or any of the Related Agreements; (ii) any Financing Obligations of USLD and its Subsidiaries not constituting Billing Group Liabilities; (iii) all Liabilities for payment of outstanding drafts of USLD attributable to the conduct of the Telecommunications Group or to the Billing Group (to the extent not considered a Billing Group Liability) existing as of the Distribution Date; (iv) all Liabilities transferred to USLD or the Telecommunications Group Subsidiaries in the Preliminary Transfers; (v) all other Liabilities arising out of, or in connection with, any of the Telecommunications Group Assets or the Telecommunications Group Business, including liabilities relating to the USLD Group's direct billing function for the billing of direct dial long distance charges; and (vi) all other Liabilities of USLD and its Subsidiaries not constituting Billing Group Liabilities, if any, as defined herein, whether past or present. TELECOMMUNICATIONS GROUP SUBSIDIARIES: All Subsidiaries of USLD, except Billing and the Billing Group Subsidiaries. TRANSFERRED INTELLECTUAL PROPERTY: The intangible properties and rights listed on Schedule 1.01(b) hereto to be conveyed by USLD to Billing in connection with the Distribution. 7 TRANSITIONAL SERVICES AND SUBLEASE AGREEMENT: The Transitional Services and Sublease Agreement by and between USLD and Billing pursuant to which such parties will provide to the other certain transitional services after consummation of the Distribution, substantially in the form attached hereto as EXHIBIT G. USLD BOARD: The Board of Directors of USLD as it is constituted prior to the Distribution Date. USLD BOOKS AND RECORDS: The books and records (including computerized records) of USLD and the Telecommunications Group Subsidiaries and any other books and records of USLD's Subsidiaries that relate principally to the Telecommunications Group, are necessary to operate the Telecommunications Group, or are required by law to be retained by USLD or a Telecommunications Group Subsidiary, including, without limitation, all books and records relating to Telecommunications Group Employees, all files relating to any Action pertaining to the Telecommunications Group Liabilities, original corporate minute books, stock ledgers and certificates and corporate seals, and all licenses, leases, agreements and filings, relating to USLD, the Telecommunications Group Subsidiaries or the Telecommunications Group Business (but not including the Billing Books and Records, provided that USLD shall have access to, and shall have the right to obtain duplicate copies of, the Billing Books and Records in accordance with the provisions of this Agreement.) USLD CLOSING STOCK PRICE: The Nasdaq Stock Market's National Market closing price per share for USLD Common Stock on the applicable date, trading regular way. USLD COMMON STOCK: The common stock, par value $.01 per share, of USLD. USLD GROUP: USLD and the Telecommunications Group Subsidiaries, collectively. USLD GUARANTEE: (a) Any guarantee by USLD or any Telecommunications Group Subsidiary of the performance or obligation of Billing or any Billing Group Subsidiary under any agreement or obligation to which Billing or any Billing Group Subsidiary is a party and (b) any continuing liability of USLD under any Telecommunications Group Agreement transferred to Billing or any Billing Group Subsidiary pursuant to this Agreement or retained by USLD and held by USLD in trust for Billing pursuant to Section 2.03 of this Agreement. USLD INTERCOMPANY PAYABLE: The intercompany account payable that is owed by USLD to Billing. USLD INTERCOMPANY RECEIVABLE: The intercompany account receivable that is owed by Billing to USLD. USLD PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance Sheet of USLD as of March 31, 1996, attached hereto as EXHIBIT H. 8 Section 1.02. TERMS DEFINED ELSEWHERE IN AGREEMENT. Each of the following terms is defined in the Section set forth opposite such term: TERM SECTION Billing............................................... Recitals Billing Group......................................... Recitals Billing Indemnifiable Loss............................ 7.01 Billing Indemnitees................................... 7.01 Billing Non-PLan Option............................... 5.02 USLD Initial Cash Balance............................. 2.07 Billing Rights........................................ 8.05 Billing Rights Plan................................... 8.05 Cash.................................................. 2.07 Consents.............................................. 6.01 Distribution.......................................... Recitals Exchange Act ......................................... 6.02 Indemnifiable Loss.................................... 7.02 Indemnifying Party.................................... 7.03 Indemnitee............................................ 7.03 Information........................................... 9.02 Non-Plan Options...................................... 5.01 Non-Plan Option Adjustment............................ 5.01 Preliminary Transfers................................. Recitals Telecommunications Group.............................. Recitals Third-Party Claim..................................... 7.04 USLD.................................................. Recitals USLD Indemnifiable Loss............................... 7.02 USLD Indemnitees...................................... 7.02 ARTICLE II. PRELIMINARY TRANSFERS Section 2.01. PRELIMINARY TRANSFERS. Prior to the Distribution Date, USLD shall take or cause to be taken all actions necessary (i) to contribute two of its wholly owned subsidiaries (U.S. Billing Management Corp. and U.S. Billing, Inc.) to Billing, (ii) to cause MegaPlus Dialing, Inc., its wholly owned subsidiary to sell to USLD for $8,125,000 all of the preferred and common shares of ZeroPlus Dialing, Inc. that it owns and then to dissolve, (iii) to cause ZeroPlus Dialing, Inc. to redeem all the preferred and common shares previously sold by MegaPlus Dialing, Inc. to USLD, (iv) cause its two subsidiaries engaged in the Billing Group Business (ZeroPlus Dialing, Inc. and Enhanced Billing Services, Inc.) to be merged with and into these two inactive subsidiaries of Billing, with ZeroPlus Dialing, Inc. and Enhanced Billing Services, Inc. surviving, and ZeroPlus Dialing, Inc. changing its name to Billing Management Corporation and (v) to cause the transfer, assignment, delivery and conveyance to Billing or any 9 Billing Group Subsidiary of all of USLD's and its Subsidiaries' right, title and interest in the remaining Billing Group Assets. Section 2.02. TRANSFERS OF ASSETS FROM BILLING GROUP SUBSIDIARIES TO USLD or Telecommunications Group Subsidiaries. Prior to the Distribution Date, Billing shall take or cause to be taken all action necessary to cause the transfer, assignment, delivery and conveyance to USLD or any Telecommunications Group Subsidiary of all of Billing's and its Subsidiaries' right, title and interest in the Telecommunications Group Assets. Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To the extent that any transfers required and legally made by this Article II shall not have been fully effected on the Distribution Date, the parties shall cooperate to effect such transfers as promptly as shall be practicable following the Distribution Date. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that USLD and Billing and their respective Subsidiaries and Affiliates shall cooperate in seeking to obtain any necessary consents or approvals for the transfer of all assets and Liabilities contemplated to be transferred pursuant to this Article II. In the event that any such transfer of assets or Liabilities has not been consummated effective as of the Distribution Date, the party retaining such asset or Liability shall thereafter hold such asset in trust for the use and benefit of the party entitled thereto (at the expense of the party entitled thereto) and retain such Liability for the account of the party by whom such Liability is to be assumed pursuant hereto, and take such other actions as may be reasonably required in order to place the parties, insofar as reasonably possible, in the same position as would have existed had such asset been transferred or such Liability been assumed as contemplated hereby. As and when any such asset or Liability becomes transferable, such transfer and assumption shall be effected forthwith. The parties agree that, except as set forth in this Section 2.03, as of the Distribution Date, each party hereto shall be deemed to have acquired complete and sole beneficial ownership over all of the assets, together with all rights, powers and privileges incidental thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incidental thereto, which such party is entitled to acquire or required to assume pursuant to the terms of this Agreement. Section 2.04. COOPERATION REGARDING ASSETS. In the case that at any time after the Distribution Date, Billing reasonably determines that any of the Telecommunications Group Assets are essential for the conduct of the Billing Group Business, or USLD reasonably determines that any of the Billing Group Assets are essential for the conduct of the Telecommunications Group Business, and the nature of such assets makes it impracticable for Billing or USLD, as the case may be, to obtain substitute assets or to make alternative arrangements on commercially reasonable terms to conduct their respective businesses, and reasonable provisions for the use thereof are not already included in the Related Agreements, then Billing (with respect to the Billing Group Assets) and USLD (with respect to the Telecommunications Group Assets) shall cooperate to make such assets available to the other party on commercially reasonable terms, as may be reasonably required for such party to maintain normal business operations (provided that such assets shall be required to be made 10 available only until such time as the other party may reasonably obtain substitute assets or make alternative arrangements on commercially reasonable terms to permit it to maintain normal business operations.) Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement, in any Related Agreement, or otherwise, representing or warranting in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning, any assets of such party, or (ii) as to the legal sufficiency to convey title to any asset transferred pursuant to this Agreement or any Related Agreement. It is also agreed and understood that there are no warranties, express or implied, as to the merchantability or fitness of any of the assets either transferred to or retained by the parties, as the case may be, and all such assets shall be "as is, where is" and "with all faults"; provided, however, that the absence of warranties shall have no effect upon the allocation of Liabilities under this Agreement and provided further that Billing represents and warrants that, prior to the Distribution Date, Billing and the Billing Group have maintained their cash balances, accounts payable, accounts receivable and borrowings under their line of credit with FINOVA Capital Corporation in a manner consistent with the customary practices of the Billing Group Business. Each party hereto understands and agrees that no party hereto is, in this Agreement, in any Related Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any amendatory agreements and the making of any filings or applications contemplated by this Agreement, any Related Agreement or otherwise will satisfy the provisions of any or all applicable laws or judgments or other instruments or agreements relating to such assets. Notwithstanding the foregoing, the parties shall use their good faith efforts to obtain all consents and approvals, to enter into all reasonable amendatory agreements and to make all filings and applications that may be reasonably required for the consummation of the transactions contemplated by this Agreement and the Related Agreements, and shall take all such further reasonable actions as shall be reasonably necessary to preserve for each of the Billing Group and the USLD Group, to the greatest extent feasible, the economic and operational benefits of the allocation of assets and Liabilities provided for in this Agreement. In case at any time after the Distribution Date any further action is necessary or desirable to carry out the purposes of this Agreement, proper officers and directors of each party to this Agreement shall take all such necessary or desirable action. Section 2.06. PRELIMINARY TRANSFER INSTRUMENTS. In connection with the Preliminary Transfers, the merger of USLD's subsidiaries engaged in the Billing Group Business with wholly owned subsidiaries of Billing, the assignment of assets and the assumption of Liabilities and other related transactions contemplated by this Agreement and any Related Agreements, the parties shall execute, or cause to be executed by the appropriate entities, the Preliminary Transfer Instruments in such forms as the parties shall reasonably agree. All transactions involving capital stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the corporation or other legal entities and, to the extent required by applicable law, by notation on public registries. 11 Section 2.07. CASH ALLOCATION; CASH MANAGEMENT. (a) CASH ALLOCATION ON THE DISTRIBUTION DATE. As of the close of business on the Distribution Date, Billing shall transfer to USLD out of the cash bank balances and short-term investments ("Cash") that it and the Billing Group Subsidiaries then holds Cash in an amount necessary for USLD's working capital to be approximately $21,500,000 after taking into account direct costs of the Distribution ("USLD Initial Cash Balance"), and Billing shall retain all other Cash. The calculation of the cash amount to be transferred will be based on current assets and current liabilities as reported on the USLD balance sheet at the month-end date immediately preceeding the Distribution. To the extent practicable, the parties shall use their reasonable best efforts to take all necessary action to cause the Cash balances of the USLD Group immediately prior to consummation of the Distribution to equal the USLD Initial Cash Balance. In the event the actual Cash balances of the USLD Group as of the Distribution are less than the USLD Initial Cash Balance, the amount of the deficiency shall be recorded in the accounts of USLD and Billing as of the Distribution Date as a payable from Billing to USLD (which payable will be paid as promptly as practicable following the Distribution); and in the event the actual Cash balances of the USLD Group as of the Distribution Date exceeds the USLD Initial Cash Balance, the amount of such excess shall be recorded in the accounts of USLD and Billing as of the Distribution Date as a payable from USLD to Billing (which payable will be paid as promptly as practicable following the Distribution). (b) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. Billing shall establish and maintain a separate cash management system and accounting records with respect to the Billing Group effective as of 12:01 a.m. on the day following the Distribution Date. Thereafter, (i) any payments by USLD or the Telecommunications Group Subsidiaries on behalf of Billing or the Billing Group Subsidiaries in connection with the Billing Group (including, without limitation, any such payments in respect of Liabilities or other obligations of Billing or the Billing Group Subsidiaries under this Agreement and the Related Agreements) shall be recorded in the accounts of the Billing Group as a payable from the Billing Group to the USLD Group; (ii) any payments by Billing or the Billing Group Subsidiaries on behalf of USLD or the Telecommunications Group Subsidiaries in connection with the Telecommunications Group Business (including, without limitation, any such payments in respect of Liabilities or other obligations of USLD or the Telecommunications Group Subsidiaries under this Agreement and the Related Agreements) shall be recorded in the accounts of the USLD Group as a payable from the USLD Group to the Billing Group; (iii) any cash payments received by USLD and the Telecommunications Subsidiaries relating to the Billing Group Business shall be recorded in the accounts of the USLD Group as a payable from the USLD Group to the Billing Group; (iv) any cash payments received by Billing or the Billing Group Subsidiaries relating to the Telecommunications Group Business shall be recorded in the accounts of the Billing Group as a payable from the Billing Group to the USLD Group; (v) Billing and USLD shall make adjustments for late deposits, checks returned for not sufficient funds and other post-Distribution Date transactions as shall be reasonable under the circumstances consistent with the purpose and intent of this Agreement and the Related Agreements; and (vi) the net balance due to the USLD Group or the Billing Group, as the case may be, in respect of the aggregate amounts of clauses (i), (ii), (iii), (iv) and (v) shall be paid by Billing or USLD, as appropriate, as promptly as practicable. For purposes of this Section 2.07(b), the parties contemplate that the Telecommunications Group Business and the Billing Group Business, including, but not limited to, the respective parties' administration of accounts payable and accounts receivable, will be conducted in the normal course. 12 Section 2.08. CANCELLATION OF NET USLD INTERCOMPANY PAYABLE. Prior to the Distribution Date, the Net USLD Intercompany Payable in the amount of approximately $______, including any interest accrued thereon, shall be netted against USLD's stockholder equity. Billing acknowledges that it will not receive any independent consideration for such Net USLD Intercompany Payable other than the mutual promises contained herein and in the Related Agreements. ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES. Except as set forth in the Benefit Plans and Employment Matters Allocation Agreement, the Tax Sharing Agreement, the Transition Services and Sublease Agreement, the Expense Sharing Agreement or other Related Agreements, effective as of and after the Distribution Date, (a) Billing shall, and/or shall cause the Billing Group Subsidiaries to, assume, pay, perform and discharge in due course all of the Billing Group Liabilities, and (b) USLD shall, and/or shall cause the Telecommunications Group Subsidiaries, to assume, pay, perform and discharge in due course all of the Telecommunications Group Liabilities. Section 3.02. USLD AND BILLING GUARANTEES. (a) Billing shall use its reasonable best efforts to obtain the release of any USLD Guarantee existing on and after the Distribution Date. USLD shall use its best efforts to obtain the release of any Billing Guarantee existing on and after the Distribution Date. (b) Commencing on the first business day of calendar year 1997 after the Distribution, and on the first business day of each calendar year thereafter, Billing shall become obligated to pay to USLD, in cash, a Credit Support Fee in respect of each USLD Guarantee that was outstanding at any date during the immediately preceding calendar year and USLD shall become obligated to pay to Billing, in cash, a Credit Support Fee in respect of each Billing Guarantee that was outstanding at any date during the immediately preceding calendar year. The Credit Support Fee payable with respect to any USLD Guarantee or Billing Guarantee, as the case may be, shall be an amount equal to the Credit Support Fee times the average outstanding monthly balance of the principal amount of indebtedness for the applicable calendar year (and for calendar 1996 from the Distribution Date through December 31, 1996), the payment of which is guaranteed pursuant to the applicable USLD Guarantee or Billing Guarantee. The aggregate amount of any such Credit Support Fee shall be paid by January 31, of the applicable year. ARTICLE IV. [RESERVED] 13 ARTICLE V. OBLIGATIONS FOR NON-PLAN OPTIONS Section 5.01. NON-PLAN OPTIONS OBLIGATIONS. (a) USLD has issued certain stock options (the "Non-Plan Options"), of which Non-Plan Options to purchase approximately _______ shares of USLD Common Stock were outstanding and unexercised as of the date of this Agreement. The Board of Directors of USLD has determined in connection with the Distribution to adjust the exercise price of and, if necessary, the number of shares outstanding under each Non-Plan Option to preserve the current spread between the exercise price of each Non-Plan Option and the price of the USLD Common Stock as of the Cut-Off Date. (b) For purposes of determining the adjusted exercise price of each Non-Plan Option, the following formula (the "Non-Plan Option Adjustment") shall be used to maintain the holder's Exercise Price Spread on each Non-Plan Option. The Exercise Price Spread shall be maintained by setting the exercise price for each Non-Plan Option so that the difference between (a) the Post Distribution USLD Closing Stock Price and (b) the adjusted exercise price of the Non-Plan Option shall be equal to the difference between (y) the USLD Closing Stock Price on the Cut Off Date and (z) the exercise price of the Non-Plan Option on the Cut Off Date, provided, however, that if the difference between (a) the Post Distribution USLD Closing Stock Price and (b) the adjusted exercise price, as fully adjusted, is less than the difference between (y) the USLD Closing Stock Price on the Cut-Off Date and (z) the exercise of the Non-Plan Option on the Cut-Off Date, additional shares of USLD Common Stock shall be added to the Non-Plan Option until the difference between (a) and (b) above is equal to the difference of (y) and (z) above. (c) The obligation of USLD to issue USLD Common Stock upon the exercise of a Non-Plan Option shall be adjusted in accordance with the Non-Plan Option Adjustment. Except for the Non-Plan Option Adjustment, the terms of each Non-Plan Options will be the same as those in effect prior to the Distribution. (d) USLD agrees to execute and deliver to the Non-Plan Options holders following the Distribution the Supplemental Non-Plan Option Agreements. Section 5.02 GRANT OF NON-PLAN BILLING OPTION. (a) Billing agrees to grant to a former USLD Director who has agreed to join the Board of Directors of Billing, in consideration of his joining the Billing Board of Directors and to replace an unvested option for 5,000 of USLD Common Stock, a non-qualified stock option of Billing to purchase 5,000 shares of Billing Common Stock ("Billing Non-Plan Option") at an exercise price that preserves the current spread between the exercise price of the USLD unvested option and the price of the USLD Common Stock as of the Cut-Off Date. (b) For purposes of determining the exercise price of the Billing Non-Plan Option, the following formula shall be used to maintain the holder's Exercise Price Spread on the Billing Non-Plan Option. The Exercise Price Spread shall be maintained by setting the exercise price for the Billing Non-Plan Option so that the differences between (a) the Post Distribution Billing Closing Stock Price and (b) the adjusted price of the Billing Non-Plan Option shall be equal to the difference between (y) the USLD Closing Price on the Cut-Off Date and (z) the exercise price of the former Director's USLD unvested option on the Cut-Off Date. (c) The obligation of Billing to issue Billing Common Stock upon the exercise of the Billing Non-Plan Option shall be adjusted in accordance with paragraph 5.02(b). Except for that adjustment, the terms of the Billing Non-Plan Option will be the same as those in effect for the USLD unvested option prior to the Distribution. (d) Billing agrees to execute and deliver to the Billing Non-Plan Option holder following the Distribution the Billing Non-Plan Option agreement. ARTICLE VI. THE DISTRIBUTION Section 6.01. COOPERATION PRIOR TO THE DISTRIBUTION. (a) Billing and USLD shall cooperate in preparing, filing with the Commission and causing to become effective any registration statements or amendments thereof that are appropriate to reflect the establishment of, or amendments to, any employee benefits plans and other plans contemplated by the Benefit Plans and Employment Matters Allocation Agreement. (b) Billing and USLD shall take all such actions as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement and the Related Agreements. 14 (c) Billing and USLD shall use all reasonable efforts to obtain any third-party consents or approvals necessary or desirable in connection with the transactions contemplated hereby ("Consents"). (d) Billing and USLD will use all reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary or desirable under applicable law, to consummate the transactions contemplated under this Agreement and the Related Agreements. Section 6.02. USLD BOARD ACTION; CONDITIONS PRECEDENT TO THE Distribution. The USLD Board shall, in its discretion, establish any appropriate procedures in connection with the Distribution. In no event shall the Distribution occur unless the following conditions have been satisfied: (i) the transactions contemplated by Section 2.01 shall have been consummated in all material respects; (ii) the Billing Board, comprised as contemplated by Section 8.01, shall have been elected by USLD, as sole stockholder of Billing, and the Billing Certificate and Billing Bylaws shall have been adopted and shall be in effect; (iii) USLD shall have received the opinion of The Chicago Corporation substantially in the Form of EXHIBIT I and such opinion shall not have been withdrawn; (iv) USLD shall have received the opinion of Houlihan Lokey substantially in the form of EXHIBIT J and such opinion shall not have been withdrawn; (v) USLD shall have received the Tax Opinion of Arter & Hadden substantially in the form of EXHIBIT K and such opinion shall not have been withdrawn; (vi) the Registration Statement on Form 10 under the Securities Exchange Act of 1934, as amended ("Exchange Act"), filed by Billing shall have been declared effective by the Commission; (vii) Billing and USLD shall have entered into the Related Agreements; (viii)Billing's application to effect the listing of the Billing Common Stock on the Nasdaq National Market shall have become effective; (ix) the transactions contemplated hereby shall be in compliance with applicable federal and state securities laws and USLD shall have received a satisfactory "no action letter" from the Commission with regard to exemptions from registration of the Distribution and related matters; 15 (x) USLD shall have received such consents, and shall have received executed copies of such agreements and amendments of agreements, as it shall deem necessary in connection with the completion of the transactions contemplated by this Agreement; (xi) no legal proceedings affecting or otherwise arising out of the transactions contemplated hereby or which could otherwise affect USLD or Billing in a materially adverse manner shall have been commenced or threatened against USLD, Billing or the directors or officers of either USLD or Billing; and (xii) no material adverse change shall have occurred with respect to USLD or Billing, the securities markets or general economic or financial conditions which shall, in the reasonable judgment of USLD and Billing, make the transactions contemplated by this Agreement inadvisable. PROVIDED, HOWEVER, that (x) any such condition may be waived by the USLD Board in its sole discretion, and (y) the satisfaction of such conditions shall not create any obligation on the part of USLD or any other party hereto to effect the Distribution or in any way limit USLD's power of termination set forth in Section 11.07 or alter the consequences of any such termination from those specified in such Section. Section 6.03. THE DISTRIBUTION. On the Distribution Date, subject to the conditions and rights of termination set forth in this Agreement, USLD shall deliver to the Agent a share certificate representing all of the then outstanding shares of Billing Common Stock owned by USLD and shall instruct the Agent to distribute, on or as soon as practicable following the Distribution Date, such Billing Common Stock to the Holders. Billing agrees to provide all share certificates that the Agent shall require in order to effect the Distribution. Section 6.04. SECURITIES FILINGS. For a period of five years after the Distribution Date, each of USLD and Billing shall provide to the other, promptly following such time at which such documents shall be filed with the Commission, copies of all documents which shall be publicly filed with the Commission pursuant to the periodic and interim reporting requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. ARTICLE VII. INDEMNIFICATION Section 7.01. INDEMNIFICATION BY USLD. Except as otherwise expressly set forth in a Related Agreement, USLD shall indemnify, defend and hold harmless Billing and each of the Billing Group Subsidiaries, and each of their respective directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "Billing Indemnitees") from and against the Telecommunications Group Liabilities and any and all losses, Liabilities, damages including without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and 16 compromises relating thereto and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions (collectively, "Billing Indemnifiable Losses" and, individually, a "Billing Indemnifiable Loss") of the Billing Indemnitees arising out of or due to the failure or alleged failure of USLD, any Telecommunications Group Subsidiary, or any of their respective Affiliates to (i) pay, perform or otherwise discharge in due course any of the Telecommunications Group Liabilities, or (ii) comply with the provisions of Section 7.04. To the extent that counsel is provided to Billing under this indemnification, such counsel shall be selected by USLD and such counsel may include its in-house corporate counsel. Section 7.02. INDEMNIFICATION BY BILLING. Except as otherwise expressly set forth in a Related Agreement, Billing shall indemnify, defend and hold harmless USLD and each of the Telecommunications Group Subsidiaries, and each of their respective directors, officers, employees, agents and Affiliates and each of the heirs, executors, successors and assigns of any of the foregoing (the "USLD Indemnitees") from and against the Billing Group Liabilities and any and all losses, Liabilities, damages, including, without limitation, the costs and expenses of any and all Actions, threatened Actions, demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all expenses whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened Actions (collectively, "USLD Indemnifiable Losses" and, individually, a "USLD Indemnifiable Loss") of the USLD Indemnitees arising out of or due to the failure or alleged failure of Billing, any Billing Group Subsidiaries, or any of their respective Affiliates to (i) pay, perform or otherwise discharge in due course any of the Billing Group Liabilities or (ii) comply with the provisions of Section 7.04. The "Billing Indemnifiable Losses" and the "USLD Indemnifiable Losses" are collectively referred to as the "Indemnifiable Losses." To the extent that counsel is provided to USLD under this Indemnification, such counsel shall be selected by Billing and such counsel may include its in-house corporate counsel. Section 7.03. INSURANCE PROCEEDS. The amount that any party (an "Indemnifying Party") is or may be required to pay to any other Person (an "Indemnitee") pursuant to Section 7.01 or Section 7.02 shall be reduced (including, without limitation, retroactively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnitee in reduction of the related Indemnifiable Loss. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds, or other amounts in respect of such Indemnifiable Loss as specified above, then such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received. Section 7.04. PROCEDURE FOR INDEMNIFICATION. (a) Except as may be set forth in a Related Agreement, if an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including, without limitation, any governmental entity) who is not a party to this Agreement or to any of the Related Agreements of any claim or of the commencement by any such Person of any Action with respect to which an Indemnifying Party may be obligated to provide indemnification pursuant to this Agreement (a "Third-Party Claim"), such Indemnitee shall give such Indemnifying Party written notice thereof promptly after becoming aware of such 17 Third-Party Claim; PROVIDED, that the failure of any Indemnitee to give notice as required by this Section 7.04 shall not relieve the Indemnifying Party of its obligations under this Article VII, except to the extent that such Indemnifying Party is prejudiced by such failure to give notice. Such notice shall describe the Third-Party Claim in reasonable detail, and shall indicate the amount (estimated if necessary) of the Indemnifiable Loss that has been or may be sustained by such Indemnitee. (b) An Indemnifying Party may elect to defend or to seek to settle or compromise, at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party must confirm in writing that it agrees that the Indemnitee is entitled to indemnification hereunder in respect of such Third-Party Claim. Within 20 days of the receipt of notice from an Indemnitee in accordance with Section 7.04(a) (or sooner, if the nature of such Third-Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether to assume responsibility for such Third-Party Claim (provided that if the Indemnifying Party does not so notify the Indemnitee of its election within 20 days after receipt of such notice from the Indemnitee, the Indemnifying Party shall be deemed to have elected not to assume responsibility for such Third-Party Claim), and such Indemnitee shall cooperate in the defense or settlement or compromise of such Third-Party Claim. After notice from an Indemnifying Party to an Indemnitee of its election to assume responsibility for a Third-Party Claim, such Indemnifying Party shall not be liable to such Indemnitee under this Article VII for any legal or other expenses (except expenses approved in advance by the Indemnifying Party) subsequently incurred by such Indemnitee in connection with the defense thereof; PROVIDED, that if the defendants in any such claim include both the Indemnifying Party and one or more Indemnitees and in such Indemnitees' reasonable judgment a conflict of interest between such Indemnitees and such Indemnifying Party exists in respect of such claim, such Indemnitees shall have the right to employ separate counsel and in that event the reasonable fees and expenses of such separate counsel (but not more than one separate counsel reasonably satisfactory to the Indemnifying Party) shall be paid by such Indemnifying Party. If an Indemnifying Party elects not to assume responsibility for a Third-Party Claim (which election may be made only in the event of a good faith dispute that a claim was inappropriately tendered under Section 7.01 or 7.02, as the case may be) such Indemnitee may defend or (subject to the following sentence) seek to compromise or settle such Third-Party Claim. Notwithstanding the foregoing, an Indemnitee may not settle or compromise any claim without prior written notice to the Indemnifying Party, which shall have the option within 10 days following the receipt of such notice (i) to disapprove the settlement and assume all past and future responsibility for the claim, including reimbursing the Indemnitee for prior expenditures in connection with the claim, or (ii) to disapprove the settlement and continue to refrain from participation in the defense of the claim, in which event the Indemnifying Party shall have no further right to contest the amount or reasonableness of the settlement if the Indemnitee elects to proceeds therewith, or (iii) to approve the amount of the settlement, reserving the Indemnifying Party's right to contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay the settlement. In the event the Indemnifying Party makes no response to such written notice from the Indemnitee, the Indemnifying Party shall be deemed to have elected option (ii). 18 (c) If an Indemnifying Party chooses to defend or to seek to compromise any Third-Party Claim, the Indemnitee shall make available to such Indemnifying Party any personnel and any books, records or other documents within its control or which it otherwise has the ability to make available that are necessary or appropriate for such defense. (d) Any claim on account of an Indemnifiable Loss that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall have a period of 15 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 15-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 15-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party under applicable law or under this Agreement. (e) In addition to any adjustments required pursuant to Section 7.03, if the amount of any Indemnifiable Loss shall, at any time subsequent to the payment required by this Agreement, be reduced by recovery, settlement or otherwise, the amount of such reduction, less any expenses incurred in connection therewith, shall promptly be repaid by the Indemnitee to the Indemnifying Party. (f) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim. Section 7.05. REMEDIES CUMULATIVE. The remedies provided in this Article VII shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. Section 7.06. SURVIVAL OF INDEMNITIES. The obligations of each of Billing and USLD under this Article VII shall survive the sale or other transfer by it of any assets or businesses or the assignment by it of any Liabilities, with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities. ARTICLE VIII. CERTAIN ADDITIONAL MATTERS Section 8.01. BILLING BOARD. Billing and USLD shall take all actions which may be required to constitute, effective as of the Distribution Date, the following persons as the directors 19 of Billing: Parris H. Holmes, Jr., Alan W. Saltzman, Lee Cooke, _______________, and __________________. Section 8.02. RESIGNATIONS; USLD BOARD. Billing shall cause all of its directors and Billing Group Employees to resign, effective as of the Distribution Date, from all boards of directors or similar governing bodies of USLD or any of its Subsidiaries on which they serve, and from all positions as officers or employees of USLD or any of its Subsidiaries in which they serve, except that Parris H. Holmes, Jr. shall serve as a director of both Billing and USLD and as Chairman of both the USLD Board and the Billing Board. USLD shall cause all of its directors and the Telecommunications Group Employees to resign from all boards of directors or similar governing bodies of Billing or any of its Subsidiaries on which they serve, and from all positions as officers or employees of Billing or any of its Subsidiaries in which they serve, except that Parris H. Holmes, Jr. shall serve as a director of both Billing and USLD and as Chairman of both the USLD Board and the Billing Board and as Chief Executive Officer of Billing. Section 8.03. CERTIFICATE AND BYLAWS. On or prior to the Distribution Date, Billing shall adopt the Billing Certificate and the Billing Bylaws, and shall file the Billing Certificate with the Secretary of State of the State of Delaware. USLD shall provide all necessary stockholder approvals for the Billing Certificate prior to the filing of the Billing Certificate with the Secretary of State of the State of Delaware. Section 8.04. CERTAIN POST-DISTRIBUTION TRANSACTIONS. (a) BILLING. (i) Billing shall, and shall cause each of the Billing Group Subsidiaries to, comply with each representation and statement made, or to be made, to any Person in connection with the Tax Opinion with respect to any transaction contemplated by this Agreement, and (ii) until the second anniversary of the Distribution Date, neither Billing nor any of its Subsidiaries shall (a) make a material disposition, by means of a sale or exchange of assets or capital stock, a distribution to stockholders or otherwise, of any substantial portion of its assets, (b) repurchase or issue any Billing capital stock (other than stock issued pursuant to employee plans or outstanding options or Warrants), or (c) in the case of Billing, cease the active conduct of a material portion of its business independently, with its own employees and without material change, unless, in each of cases (a), (b) and (c), in the opinion of counsel to Billing, which opinion shall be reasonably satisfactory to USLD, or pursuant to a favorable IRS letter ruling or tax opinion reasonably satisfactory to USLD, such act or omission would not adversely affect the tax consequences of the Distribution to USLD or the stockholders of USLD, as set forth in any ruling issued by any taxing authority or tax opinion; and Billing has no present intention to take any such actions. (b) USLD. (i) USLD shall, and shall cause each of the Telecommunications Group Subsidiaries to comply with each representation and statement made, or to be made, to any Person in connection with the Tax Opinion with respect to any transaction contemplated by this Agreement; and (ii) until the second anniversary of the Distribution Date, neither USLD nor any of its Subsidiaries shall (a) make a material disposition, by means of a sale or exchange of 20 assets or capital stock, a distribution to stockholders or otherwise, of any substantial portion of its assets (other than Billing Group Assets in connection with the Distribution or transactions effected in contemplation thereof), (b) repurchase any capital stock of USLD (other than stock issued pursuant to employee plans or outstanding options or Warrants), or (c) in the case of USLD, cease the active conduct of a material portion of its business independently, with its own employees and without material change, unless, in each of cases (a), (b) and (c), in the opinion of counsel to USLD, which opinion shall be reasonably satisfactory to Billing, or pursuant to a favorable IRS letter ruling or tax opinion reasonably satisfactory to Billing, such act or omission would not adversely affect the tax consequences of the Distribution to Billing or the stockholders of Billing, as set forth in any ruling issued by any taxing authority or tax opinion; and USLD has no present intention to take any such actions. Section 8.05. BILLING RIGHTS PLAN. Prior to the Distribution Date, the Billing Board may elect, in its sole discretion, to recommend that Billing adopt a stockholder rights plan (the "Billing Rights Plan"). The Billing Rights Plan will be substantially similar to the USLD Rights Plan and will provide for the distribution of preferred share purchase rights ("Billing Rights") with respect to each share of Billing Common Stock. The Billing Rights will be attached to the Billing Common Stock and will not be exercisable, or transferrable apart from the Billing Common Stock, unless and until certain events occur. If certain events occur relating to the acquisition by an acquiring person of Billing Common Stock, or a merger or other combination of Billing with an acquiring person, the Billing Rights will entitle holders (other than the acquiring person) to purchase either Billing Common Stock or common stock of the acquiring person at a discount. The specific terms of the Billing Rights will be determined by the Board of Directors of Billing consistent with the description thereof in the Information Statement. Section 8.06. USE OF THE "USLD" NAME AND THE USLD LOGO. Notwithstanding anything to the contrary in this Agreement (including the conveyance to Billing of the Transferred Intellectual Property) or in any Related Agreement, the parties hereto agree that USLD shall retain the exclusive right to use the mark "USLD" without limitation or expiration and the right to use the USLD Logo following the Distribution. Section 8.07. NONCOMPETITION AGREEMENT; RESTRICTED TRANSACTIONS. (a) Each USLD and Billing agrees that for a period of one (1) year after the Distribution Date, whether a breach of this Agreement or any Related Agreement is alleged or not, neither USLD nor Billing will, without the prior written consent of the other, which consent may be withheld in the sole discretion of each, engage, whether for compensation or not, as an owner, partner, stockholder, investor or in any other capacity whatsoever in any activity or endeavor that competes directly or indirectly with the business of the other as engaged in, or proposed to be engaged in, as of the Distribution Date; provided, however, that nothing contained herein shall prohibit either USLD or Billing from engaging in a merger, consolidation or other business combination with another person or entity with departments or divisions that competes with either USLD or Billing, as the case may be. Such restriction applies worldwide. (b) Each USLD and Billing further agrees for a period of six (6) months after the Distribution Date, notwithstanding any allegation of breach of this Agreement or any Related 21 Agreement, not, without the prior written consent of the other, to solicit, influence or attempt to influence any employee of the other to terminate his or her employment or other contractual relationship with his or her respective employer for any reason including, without limitation, working for such soliciting party. Either Billing or USLD may elect to pay to the other fifty percent (50%) of the total previous 12 months salary and bonus of any employee of the other for the privilege of soliciting the employment of such employee without the necessity of obtaining the consent of the employing party. (c) The covenants of USLD and Billing contained in Section 8.07 will be construed as independent of any other provision in this Agreement; and the existence of any claim or cause of action by USLD or Billing against the other will not constitute a defense to the enforcement of said covenants. Each USLD and Billing further agrees and acknowledges that this Section 8.07 (1) is reasonable as to length of time, scope and geographic area for purposes of protecting the commercial advantages enjoyed by each USLD and Billing, (2) does not impose a greater restraint than is necessary to protect the goodwill or business interests of each USLD and Billing and (3) is more than adequately paid for in the consideration derived by each USLD and Billing under this Agreement. Each of USLD and Billing also agree that the arbitrators (under Section 11.13) have jurisdiction to modify any provisions of this Section 8.07 in accordance with the court's or arbitrators' respective ruling as to reasonableness or scope of application and that this Agreement shall remain enforceable as modified or amended in the jurisdiction where this Agreement is so modified or amended. ARTICLE IX. ACCESS TO INFORMATION AND SERVICES Section 9.01. PROVISION OF CORPORATE RECORDS. (a) Except as may otherwise be provided in a Related Agreement, USLD shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated in Article II, for the transportation (at Billing's cost) to Billing of the Billing Books and Records in USLD's possession, except to the extent such items are already in the possession of Billing or a Billing Subsidiary. The Billing Books and Records shall be the property of Billing, but shall be available to USLD for review and duplication until USLD shall notify Billing in writing that such records are no longer of use to USLD. (b) Except as otherwise provided in a Related Agreement, Billing shall arrange as soon as practicable following the Distribution Date, to the extent not previously delivered in connection with the transactions contemplated in Article II, for the transportation (at USLD's cost) to USLD of the USLD Books and Records in Billing's possession, except to the extent such items are already in the possession of USLD. The USLD Books and Records shall be the property of USLD, but the USLD Books and Records that reasonably relate to the Billing Group Business shall be available to Billing for review and duplication until Billing shall notify USLD in writing that such records are no longer of use to Billing. 22 Section 9.02. ACCESS TO INFORMATION. Except as otherwise provided in a Related Agreement, from and after the Distribution Date, USLD shall afford to Billing and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information relating to pre-Distribution operations (collectively, "INFORMATION") within USLD's possession insofar as such access is reasonably required by Billing for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Similarly, except as otherwise provided in a Related Agreement, Billing shall afford to USLD and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within Billing's possession, insofar as such access is reasonably required by USLD for the conduct of its business, subject to appropriate restrictions for classified or Privileged Information. Information may be requested under this Article IX for the legitimate business purposes of either party, including without limitation, audit, accounting, claims (including claims for indemnification hereunder), litigation and tax purposes, as well as for purposes for fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby. The parties hereby agree that Billing shall also grant to USLD reasonable access to data maintained by Billing after the Distribution that contain data and other information reasonably related to the Telecommunications Group Assets or the Telecommunications Group Business, for purposes of review and retrieval of such data (including the generation of reports containing such data). USLD agrees to reimburse Billing for the reasonable costs of the use of such computer systems. The parties also agree that USLD shall grant to Billing reasonable access to data maintained by USLD after the Distribution that certain data and other information reasonably related to the Billing Group Assets or the Billing Group Business, for purposes of review and retrieval of such data (including the generation of reports containing such data). Billing agrees to reimburse USLD for the reasonable costs of the use of such computer systems. Section 9.03. PRODUCTION OF WITNESSES. At all times from and after the Distribution Date, each of Billing and USLD shall use reasonable efforts to make available to the other, upon written request, its and its Subsidiaries' officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with any Action. Section 9.04. REIMBURSEMENT. Except to the extent otherwise contemplated in any Related Agreement, a party providing Information or witness services to the other party under this Article IX shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments of such amounts, relating to supplies, disbursements and other out-of-pocket expenses (at cost) and direct and indirect expenses of employees who are witnesses or otherwise furnish assistance (at cost), as may be reasonably incurred in providing such Information or witness services. 23 Section 9.05. RETENTION OF RECORDS. Except as otherwise required by law or agreed to in a Related Agreement or otherwise in writing, each of Billing and USLD may destroy or otherwise dispose of any of the Information, which is material Information and is not contained in other Information retained by USLD or Billing, as the case may be, at any time after the tenth anniversary of this Agreement, provided that, prior to such destruction or disposal, (a) it shall provide no less than 90 or more than 120 days prior written notice to the other, specifying in reasonable detail the Information proposed to be destroyed or disposed of and (b) if a recipient of such notice shall request in writing prior to the scheduled date for such destruction or disposal that any of the Information proposed to be destroyed or disposed of be delivered to such requesting party, the party proposing the destruction or disposal shall promptly arrange for the delivery of such of the Information as was requested at the expense of the party requesting such Information. Section 9.06. CONFIDENTIALITY. Each of USLD and its Subsidiaries on the one hand, and Billing and its Subsidiaries on the other hand, shall hold, and shall cause its consultants and advisors to hold, in strict confidence, all Information concerning the other in its possession or furnished by the other or the other's representatives pursuant to this Agreement or the Related Agreements (except to the extent that such Information has been (i) in the public domain through no fault of such party or (ii) later lawfully acquired from other sources by such party), and each party shall not release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, rating agencies, bankers or other consultants and advisors, unless compelled to disclose by judicial or administrative process, or as reasonably advised by its counsel or by other requirements of law, or unless such Information is reasonably required to be disclosed in connection with (x) any litigation with any third-parties or litigation between the USLD Group and the Billing Group, (y) any contractual agreement to which the USLD Group or the Billing Group are currently parties, or (z) in exercise of either party's rights hereunder or under any Related Agreement. Section 9.07. PRIVILEGED MATTERS. Billing and USLD recognize that legal and other professional services that have been and will be provided prior to the Distribution Date have been and will be rendered for the benefit of both the USLD Group and the Billing Group and that both the USLD Group and the Billing Group should be deemed to be the client for the purposes of asserting all Privileges. To allocate the interests of each party in the Privileged Information, the parties agree as follows: (a) USLD shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the Telecommunications Group, whether or not Privileged Information is in the possession of or under the control of USLD or Billing. USLD shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the subject matter of any claims constituting Telecommunications Group Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by USLD, whether or not the Privileged Information is in the possession of or under the control of USLD or Billing. 24 (b) Billing shall be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the Billing Group, whether or not the Privileged Information is in the possession of or under the control of USLD or Billing. Billing shall also be entitled, in perpetuity, to control the assertion or waiver of all Privileges in connection with Privileged Information that relates solely to the subject matter of any claims constituting Billing Group Liabilities, now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by Billing, whether or not the Privileged Information is in the possession of Billing or under the control of USLD or Billing. (c) Billing and USLD agree that they shall have a shared Privilege, with equal right to assert or waive, subject to the restrictions in this Section 9.07, with respect to all Privileges not allocated pursuant to the terms of Sections 9.07(a) and (b). All Privileges relating to any claims, proceedings, litigation, disputes, or other matters that involve both Billing and USLD in respect of which Billing and USLD retain any responsibility or liability under this Agreement or any Related Agreement, shall be subject to a shared Privilege. (d) No party may waive any Privilege that could be asserted under any applicable law, and in which the other party has a shared Privilege, without the consent of the other party, except to the extent reasonably required in connection with any litigation with third-parties or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within 20 days after notice upon the other party requesting such consent. (e) In the event of any litigation or dispute between a member of the USLD Group and a member of the Billing Group, either party may waive a Privilege in which the other party has a shared Privilege, without obtaining the consent of the other party, provided that such waiver of a shared Privilege shall be effective only as to the use of Information with respect to the litigation or dispute between the USLD Group and the Billing Group, and shall not operate as a waiver of the shared Privilege with respect to third-parties. (f) If a dispute arises between the parties regarding whether a Privilege should be waived to protect or advance the interest of either party, each party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other party, and shall not unreasonably withhold consent to any request for waiver by the other party. Each party specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests. (g) Upon receipt by any party of any subpoena, discovery or other request that arguably calls for the production or disclosure of Information subject to a shared Privilege or as to which the other party has the sole right hereunder to assert a Privilege, or if any party obtains knowledge that any of its current or former directors, officers, agents or employees have received any subpoena, discovery or other requests that arguably calls for the production or disclosure of such Privileged Information, such party shall promptly notify the other party of the existence of the request and shall provide the other party a reasonable opportunity to review the 25 Information and to assert any rights it may have under this Section 9.07 or otherwise to prevent the production or disclosure of such Privileged Information. (h) The transfer of the Billing Books and Records and the USLD Books and Records and other Information between USLD and its Subsidiaries and Billing and its Subsidiaries, is made in reliance on the agreement of Billing and USLD, as set forth in Sections 9.06 and 9.07, to maintain the confidentiality of Privileged Information and to assert and maintain all applicable Privileges. The access to information being granted pursuant to Sections 9.01 and 9.02 hereof, the agreement to provide witnesses and individuals pursuant to Section 9.03 hereof and the transfer of Privileged Information between USLD and its Subsidiaries and Billing and its Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise. ARTICLE X. INSURANCE Section 10.01. POLICIES AND RIGHTS INCLUDED WITHIN THE BILLING GROUP Assets. Without limiting the generality of the definition of the Billing Group Assets set forth in Section 2.01 or the effect of Section 2.01, the Billing Group Assets shall include (a) any and all rights of an insured party under each of the Shared Policies, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred on or prior to the Distribution Date by any party in or in connection with the conduct of the Billing Group or, to the extent any claim is made against Billing or any of its Subsidiaries, the Telecommunications Group, and which injuries, losses, liabilities, damages and expenses may arise out of insured or insurable occurrences or events under one or more of the Shared Policies; PROVIDED, HOWEVER, that nothing in this clause shall be deemed to constitute (or to reflect) the assignment of the Shared Policies, or any of them, to Billing and (b) the Billing Group Policies. Section 10.02. POST-DISTRIBUTION DATE CLAIMS. If, subsequent to the Distribution Date, any person, corporation, firm or entity shall assert a claim against Billing or any of its Subsidiaries with respect to any injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Distribution Date in, or in connection with, the conduct of the Billing Group Business or, to the extent any claim is made against Billing or any of its Subsidiaries, the Telecommunications Group Business, and which injury, loss, liability, damage or expense may arise out of insured or insurable occurrences or events under one or more of the Shared Policies, USLD shall at the time such claim is asserted be deemed to assign, without need of further documentation, to Billing any and all rights of an insured party under the applicable Shared Policy with respect to such asserted claim, specifically including rights of indemnity and the right to be defended by or at the expense of the insurer; PROVIDED, HOWEVER, that nothing in this sentence shall be deemed to constitute (or to reflect) the assignment of the Shared Policies, or any of them, to Billing. 26 Section 10.03. ADMINISTRATION AND RESERVES. (a) Notwithstanding the provisions of Article III, but subject to any contrary provisions of any Related Agreement, from and after the Distribution Date: (i) Billing shall be entitled to any reserves established by USLD or any of its Subsidiaries, or the benefit of reserves held by any insurance carrier, with respect to the Billing Group Liabilities; and (ii) USLD shall be entitled to any reserves established by USLD or any of its Subsidiaries, or the benefit of reserves held by any insurance carrier, with respect to the Telecommunications Group Liabilities. (b) INSURANCE PREMIUMS. Billing shall have the right but not the obligation to pay the premiums, to the extent that USLD does not pay premiums with respect to Telecommunications Group Liabilities (retrospectively-rated or otherwise), with respect to Shared Policies and the Billing Group Policies, as required under the terms and conditions of the respective Policies, whereupon USLD shall forthwith reimburse Billing for that portion of such premiums paid by Billing as are attributable to the Telecommunications Group Liabilities. USLD shall provide continued coverage under its director and officer liability insurance policy for a period of not less than five years for acts that took place or were alleged to have taken place prior to the Distribution Date covering persons who were directors and officers of USLD prior to the Distribution Date. Fifty percent of the additional premiums, if any, for such coverage shall be reimbursed by Billing within 15 days of the Distribution Date. Such coverage for director and officer liability insurance shall not be discontinued by USLD without the consent of Billing, which consent shall not be unreasonably withheld. (c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received with respect to claims, costs and expenses under the Policies shall be paid to Billing with respect to the Billing Group Liabilities and to USLD with respect to the Telecommunications Group Liabilities. Payment of the allocable portions of indemnity costs of Insurance Proceeds resulting from the liability policies will be made to the appropriate party upon receipt from the insurance carrier. In the event that the aggregate limits on any Shared Policies are exceeded, the parties agree to provide an equitable allocation of Insurance Proceeds received after the Distribution Date based upon their respective bona fide claims. The parties agree to use their best efforts to cooperate with respect to insurance matters. Section 10.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE. In the event that Insured Claims of both Billing and USLD exist relating to the same occurrence, Billing and USLD agree to jointly defend and to waive any conflict of interest necessary to the conduct of that joint defense. Nothing in this paragraph shall be construed to limit or otherwise alter in any way the indemnity obligations of the parties to this Agreement, including those created by this Agreement, by operation of law or otherwise. 27 ARTICLE XI. MISCELLANEOUS Section 11.01. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including the Schedules and Exhibits and the Related Agreements and other agreements and documents referred to herein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. Notwithstanding any other provisions in this Agreement to the contrary, in the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Related Agreements, then the Related Agreements shall control. Section 11.02. EXPENSES. Except as otherwise set forth in this Agreement or any Related Agreement, all costs and expenses in connection with the preparation, execution, delivery and implementation of this Agreement, the Distribution and with the consummation of the transactions contemplated by this Agreement shall be charged to the party for whose benefit the expenses are incurred, with any expenses that cannot be allocated on such basis to be split equally between the parties. Section 11.03. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the principles of conflicts of laws thereof. Section 11.04. NOTICES. All notices and other communications hereunder shall be in writing and shall be delivered by hand or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and shall be deemed given on the date on which such notice is received: To Billing: Billing Information Concepts Corp. 9311 San Pedro, Suite 400 San Antonio, Texas 78216 Attention: President To USLD: U.S. Long Distance Corp. 9311 San Pedro, Suite 100 San Antonio, Texas 78216 Attention: President 28 Section 11.05. AMENDMENTS. This Agreement may not be modified or amended except by an agreement in writing signed by the parties. Section 11.06. SUCCESSORS AND ASSIGNS. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Section 11.07. TERMINATION. This Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of the USLD Board without the approval of Billing or of USLD's stockholders. In the event of such termination, no party shall have any liability to any other party pursuant to this Agreement. Section 11.08. SUBSIDIARIES. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such party which is contemplated to be a Subsidiary of such party on and after the Distribution Date. Section 11.09. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties hereto and their respective Subsidiaries and Affiliates and should not be deemed to confer upon third-parties any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Section 11.10. TITLES AND HEADINGS. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Section 11.11. EXHIBITS AND SCHEDULES. The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Section 11.12. LEGAL ENFORCEABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without prejudice to any rights or remedies otherwise available to any party hereto, each party hereto acknowledges that damages would be an inadequate remedy for any breach of the provisions of this Agreement and agrees that the obligations of the parties hereunder shall be specifically enforceable. Section 11.13. ARBITRATION OF DISPUTES. (a) Any controversy or claim arising out of this Agreement or any Related Agreement, or any breach of this Agreement or any Related Agreement, including any controversy relating to a determination of whether specific assets constitute Billing Group Assets or Telecommunications Group Assets or whether specific Liabilities constitute Billing Group Liabilities or Telecommunications Group Liabilities, but excluding any controversy relating to the matters set forth in Section 2.06, shall be settled by 29 arbitration in accordance with the rules of the American Arbitration Association then in effect, as modified by this Section 11.13 or by the further agreement of the parties. (b) Such arbitration shall be conducted in Bexar County, Texas. (c) Any judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators shall not, under any circumstances, have any authority to award punitive, exemplary or similar damages, and may not, in any event, make any ruling, finding or award that does not conform to the terms and conditions of this Agreement or the Related Agreements. (d) Nothing contained in this Section 11.13 shall limit or restrict in any way the right or power of a party at any time to seek injunctive relief in any court and to litigate the issues relevant to such request for injunctive relief before such court (i) to restrain the other party from breaching this Agreement or (ii) for specific enforcement of this Section 11.13. The parties agree that any legal remedy available to a party with respect to a breach of this Section 11.13 will not be adequate and that, in addition to all other legal remedies, each party is entitled to an order specifically enforcing this Section 11.13. (e) The Parties hereby consent to the jurisdiction of the federal courts located in the State of Texas for all purposes under this Agreement. (f) Neither party nor the arbitrators may disclose the existence or results of any arbitration under this Agreement or any Related Agreement or any evidence presented during the course of the arbitration without the prior written consent of both parties, except as required to fulfill applicable disclosure and reporting obligations, or as otherwise required by law. (g) Each party shall bear its own costs incurred in the arbitration. If either party refuses to submit to arbitration any dispute required to be submitted to arbitration pursuant to this Section 11.13, and instead commences any other proceeding, including, without limitation, litigation, then the party who seeks enforcement of the obligation to arbitrate shall be entitled to its attorneys' fees and costs incurred in any such proceeding. Section 11.14. PROMPT ACTION. Where the terms of this Agreement require payment or action "as promptly as possible," "as soon as practicable," or "as soon as possible" such payment or action shall be made or taken, as the case may be, within five (5) business days. Section 11.15. APPLICABILITY TO RELATED AGREEMENTS. To the extent that an issue or question arises under a Related Agreement and such issue or question is not specifically addressed in the Related Agreement (i.e. indemnification; access to information, confidentiality, etc.), such issue or question shall be governed by the applicable provisions in this Agreement. 30 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date and year first above written. U.S. LONG DISTANCE CORP. By: -------------------------------- Title: ----------------------------- BILLING INFORMATION CONCEPTS CORP. By: -------------------------------- Title: ----------------------------- 31 INDEX OF EXHIBITS AND SCHEDULES REFERENCED ON EXHIBITS PAGE Exhibit A Benefit Plans and Employment Matters Allocation Agreement.......... 2 Exhibit B Billing Bylaws..................................................... 3 Exhibit C Amended and Restated Certificate of Incorporation of Billing....... 3 Exhibit D Billing Pro Forma Consolidated Balance Sheet....................... 4 Exhibit E Expense Sharing Agreement.......................................... 4 Exhibit F Tax Sharing Agreement.............................................. 7 Exhibit G Transitional Services and Sublease Agreement....................... 8 Exhibit H USLD Pro Forma Consolidated Balance Sheet.......................... 8 Exhibit I Opinion of The Chicago Corporation................................ 15 Exhibit J Opinion of Houlihan Lokey......................................... 15 32 Exhibit K Opinion of Arter & Hadden......................................... 15 SCHEDULES 1.01(a) Billing Group Subsidiaries..................................... 7 1.01(b) Transferred Intellectual Property ............................. 7 33 SCHEDULE 1.01(a) BILLING GROUP SUBSIDIARIES Billing Information Concepts, Inc., a Delaware corporation (100%) Enhanced Services Billing, Inc. a Texas corporation (100%) 34 SCHEDULE 1.01(b) TRANSFERRED INTELLECTUAL PROPERTY NONE 35 EX-10.2 6 EXHIBIT 10.2 TAX SHARING AGREEMENT by and among U.S. LONG DISTANCE CORP., and BILLING INFORMATION CONCEPTS CORP. dated as of __________________, 1996 TABLE OF CONTENTS PAGE Section 1. Definitions.................................................... 1 1.1 Affiliate...................................................... 1 1.2 Affiliated Group............................................... 1 1.3 Billing........................................................ 1 1.4 Billing Group.................................................. 2 1.5 Billing Member................................................. 2 1.6 Closing........................................................ 2 1.7 Closing Date................................................... 2 1.8 Code........................................................... 2 1.9 Combined Jurisdiction.......................................... 2 1.10 Distribution Agreement......................................... 2 1.11 Final Determination............................................ 2 1.12 Information Return(s).......................................... 2 1.13 IRS............................................................ 2 1.14 Net Tax(es).................................................... 2 1.15 Overdue Rate................................................... 2 1.16 Post-Closing Straddle Period................................... 2 1.17 Post-Closing Taxable Period.................................... 3 1.18 Pre-Closing Straddle Period.................................... 3 1.19 Pre-Closing Taxable Period..................................... 3 1.20 Pre-Spin-Off Affiliate......................................... 3 1.21 Pre-Spin-Off Group............................................. 3 1.22 Pre-Spin-Off Member............................................ 3 1.23 Representative................................................. 3 1.24 Separate Return Basis.......................................... 3 1.25 Spin-Off....................................................... 3 1.26 Straddle Period................................................ 3 1.27 Tax(es)........................................................ 3 1.28 Taxable Period................................................. 3 1.29 Taxable Year................................................... 4 1.30 Tax Benefit(s)................................................. 4 1.31 Taxing Authority............................................... 4 1.32 Tax Practices.................................................. 4 1.33 Tax Return(s).................................................. 4 1.34 USLD........................................................... 4 1.35 USLD Group..................................................... 4 1.36 USLD Member.................................................... 4 Section 2. Obligations, Responsibilities and Rights of USLD and Billing... 5 2.1 Preparation and Filing of Tax Returns.......................... 5 -i- 2.2 Provision of Filing Information................................ 5 2.3 Taxable Year................................................... 5 2.4 Straddle Period Taxes.......................................... 6 2.5 Payment of Taxes............................................... 6 2.6 Amendments to Tax Returns...................................... 6 2.7 Refund of Taxes................................................ 6 2.8 Carrybacks..................................................... 7 Section 3. Indemnification................................................ 7 3.1 By USLD........................................................ 7 3.2 By Billing..................................................... 7 3.3 Certain Reimbursements......................................... 8 3.4 Other Indemnification.......................................... 8 Section 4. Method, Timing and Character of Payments Required by This Agreement.................................................... 8 4.1 Payment in Immediately Available Funds; Interest............... 8 4.2 Characterization of Payments................................... 8 Section 5. Tax Returns; Cooperation; Document Retention; Confidentiality.. 8 5.1 Provision of Cooperation, Documents and Other Information...... 8 5.2 Retention of Books and Records................................. 9 5.3 Status and Other Information Regarding Audits and Litigation... 9 5.4 Confidentiality of Documents and Information................... 9 Section 6. Contests and Audits............................................ 10 6.1 Notification of Audits or Disputes............................. 10 6.2 Control and Settlement......................................... 10 6.3 Delivery of Powers of Attorney and Other Documents............. 10 Section 7. Miscellaneous.................................................. 10 7.1 Effectiveness.................................................. 10 7.2 Entire Agreement............................................... 10 7.3 Guarantees of Performance...................................... 10 7.4 Severability................................................... 11 7.5 Indulgences, etc............................................... 11 7.6 Governing Law.................................................. 11 7.7 Notices........................................................ 11 7.8 Modification or Amendment...................................... 11 7.9 Successors and Assigns......................................... 11 7.10 No Third-Party Beneficiaries................................... 11 7.11 Other.......................................................... 12 7.12 Predecessors and Successors.................................... 12 7.13 Tax Elections.................................................. 12 -ii- 7.14 Injunctions.................................................... 12 7.15 Further Assurances............................................. 12 7.16 Setoff......................................................... 12 7.17 Costs and Expenses............................................. 13 7.18 Rules of Construction.......................................... 13 -iii- TAX SHARING AGREEMENT This TAX SHARING AGREEMENT is entered into by and among U.S. Long Distance Corp., a Delaware corporation ("USLD"), Billing Information Concepts Corp., a Delaware corporation ("Billing"), and their respective direct and indirect subsidiaries. References herein to a "party" (or "parties") to this Agreement, shall refer to USLD, Billing, and where appropriate and the context so requires, their respective subsidiaries. RECITALS A. USLD and its subsidiaries have joined in filing consolidated federal Tax Returns and certain consolidated, combined or unitary state, local or foreign Tax Returns. B. USLD and Billing have entered into that certain Distribution Agreement, dated as of the date hereof (the "Distribution Agreement"), pursuant to which USLD will distribute all of the outstanding common stock in Billing to USLD's stockholders in a transaction intended to qualify for tax-free treatment under Code Section 355 (the "Spin-Off"). C. Pursuant to the Spin-Off, Billing and its subsidiaries will leave the Pre-Spin-Off Group. D. The parties hereto wish to provide for (i) allocations of, and indemnifications against, certain liabilities for Taxes, (ii) the preparation and filing of Tax Returns on a basis consistent with prior practice and the payment of Taxes with respect thereto, and (iii) certain related matters. NOW THEREFORE, in consideration of the foregoing and their mutual promises, the parties hereby agree as follows: SECTION 1. DEFINITIONS. When used herein the following terms shall have the following meanings: 1.1 "AFFILIATE" - with respect to any corporation (the "given corporation"), each person, corporation, partnership or other entity that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the given corporation. For purposes of this definition, "control" means the possession, directly or indirectly, of 50% or more of the voting power or value of outstanding voting interests. 1.2 "AFFILIATED GROUP" - an affiliated group of corporations within the meaning of Code Section 1504(a) for the Taxable Period or, for purposes of any state income tax matters, any consolidated, combined or unitary group of corporations within the meaning of the corresponding provisions of tax law for the state in question. 1.3 "BILLING" - as defined in the recitals to this Agreement. 1.4 "BILLING GROUP" - Billing and each corporation that joins with Billing in filing a consolidated federal income tax return for any Post-Closing Taxable Period. For purposes of this Agreement, the Billing Group shall exist from the beginning of the day immediately after the Closing Date. 1.5 "BILLING MEMBER" - a corporation that was a Pre-Spin-Off Member and becomes a member of the Billing Group at the beginning of the day immediately after the Closing Date. 1.6 "CLOSING" - the time at which the Spin-Off shall become effective on the Closing Date. 1.7 "CLOSING DATE" - the date on which the Spin-Off is effected by USLD. 1.8 "CODE" - the Internal Revenue Code of 1986, as amended, or any successor thereto, as in effect for the Taxable Year in question. 1.9 "COMBINED JURISDICTION" - for any Taxable Period, any state, local or foreign jurisdiction in which USLD or a USLD Affiliate is included in a consolidated combined, unitary or similar return with Billing or any Billing Affiliate for state, local or foreign Tax purposes. 1.10" DISTRIBUTION AGREEMENT" - as defined in the recitals to this Agreement. 1.11 "FINAL DETERMINATION" - (i) a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (ii) a closing agreement or accepted offer in compromise under Code Sections 7121 or 7122, or comparable agreements or accepted offers under the laws of other jurisdictions; (iii) any other final settlement with the IRS or other Taxing Authority; or (iv) the expiration of an applicable statute of limitations. 1.12 "INFORMATION RETURN(s)" - with respect to any corporation or Affiliated Group, any and all reports, returns, declarations or other filings (other than Tax Returns) required to be supplied to any Tax Authority. 1.13 "IRS" - the Internal Revenue Service. 1.14 "NET TAX(ES)" - Taxes (as defined herein) less any related interest or penalty attributed to such Taxes. 1.15 "OVERDUE RATE" - a rate of interest per annum that equals the prime or base lending rate of ______ plus ______ basis points. 1.16 "POST-CLOSING STRADDLE PERIOD" - with respect to any Straddle Period, the period beginning on the day after the Closing Date and ending on the last day of such Taxable Year. 2 1.17 "POST-CLOSING TAXABLE PERIOD" - a Taxable Year that begins on or after the day immediately after the Closing Date. 1.18 "PRE-CLOSING STRADDLE PERIOD" - with respect to any Straddle Period, the period beginning on the first day of such Taxable Year and ending on the close of business on the Closing Date. 1.19 "PRE-CLOSING TAXABLE PERIOD" - a Taxable Year that ends at or before the close of business on the Closing Date. 1.20 "PRE-SPIN-OFF AFFILIATE" - any Affiliate of any Pre-Spin-Off Member. 1.21 "PRE-SPIN-OFF GROUP" - USLD and each corporation that joined with USLD in filing a consolidated federal income tax return for any Pre-Closing Taxable Period. For purposes of this Agreement, the Pre-Spin-Off Group shall terminate at the close of business on the Closing Date. 1.22 "PRE-SPIN-OFF MEMBER" - a corporation that was a member of the Pre-Spin-Off Group immediately prior to the close of business on the Closing Date. 1.23 "REPRESENTATIVE" - with respect to any person or entity, any of such person's or entity's directors, officers, employees, agents, consultants, accountants, attorneys and other advisors. 1.24 "SEPARATE RETURN BASIS" - the Tax liability for the Billing Group (or any Billing Member) calculated with Billing as the common parent of the Affiliated Group and without regard to any USLD Member. 1.25 "SPIN-OFF" - as defined in the Recitals to this Agreement. 1.26 "STRADDLE PERIOD" - any Taxable Year beginning before and ending after the close of business on the Closing Date. 1.27 "TAX(ES)" - with respect to any corporation or group of corporations, any and all U.S. and foreign taxes based or measured by net income, gross income, gross receipts (when levied in lieu of an income tax) alternative minimum taxable income, capital surplus, payroll or fixed assets regardless of whether denominated as an "income tax," a "franchise tax" sales/use tax, local utility tax, Public Utility Commission (PUC) regulatory tax, property tax or otherwise, imposed by any Taxing Authority, whether any such tax is imposed directly or through withholding, together with any interest and any penalty, addition to tax resulting from a tax deficiency or additional amount. 1.28 "TAXABLE PERIOD" - a Pre-Closing Taxable Period, a Post-Closing Taxable Period or a Straddle Period. 3 1.29 "TAXABLE YEAR" - a taxable year (which may be shorter than a full calendar or fiscal year), year of assessment or similar period with respect to which any Tax may be imposed. 1.30 "TAX BENEFIT(S)" - (i) in the case of a Tax for which a consolidated federal, or a consolidated, combined or unitary state or other, Tax Return is filed, the amount by which the Tax liability of the Affiliated Group or other relevant group of corporations is actually reduced on a "with and without" basis (by deduction, entitlement to refund, credit, offset or otherwise, whether available in the current Taxable Year, as an adjustment to taxable income in any other Taxable Year or as a carryforward or carryback, and including the effect of such reduction on other Taxes), plus any interest received with respect to any related Tax refund, and (ii) in the case of any other Tax, the amount by which the Tax liability of a corporation is actually reduced on a "with and without" basis (by deduction, entitlement to refund, credit offset or otherwise, whether available in the current Taxable Year, as an adjustment to taxable income in any other Taxable Year or as a carryforward or carryback, and including the effect of such reduction on other Taxes), plus any interest received with respect to any related Tax refund. 1.31 "TAXING AUTHORITY" - the IRS and any other domestic or foreign governmental authority responsible for the administration of any Tax. 1.32 "TAX PRACTICES" - the most recently applied policies, procedures and practices employed by the Pre-Spin-Off Group in the preparation and filing of, and positions taken on, any Tax Returns of USLD or any Pre-Spin-Off Member or Pre-Spin-Off Affiliate for any Pre-Closing Taxable Period. 1.33 "TAX RETURN(S)" - with respect to any corporation or Affiliated Group, all returns, reports, estimates, information statements, including forms necessary to be filed to withdraw a company's authorization to do business in any state or locality, declarations and other filings relating to, or required to be filed in connection with, the payments or refund of any Tax for any Taxable Period. 1.34 "USLD" - as defined in the recitals to this Agreement. 1.35 "USLD GROUP" - USLD and each corporation that joins with USLD in filing a consolidated federal income tax return for any Post-Closing Taxable Period. For purposes of this Agreement, the USLD Group shall exist from the beginning of the day immediately after the Closing Date. 1.36 "USLD MEMBER" - a corporation that was immediately before the Spin-Off a Pre-Spin-Off Member and becomes a member of the USLD Group at the beginning of the day immediately after the Closing Date. 4 SECTION 2. OBLIGATIONS, RESPONSIBILITIES AND RIGHTS OF USLD AND BILLING. 2.1 PREPARATION AND FILING OF TAX RETURNS. (a) BY USLD. USLD shall prepare and timely file (or cause to be prepared and timely filed): (1) all U.S. and foreign Tax and Information Returns of the Pre-Spin-Off Group and any Pre-Spin-Off Member that are required to be filed for periods ending on or before the Closing Date; (2) all U.S. and foreign Tax and Information Returns of the Pre-Spin-Off Group and any Pre-Spin-Off Member for all Pre-Closing Taxable Periods that are not required to be filed for periods ending on or before the Closing Date; (3) all U.S. and foreign Tax and Information Returns of the USLD Group and any USLD Member for all Straddle Periods and Post-Closing Taxable Periods; and (4) all U.S. and foreign Tax and Information Returns not otherwise required to be filed by USLD or Billing pursuant to this Section 2.1(a) and Section 2.1(b). (b) BY BILLING. Billing shall prepare and timely file (or cause to be prepared and timely filed) all Tax and Information Returns of the Billing Group and any Billing Member for all Straddle Periods and Post-Closing Taxable Periods. 2.2 PROVISION OF FILING INFORMATION. Each party shall cooperate and assist the other party in the preparation and filing of all Tax and Information Returns subject to Section 2.1 and submit to the other party (i) all necessary filing information in a manner consistent with past Tax Practices and (ii) all other information reasonably requested by the other party in connection with the preparation of such Tax and Information Returns promptly after such request. 2.3 TAXABLE YEAR. Billing and USLD agree that, for Tax purposes, (i) for the period ending on the Closing Date, the Billing Member shall be included in the consolidated federal Tax Return of the Pre-Spin-Off Group for the Taxable Year that ends at the close of business on September 30, 1996 (and in all corresponding consolidated, combined or unitary state or other Tax Returns of the Pre-Spin-Off Group) and (ii) for the period beginning the day after the Closing Date, the Billing Group and each Billing Member shall begin a new short period Taxable Year for purposes of such federal and, to the extent permitted by law, state Taxes on the day after the Closing Date. The parties further agree that, to the extent permitted by applicable law, all federal, state or other Tax Returns shall be filed consistently with this position. 5 2.4 STRADDLE PERIOD TAXES. (a) For purposes of this Agreement, Taxes shall be allocated between the Pre- and Post-Closing Straddle Periods, in USLD's reasonable judgment with the consent of the appropriate Billing personnel, which shall not be unreasonably withheld, in the following manner: (A) to the extent not impractical, Taxes shall be allocated on the basis of the actual taxable income for each such period, determined by closing the books of the Pre-Spin-Off Group at the close of business on the Closing Date; and (B) to the extent that such an allocation based on a closing of the books is impractical, USLD shall be authorized to allocate Taxes based on rounding to the next nearest accounting period-end. (b) USLD shall pay to Billing within fourteen (14) days after receipt of an executed Straddle Period Tax Return prepared by Billing pursuant to Section 2.1(b), the excess of any amount so allocated (based on the amount of Tax shown on such Tax Return) to the Pre-Closing Straddle Period over the amount of any estimated Taxes previously paid by any Pre-Spin-Off Member to the relevant Taxing Authority prior to the Closing Date; or Billing shall pay to USLD within fourteen (14) days after the filing of such Tax Return the excess of the amount of any estimated Taxes previously paid by any Pre-Spin-Off Member to the relevant Taxing Authority prior to the Closing Date over the amount so allocated to such Period. 2.5 PAYMENT OF TAXES. USLD shall pay (i) all Taxes shown to be due and payable on all Tax Returns filed by (A) USLD pursuant to Section 2.1(a) hereof and (ii) subject to Section 3, all Taxes that shall thereafter become due and payable with respect to all Tax Returns filed pursuant to Sections 2.1(a) as a result of a Final Determination; PROVIDED, HOWEVER, that Billing shall reimburse USLD within fourteen (14) days of receipt of notification from USLD for the amount of Net Taxes that are attributable to any Billing Member on a Separate Return Basis for all Pre-Closing Taxable Periods that shall thereafter become due and payable as a result of a Final Determination. Billing shall pay all Taxes attributable to all Tax Returns filed by Billing pursuant to Section 2.1(b) hereof. 2.6 AMENDMENTS TO TAX RETURNS. No Tax Returns for any Pre-Closing Taxable Periods filed by USLD may be amended without USLD's and Billing's consent, which shall not be unreasonably withheld. 2.7 REFUND OF TAXES. (a) USLD shall be entitled to any refund of Taxes and any Tax Benefits realized as a result of a Final Determination with respect to all Tax Returns filed by USLD pursuant to Section 2.1(a); provided, however, that USLD shall reimburse Billing for the amount of any Tax Benefit attributable to any Billing Member for all Pre-Closing Taxable Periods which arises as a result of a Final Determination. (Any refund resulting from the application of a net operating loss carryback is deemed attributable to the corporation generating such net operating loss.) Billing shall be entitled to any refund with respect to all Tax Returns filed by Billing pursuant to Section 2.1(b). Any such refunds attributable to a Straddle Period shall be allocated 6 between the Pre-Closing Straddle Period and Post-Closing Straddle Period on a basis consistent with the method used to allocated the Tax liability for such Straddle Period. With respect to Straddle Period Tax Returns prepared by Billing pursuant to Section 2.1(b), USLD shall be entitled to any refund attributable to a Pre-Closing Straddle Period. (b) If USLD or any USLD Member receives a Tax refund or Tax Benefit to which Billing or any Billing Member is entitled pursuant to this Agreement, USLD shall pay (in accordance with Section 4) the amount of such Tax refund or Tax Benefit to Billing within fourteen (14) days of receipt thereof. (c) Except as otherwise provided in this Agreement, if Billing or any Billing Member receives a Tax refund or Tax Benefit to which USLD or any USLD Member is entitled pursuant to this Agreement, Billing shall pay (in accordance with Section 4) the amount of such Tax refund or Tax Benefit (including any interest received thereon) to USLD within fourteen (14) days of receipt thereof. 2.8 CARRYBACKS. Neither Billing nor USLD shall file any carryback claim for federal Taxes or state, local or foreign Taxes in a Combined Jurisdiction for the Billing Group or any Billing Member or the USLD Group or any USLD Member into a Pre-Closing Taxable Period without the prior written consent of USLD or Billing, as applicable, which shall not be unreasonably withheld. SECTION 3. INDEMNIFICATION. 3.1 BY USLD. (a) TAXES. Except as provided in Section 3.2, USLD shall indemnify and hold Billing and Billing Members harmless against any and all (A) Taxes attributable to all Tax Returns filed by USLD pursuant to Section 2.1(a), (including specifically any tax liability arising from the liquidation of Mega Plus Dialing, Inc.) and (B) with respect to Straddle Period Tax Returns prepared by Billing pursuant to Section 2.1(b), Taxes attributable to Pre-Closing Straddle Periods as shown on such Tax Returns. (b) MEMBER LIABILITY. Except as provided in Sections 3.1(a) and 3.2, USLD shall indemnify and hold Billing and the Billing Members harmless against each and every liability for Taxes of the Pre-Spin-Off Group under Treasury Regulation Section 1.1502-6 or any similar law, rule or regulation administered by any Taxing Authority. 3.2 BY BILLING. Billing shall indemnify and hold USLD and USLD Members harmless against any and all (i) Taxes attributable to all Tax Returns filed by Billing pursuant to Section 2.1(b) (but excluding Taxes attributable to Pre-Closing Straddle Periods that are shown on any Straddle Period Tax Returns), and (ii) all Net Taxes attributable to any Billing Member on a Separate Return Basis for all Pre-Closing Taxable Periods that shall thereafter become due and payable as a result of a Final Determination. 7 3.3 CERTAIN REIMBURSEMENTS. Billing (or USLD, as the case may be) shall notify USLD (or Billing) of any Taxes paid by the Billing Group or any Billing Member (or the USLD Group or any USLD Member) which are subject to indemnification under this Section 3. To the extent not otherwise provided in this Section 3, any other notification contemplated by this Section 3.3 shall include a detailed calculation (including, if applicable, separate allocations of such Taxes between Pre- and Post-Closing Taxable Periods and Pre- and Post-Closing Straddle Periods and supporting work papers) and a brief explanation of the basis for indemnification hereunder. Whenever a notification described in this Section 3.3 is given, the notified party shall pay the amount requested in such party notice to the notifying party in accordance with Section 4, but only to the extent that the notified party agrees with such request. To the extent the notified party disagrees with such request, it shall, within fourteen (14) days, so notify the notifying party, whereupon the parties shall use their best efforts to resolve any such disagreement. Any payment after such fourteen (14)day period shall include interest at the Overdue Rate from the date such payment would have been made under Section 4 based upon the original notice given by the notifying party. 3.4 OTHER INDEMNIFICATION. Notwithstanding the foregoing, the indemnification provisions in this Agreement shall not restrict the scope of any other indemnification provisions between any USLD Member and any Billing Member as set forth in any other intercompany agreements entered into in connection with the Spin-Off. SECTION 4. METHOD, TIMING AND CHARACTER OF PAYMENTS REQUIRED BY THIS AGREEMENT. 4.1 PAYMENT IN IMMEDIATELY AVAILABLE FUNDS; INTEREST. All payments made pursuant to this Agreement shall be made in immediately available funds. Except as otherwise provided herein, any payment not made within fourteen (14) days of when due shall thereafter bear interest at the Overdue Rate from the date such payment was due. 4.2 CHARACTERIZATION OF PAYMENTS. Any payments including future reimbursements related to refunds or deficiencies (other than interest thereon) made hereunder by USLD to Billing or by Billing to USLD shall be treated by all parties for Tax purposes to the extent permitted by law, and for accounting purposes to the extent permitted by generally accepted accounting principles, as non-taxable dividend distributions or capital contributions made prior to the close of business on the Closing Date. SECTION 5. TAX RETURNS; COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY. 5.1 PROVISION OF COOPERATION, DOCUMENTS AND OTHER INFORMATION. Upon the reasonable request of any party to this Agreement, USLD and Billing shall provide (and shall cause the members of their respective Affiliated Groups to provide) the requesting party, promptly upon request, with such cooperation and assistance, documents, and other information, without charge, as may reasonably be requested by such party in connection with (i) the preparation and filing of any original or amended Tax Return, (ii) the conduct of any audit or 8 other examination or any judicial or administrative proceeding involving to any extent Taxes or Tax Returns within the scope of this Agreement, or (iii) the verification by a party of an amount payable hereunder to, or receivable hereunder from, another party. Such cooperation and assistance shall include, without limitation: (i) the provision on demand of books, records, Tax Returns, documentation or other information relating to any relevant Tax Return; (ii) the execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return, or in connection with any audit, proceeding, suit or action of the type generally referred to in the preceding sentence, including, without limitation, the execution of powers of attorney and extensions of applicable statutes of limitations, with respect to Tax Returns which USLD may be obligated to file on behalf of Billing Members pursuant to Section 2.1; (iii) the prompt and timely filing of appropriate claims for refund; and (iv) the use of reasonable best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or helpful in connection with the foregoing. Each party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation. 5.2 RETENTION OF BOOKS AND RECORDS. USLD, each USLD Member, Billing and each Billing Member shall retain or cause to be retained all Tax Returns, and all books, records, schedules, workpapers, and other documents relating thereto, until the expiration of the later of (i) all applicable statutes of limitations (including any waivers or extensions thereof), and (ii) any retention period required by law or pursuant to any record retention agreement. The parties hereto shall notify each other in writing of any waivers, extensions or expirations of applicable statutes of limitations. The parties shall provide written notice of any intended destruction of the documents referred to in this subsection. A party giving such a notification shall not dispose of any of the foregoing materials without first offering to transfer possession thereof to all notified parties. 5.3 STATUS AND OTHER INFORMATION REGARDING AUDITS AND LITIGATION. Each party shall use reasonable best efforts to keep the other party advised, as to the status of Tax audits and litigation involving any issue relating to any Taxes, Tax Returns or Tax Benefits subject to indemnification under this Agreement. To the extent relating to any such issue, each party shall promptly furnish the other party copies of any inquiries or requests for information from any Taxing Authority or any other administrative, judicial or other governmental authority as well as copies of any revenue agent's report or similar report, notice of proposed adjustment or notice of deficiency. 5.4 CONFIDENTIALITY OF DOCUMENTS AND INFORMATION. Except as required by law or with the prior written consent of the other party, all Tax Returns, documents, schedules, work papers and similar items and all information contained therein, which Tax Returns and other materials are within the scope of this Agreement, shall be kept confidential by the parties hereto and their Representatives, shall not be disclosed to any other person or entity and shall be used only for the purposes provided herein. 9 SECTION 6. CONTESTS AND AUDITS. 6.1 NOTIFICATION OF AUDITS OR DISPUTES. Upon the receipt by a party of notice of any pending or threatened Tax audit or assessment which may affect the liability for Taxes that are subject to indemnification hereunder, such party shall promptly notify the other party in writing of the receipt of such notice. 6.2 CONTROL AND SETTLEMENT. USLD shall have the right and obligation to control, and to represent the interests of all affected taxpayers in, any Tax audit or administrative, judicial or other proceeding relating, in whole or in part, to any Pre-Closing Taxable Period or any other Taxable Period for which USLD is responsible, in whole or in part, for Taxes under Sections 2.5 and 3, and to employ counsel of its choice. However, that, with respect to such issues that may exclusively impact Billing or any Billing Member for any such Taxable Period, USLD shall have the right and obligation to assign responsibility to Billing as to the handling and disposition of such issues. To the extent that both Billing and USLD have joint liability with respect to tax deficiencies, USLD shall in good faith consult with Billing as to the handling and disposition of such issues and shall not enter into any settlement that impacts Billing or any Billing Member without the written consent of Billing, which shall not be unreasonably withheld; and provided, further, that Billing's Tax Director shall hand deliver to USLD's Chief Financial Officer a written response to any notification by USLD of a proposed settlement within ten (10) days of the receipt of such notification. If Billing's Tax Director fails to so respond within such ten day period, Billing shall be deemed to have consented to the proposed settlement. SECTION 7. MISCELLANEOUS. 7.1 EFFECTIVENESS. This Agreement shall be effective from and after the Closing Date and shall survive until the expiration of any applicable statute of limitations; provided, however, that this Agreement shall terminate immediately upon a termination of the Distribution Agreement. 7.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof. This Agreement terminates and supersedes, on a prospective basis only, any and all other sharing or allocation agreements with respect to Taxes in effect at the time between the Pre-Spin-Off Group and the Billing Members, but shall not affect any such agreement to the extent applicable only among USLD Members. 7.3 GUARANTEES OF PERFORMANCE. USLD and Billing hereby guarantee the complete and prompt performance by the members of their respective Affiliated Groups of all of their obligations and undertakings pursuant to this Agreement. If, subsequent to the close of business on the Closing Date, either USLD or Billing shall be acquired by another entity such that 50% or more of its common stock is in common control, such acquirer shall, by making such acquisition, simultaneously agree to jointly and severally guarantee the complete and prompt 10 performance by the acquired corporation and any Affiliate of the acquired corporation of all of their obligations and undertakings pursuant to this Agreement. 7.4 SEVERABILITY. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable, the enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions hereof without including any of such which may hereafter be declared invalid, void or unenforceable. In the event that any such term, provision, covenant or restriction is hereafter held to be invalid, void or unenforceable, the parties hereto agree to use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. 7.5 INDULGENCES, ETC. Neither the failure nor any delay on the part of any party hereto to exercise any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or further exercise of the same or any other right, nor shall any waiver of any right with respect to any occurrence be construed as a waiver of such right with respect to any other occurrence. 7.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas without regard to the conflict of law principles thereof, except with respect to matters of law concerning the internal corporate affairs of any corporate entity which is a party to or subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern. 7.7 NOTICES. All notices, requests, demands and other communications required or permitted under this Agreement shall be made in writing and shall be delivered by hand or mailed by registered or certified mail (return receipt requested) to the designated representative of the tax department of each party and confirmed by a copy thereof directed to the [General Counsel] by each party. 7.8 MODIFICATION OR AMENDMENT. This Agreement may be amended at any time by written agreement executed and delivered by duly authorized officers of Billing and USLD. 7.9 SUCCESSORS AND ASSIGNS. A party's rights and obligations under this Agreement may not be assigned without the prior written consent of the other party. All of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, and shall survive any acquisition, disposition or other corporate restructuring or transaction involving either party. 7.10 NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for the benefit of the parties to this Agreement and their respective Affiliates and should not be deemed to confer upon 11 third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this Agreement. 7.11 OTHER. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all of such counterparts shall together constitute one and the same instrument. The section numbers and captions herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 7.12 PREDECESSORS AND SUCCESSORS. To the extent necessary to give effect to the purposes of this Agreement, any reference to any corporation, Affiliated Group or member of an Affiliated Group shall also include any predecessors or successors thereto, by operation of law or otherwise. 7.13 TAX ELECTIONS. Nothing in this Agreement is intended to change or otherwise affect any previous tax election made by or on behalf of the Pre-Spin-Off Group. USLD, as common parent of the USLD Group, shall continue to have discretion, reasonably exercised, to make any and all elections with respect to all members of the Pre-Spin-Off Group for all Pre-Closing Taxable Periods for which it is obligated to file Tax or Information Returns under Section 2.1(a). 7.14 INJUNCTIONS. The parties acknowledge that irreparable damage would incur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. The parties hereto shall be entitled to an injunction or injunctions to prevent breaches hereto and to enforce specifically the terms and provisions hereof in any court having jurisdiction; such remedy shall be in addition to any other remedy available at law or in equity. 7.15 FURTHER ASSURANCES. Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each party shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders and decrees, obtain all required consents and approvals and make all required filings with any governmental agency, other regulatory or administrative agency, commission or similar authority and promptly provide the other party with all such information as it may reasonably request in order to be able to comply with the provisions of this sentence. 7.16 SETOFF. All payments to be made by any party under this Agreement shall be made without setoff, counterclaim or withholding, all of which are expressly waived. 12 7.17 COSTS AND EXPENSES. Unless otherwise specifically provided herein, each party agrees to pay its own costs and expenses resulting from the fulfillment of its respective obligations hereunder. 7.18 RULES OF CONSTRUCTION. Any ambiguities shall be resolved without regard to which party drafted the Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on their respective behalf by this respective officers thereunto duly authorized, as of the day and year above written. U.S. LONG DISTANCE CORP. AND SUBSIDIARIES By:________________________________ Name:______________________________ Title:_____________________________ BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES By:________________________________ Name:______________________________ Title:_____________________________ 13 EX-10.3 7 EXHIBIT 10.3 BENEFIT PLANS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT between U.S. LONG DISTANCE CORP. and BILLING INFORMATION CONCEPTS CORP. TABLE OF CONTENTS ARTICLE 1 DEFINITIONS.............................................. 1 1.1 DEFINITIONS.................................................... 1 Billing Business............................................... 1 Billing Stock Option........................................... 1 Code........................................................... 1 Commission..................................................... 1 Common Stock................................................... 2 (i) BILLING COMMON STOCK............................... 2 (ii) EMPLOYER COMMON STOCK.............................. 2 (iii) USLD COMMON STOCK.................................. 2 Company Contribution........................................... 2 Current Plan Year.............................................. 2 Cutoff Date.................................................... 2 Deferred Compensation Plan..................................... 2 (i) USLD EXECUTIVE COMPENSATION DEFERRAL PLAN.......... 2 (ii) USLD DIRECTOR COMPENSATION DEFERRAL PLAN........... 2 (iii) BILLING EXECUTIVE COMPENSATION DEFERRAL PLAN....... 2 (iv) BILLING DIRECTOR COMPENSATION DEFERRAL PLAN........ 3 Distribution Agreement......................................... 3 Distribution Date.............................................. 3 Employee....................................................... 3 (i) USLD TERMINEE...................................... 3 (ii) RETAINED EMPLOYEE.................................. 3 (iii) RETAINED INDIVIDUAL................................ 3 (iv) BILLING TERMINEE................................... 3 (v) BILLING EMPLOYEE................................... 3 (vi) BILLING INDIVIDUAL................................. 3 ERISA.......................................................... 3 Existing USLD Stock Option..................................... 4 401(k) Retirement.............................................. 4 (i) USLD 401(k) RETIREMENT PLAN........................ 4 (ii) BILLING 401(k) RETIREMENT PLAN..................... 4 IRS............................................................ 4 Medical/Dental Plan............................................ 4 (i) USLD MEDICAL/DENTAL PLANS.......................... 4 (ii) BILLING MEDICAL/DENTAL PLANS....................... 4 Nonqualified Award............................................. 4 Plan........................................................... 4 Post-Conversion Stock Price.................................... 4 Qualified Beneficiary.......................................... 5 (i) USLD FUTURE QUALIFIED BENEFICIARY.................. 5 (ii) USLD CURRENT QUALIFIED BENEFICIARY................. 5 (iii) BILLING FUTURE QUALIFIED BENEFICIARY............... 5 Retained Business.............................................. 5 -i- Service Credit................................................. 5 Stock Plans.................................................... 5 (i) USLD 1990 EMPLOYEE STOCK OPTION PLAN............... 5 (ii) USLD 1993 NON-EMPLOYEE DIRECTOR PLAN............... 5 (iii) USLD 1995 EMPLOYEE RESTRICTED STOCK PLAN........... 5 (iv) BILLING 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN..... 6 (v) BILLING NON-EMPLOYEE DIRECTOR PLAN................. 6 Stock Purchase Plan............................................ 6 Subsidiary..................................................... 6 (i) RETAINED SUBSIDIARY................................ 6 (ii) BILLING SUBSIDIARY................................. 6 USLD........................................................... 6 Welfare Plan................................................... 6 1.2 CERTAIN CONSTRUCTIONS.......................................... 6 1.3 SCHEDULES; SECTIONS............................................ 6 1.4 SURVIVAL....................................................... 6 ARTICLE 2 EMPLOYEE BENEFITS........................................ 7 2.1 EMPLOYMENT..................................................... 7 (a) ALLOCATION OF RESPONSIBILITIES ON DISTRIBUTION DATE...... 7 (b) SERVICE CREDITS.......................................... 7 (i) DISTRIBUTION DATE TRANSFERS........................ 7 (ii) POST-DISTRIBUTION DATE TERMINATIONS................ 7 2.2 401(k) RETIREMENT PLANS........................................ 7 (a) CONTINUATION OF USLD 401(k) RETIREMENT PLAN.............. 7 (b) ESTABLISHMENT OF THE BILLING 401(k) RETIREMENT PLAN...... 7 (c) OBLIGATION TO MAKE COMPANY CONTRIBUTION.................. 8 (d) ADJUSTMENT MADE TO ACCOUNT BALANCES...................... 8 (e) TRANSFER AND ACCEPTANCE OF ACCOUNT BALANCES.............. 8 (f) USLD TO PROVIDE INFORMATION.............................. 8 (g) REGULATORY FILINGS....................................... 8 2.3 COMPENSATION DEFERRAL PLANS.................................... 9 (a) USLD COMPENSATION DEFERRAL PLANS......................... 9 (b) BILLING COMPENSATION DEFERRAL PLANS...................... 9 2.4 STOCK PLANS.................................................... 9 (a) USLD STOCK OPTION PLAN AND RESTRICTED STOCK PLAN......... 9 (b) BILLING COMPREHENSIVE STOCK PLAN AND NON-EMPLOYEE DIRECTOR PLAN.......................................... 10 (c) EFFECT OF THE DISTRIBUTION ON GRANTS AND AWARDS MADE PRIOR TO THE CUTOFF DATE................................ 10 (i) RESTRICTED STOCK................................... 10 (ii) GRANT OF STOCK OPTIONS............................. 10 (iii) ADJUSTMENT AND SETTING OF EXERCISE PRICES.......... 11 (d) COMMUNICATION REGARDING TERMINATION OF EMPLOYMENT, VESTING AND LAPSE OF RESTRICTIONS...................... 11 2.5 STOCK PURCHASE PLAN............................................ 11 (a) USLD STOCK PURCHASE PLAN................................. 11 -ii- (b) BILLING STOCK PURCHASE PLAN.............................. 11 2.6 MEDICAL/DENTAL PLAN LIABILITY AND COVERAGE..................... 12 (a) USLD..................................................... 12 (b) BILLING. ................................................ 12 (c) CONTINUATION COVERAGE ADMINISTRATION..................... 12 2.7 VACATION AND SICK PAY LIABILITIES.............................. 13 (a) DIVISION OF LIABILITIES.................................. 13 (b) FUNDED RESERVES.......................................... 13 2.8 PRESERVATION OF RIGHT TO AMEND OR TERMINATE PLANS.............. 13 2.9 NOTICE......................................................... 13 2.10 PAYROLL REPORTING AND WITHHOLDING.............................. 14 (a) FORM W-2 REPORTING....................................... 14 (b) FORMS W-4 AND W-5........................................ 14 (c) GARNISHMENTS, TAX LEVIES, CHILD SUPPORT ORDERS, QUALIFIED MEDICAL CHILD SUPPORT ORDERS AND WAGE ASSIGNMENTS........ 14 (d) AUTHORIZATIONS FOR PAYROLL DEDUCTIONS.................... 14 ARTICLE 3 LABOR AND EMPLOYMENT MATTERS............................. 15 3.1 SEPARATE EMPLOYERS............................................. 15 3.2 EMPLOYMENT POLICIES AND PRACTICES.............................. 15 3.3 CLAIMS......................................................... 15 (a) SCOPE.................................................... 15 (b) EMPLOYMENT-RELATED CLAIMS................................ 15 (c) OBLIGATION TO INDEMNIFY.................................. 15 (d) PRE-DISTRIBUTION CLAIMS.................................. 16 (e) DISTRIBUTION AND OTHER JOINT LIABILITY CLAIMS............ 16 (f) POST-DISTRIBUTION EMPLOYMENT-RELATED CLAIMS.............. 16 3.4 FUNDING OF PLANS............................................... 16 3.5 NOTICE OF CLAIMS............................................... 16 3.6 ASSUMPTION OF EMPLOYMENT TAX RATES............................. 16 3.7 INTERCOMPANY SERVICE CHARGE.................................... 17 3.8 WARN CLAIMS.................................................... 17 3.9 EMPLOYEES ON LEAVE OF ABSENCE.................................. 17 3.10 NO THIRD-PARTY BENEFICIARY RIGHTS.............................. 17 3.11 ATTORNEY-CLIENT PRIVILEGE...................................... 17 ARTICLE 4 DEFAULT.................................................. 17 4.1 DEFAULT........................................................ 17 4.2 FORCE MAJEURE.................................................. 17 ARTICLE 5 MISCELLANEOUS............................................ 18 5.1 RELATIONSHIP OF PARTIES........................................ 18 5.2 ACCESS TO INFORMATION; COOPERATION............................. 18 5.3 ASSIGNMENT..................................................... 18 5.4 HEADINGS....................................................... 18 5.5 SEVERABILITY OF PROVISIONS..................................... 18 5.6 PARTIES BOUND.................................................. 18 -iii- 5.7 NOTICES........................................................ 18 5.8 FURTHER ACTION................................................. 19 5.9 WAIVER......................................................... 19 5.10 GOVERNING LAW.................................................. 19 5.11 CONSENT TO JURISDICTION........................................ 19 5.12 ENTIRE AGREEMENT............................................... 19 -iv- BENEFIT PLANS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT THIS BENEFIT PLANS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT ("Agreement") is made and entered into as of _____________, 1996, by and between U.S. LONG DISTANCE CORP., a Delaware corporation ("USLD"), and BILLING INFORMATION CONCEPTS CORP., a Delaware corporation ("Billing"). R E C I T A L S: WHEREAS, subject to certain conditions, USLD intends to pay a special dividend to the holders of USLD Common Stock on a one share-for-one share basis, consisting of all outstanding shares of Billing Information Concepts Corp. common stock (the "Distribution"); and WHEREAS, in connection with this special dividend, USLD and Billing have entered into a Distribution Agreement (the "Distribution Agreement") dated as of ____________, 1996; and WHEREAS, pursuant to the aforesaid Distribution Agreement, USLD and Billing have agreed to enter into an agreement allocating responsibilities with respect to employee compensation, benefit plans, labor and certain other employment matters pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other valuable consideration the receipt and sufficiency of which are hereby acknowledged, USLD and Billing agree as follows: ARTICLE 1 DEFINITIONS 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the meanings indicated below: BILLING BUSINESS. Any business or operation of USLD or its Subsidiaries that is, pursuant to the Distribution Agreement, defined as the Billing Group Business, or which is to be conducted, following the Distribution, by Billing or any Billing Subsidiary. BILLING STOCK OPTION. An option to acquire Billing Common Stock granted under the Billing 1996 Employee Comprehensive Stock Plan or Billing Non-Employee Director Plan. CODE. The Internal Revenue Code of 1986, as amended, or any successor legislation. COMMISSION. The Securities and Exchange Commission. COMMON STOCK. The common stock of USLD or Billing, as more specifically described below: (i) BILLING COMMON STOCK. The common stock, par value $.01 per share, of Billing; (ii) EMPLOYER COMMON STOCK. USLD Common Stock in the case of Retained Employees and USLD Terminees and Billing Common Stock in the case of Billing Employees; or (iii) USLD COMMON STOCK. The common stock, par value $.01 per share, of USLD. COMPANY CONTRIBUTION. The Company Contribution of USLD under the USLD 401(k) Retirement Plan (as provided in the USLD 401(k) Retirement Plan document), as may be supplemented in the sole and absolute discretion of the USLD Board of Directors. CURRENT PLAN YEAR. The plan year or fiscal year, whichever is applicable with respect to any Plan, during which the Distribution occurs. CUTOFF DATE. The date immediately preceding the Distribution Date. DEFERRED COMPENSATION PLAN. A plan of deferred compensation that is not tax-qualified under Section 401(a) of the Code and that is maintained for Employees of USLD or Billing and their beneficiaries, as described below: (i) USLD EXECUTIVE COMPENSATION DEFERRAL PLAN. The current USLD Executive Compensation Deferral Plan, restated as of December 12, 1995, through which eligible executives of USLD may defer current compensation for retirement or other purposes, and that serves as the means by which amounts that would otherwise exceed certain limitations for contributions to the tax-qualified USLD 401(k) Retirement Plan are credited and automatically deferred; (ii) USLD DIRECTOR COMPENSATION DEFERRAL PLAN. The current USLD Director Compensation Deferral Plan, restated as of December 19, 1995, through which members of USLD's Board of Directors may defer current compensation for retirement or other purposes, and that serves as a means by which amounts that would otherwise exceed certain limitations for contributions to tax qualified retirement plans are credited and automatically deferred; (iii) BILLING EXECUTIVE COMPENSATION DEFERRAL PLAN. The Billing Executive Compensation Deferral Plan, adopted as of ____________, 1996, but effective as of the Distribution Date, through which eligible executives of Billing may defer current compensation for retirement or other purposes, and that serves as the means by which amounts that would otherwise exceed certain limitations for contributions to the tax-qualified Billing 401(k) Retirement Plan are credited and automatically deferred; or -2- (iv) BILLING DIRECTOR COMPENSATION DEFERRAL PLAN. The Billing Director Compensation Deferral Plan, adopted as of __________, 1996, but effective as of the Distribution Date, through which members of Billing's Board of Directors may defer current compensation for retirement or other purposes, and that serves as a means by which amounts that would otherwise exceed certain limitations for contributions to tax qualified retirement plans are credited and automatically deferred. DISTRIBUTION AGREEMENT. The agreement described in the second recital of this Agreement. DISTRIBUTION DATE. The date on which the Distribution occurs. EMPLOYEE. An individual who, on the Distribution Date, is identified as being in any of the following categories: (USLD CATEGORIES OF EMPLOYEES) (i) USLD TERMINEE. Any individual formerly employed in any Retained Business of USLD or of any Subsidiary of USLD who terminated such employment prior to the Distribution Date, including, but not limited to, any USLD Employee who has retired from a Retained Business prior to the Distribution Date; (ii) RETAINED EMPLOYEE. Any individual who is an Employee of USLD or any Retained Subsidiary on the Distribution Date; or (iii) RETAINED INDIVIDUAL. Any individual who (i) is a Retained Employee, or (ii) is, as of the Cutoff Date, a USLD Terminee whose last employment with USLD or a Retained Subsidiary was with a Retained Business or any Retained Subsidiary, or (iii) is a beneficiary of any individual described in clause (i) or (ii). (BILLING CATEGORIES OF EMPLOYEES) (iv) BILLING TERMINEE. Any individual formerly employed by any Billing Business or any Subsidiary of USLD who terminated such employment prior to the Distribution Date, including, but not limited to, any Billing Employee who has retired from a Billing Business prior to the Distribution Date; (v) BILLING EMPLOYEE. Any individual who is an Employee of Billing or any Billing Subsidiary on the Distribution Date; or (vi) BILLING INDIVIDUAL. Any individual who (i) is a Billing Employee, or (ii) is, as of the Cutoff Date, a Billing Terminee whose last employment with USLD or a Retained Subsidiary was with a Billing Business or any Billing Subsidiary, or (iii) is a beneficiary of any individual specified in clause (i) or (ii). ERISA. The Employee Retirement Income Security Act of 1974, as amended, or any successor legislation. -3- EXISTING USLD STOCK OPTION. An unexercised option to purchase USLD Common Stock held by a grantee on the Cutoff Date pursuant to the USLD 1990 Employee Stock Option Plan or USLD 1993 Non-Employee Director Plan. 401(k) RETIREMENT PLAN. A defined contribution plan maintained pursuant to Section 401(k) or 401(a) of the Code for Employees and their beneficiaries, as specifically identified using one of the categories described below: (i) USLD 401(k) RETIREMENT PLAN. The USLD Employees' 401(k) Retirement Plan and Trust, as in effect prior to the Distribution Date; or (ii) BILLING 401(k) RETIREMENT PLAN. The Billing Employees' 401(k) Retirement Plan and Trust to be adopted by Billing and to become effective on the Distribution Date. IRS. The Internal Revenue Service. MEDICAL/DENTAL PLAN. A Welfare Plan providing health benefits to Employees of USLD and their dependents, or to Employees of Billing and their dependents, as described below: (i) USLD MEDICAL/DENTAL PLANS. The existing USLD Medical/Dental Plans maintained prior to the Distribution primarily for the benefit of Retained Employees and Billing Employees and continued by USLD after the Distribution Date pursuant to Section 2.6; or (ii) BILLING MEDICAL/DENTAL PLANS. The Medical/Dental Plans to be established by Billing in accordance with Section 2.6. NONQUALIFIED AWARD. An award under the USLD 1990 Employee Stock Option Plan, the USLD Non-Employee Director Plan or the Billing 1996 Employee Comprehensive Stock Plan of a stock option that is not qualified as an incentive stock option under Code Section 422. PLAN. Any plan, policy, arrangement, contract or agreement providing compensation or benefits for any group of Employees or former employees or for any individual Employee or former employee or the dependents or beneficiaries of any such Employee or former employee, whether formal or informal or written or unwritten, and including, without limitation, any means, whether or not legally required, pursuant to which any benefit is provided by an employer to any Employee or former employee or the beneficiaries of any such Employee or former employee. The term "Plan" as used in this Agreement does not include any contract, agreement or understanding entered into by USLD prior to the Distribution or by USLD or Billing after the Distribution and relating to settlement of actual or potential employee-related litigation claims. POST-CONVERSION STOCK PRICE. The per share price of USLD Common Stock or Billing Common Stock, as applicable, equal to the average of the closing sales price per share of that Common Stock on the Nasdaq National Market for each of ten consecutive trading days beginning with and including the Distribution Date. -4- QUALIFIED BENEFICIARY. An individual (or dependent thereof) who either (1) experiences a "qualifying event" (as that term is defined in Code Section 4980B(f)(3) and ERISA 603) while a participant in any Medical/Dental Plan, or (2) becomes a "qualified beneficiary" (as that term is defined in Code Section 4980B(g)(1) and ERISA 607(3)) under any Medical/Dental Plan, and who is included in any one of the following categories: (i) USLD FUTURE QUALIFIED BENEFICIARY. Any person who becomes a Qualified Beneficiary on or after the Distribution Date under any USLD Medical/Dental Plan; (ii) USLD CURRENT QUALIFIED BENEFICIARY. Any USLD Terminee who on or before the Cutoff Date, was a Qualified Beneficiary under any USLD Medical/Dental Plan; (iii) BILLING FUTURE QUALIFIED BENEFICIARY. Any person who becomes a Qualified Beneficiary after the Cutoff Date under any Billing Medical/Dental Plan; or (iv) BILLING CURRENT QUALIFIED BENEFICIARY. Any Billing Terminee who on or before the Cutoff Date was a Qualified Beneficiary under any USLD Medical/Dental Plan. RETAINED BUSINESS. Any business or operation of USLD or its Subsidiaries that is, pursuant to the Distribution Agreement, defined as the Telecommunications Group Business, or that is to be conducted, following the Distribution, by USLD or any Retained Subsidiary. SERVICE CREDIT. The period taken into account under any Plan for purposes of determining length of service or plan participation to satisfy eligibility, vesting, benefit accrual and similar requirements under such Plan. STOCK PLANS. Stock based incentive Plans maintained for Employees and Non-Employee Directors of USLD or Billing and their respective beneficiaries, as described below: (i) USLD 1990 EMPLOYEE STOCK OPTION PLAN. A stock-based incentive compensation Plan providing for awards of stock options maintained for employees of USLD and its subsidiaries, and their beneficiaries, adopted in 1990 and continued by USLD pursuant to Section 2.4(a); (ii) USLD 1993 NON-EMPLOYEE DIRECTOR PLAN. A stock-based incentive compensation Plan providing for awards of stock options maintained for non-employee directors of USLD and its subsidiaries, and their beneficiaries, adopted in 1993 (which incorporated and expanded a 1991 non-employee director plan) and continued pursuant to Section 2.4(a); (iii) USLD 1995 EMPLOYEE RESTRICTED STOCK PLAN. A stock-based incentive compensation Plan providing for awards of restricted stock maintained for employees of USLD and its subsidiaries, and their beneficiaries, adopted in 1995 and continued by USLD pursuant to Section 2.4(a); -5- (iv) BILLING 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN. A stock-based incentive compensation Plan providing for awards of stock options and restricted stock maintained for employees of Billing, its parent and subsidiaries, and their beneficiaries, adopted by USLD as sole stockholder of Billing on ____________, 1996, but effective as of the Distribution Date, and continued by Billing pursuant to Section 2.4(b); or (v) BILLING NON-EMPLOYEE DIRECTOR PLAN. A stock-based incentive compensation Plan providing for awards of stock options to non-employee directors of Billing, its parent and subsidiaries, adopted by USLD as the sole stockholder of Billing on ___________, 1996, but effective as of the Distribution Date, and continued by Billing pursuant to Section 2.4(b). STOCK PURCHASE PLAN. A stock-based Plan meeting the requirements of Section 423 of the Code, maintained for Employees of USLD or Billing. SUBSIDIARY. Any corporation, including each of the following categories: (i) RETAINED SUBSIDIARY. Any subsidiary of USLD except Billing and the Billing Subsidiaries; or (ii) BILLING SUBSIDIARY. Each of the Billing Group Subsidiaries as defined in the Distribution Agreement and all other Subsidiaries of Billing as defined in the Distribution Agreement at the time of the Distribution. USLD. U.S. Long Distance Corp., a Delaware corporation. WELFARE PLAN. Any Plan that provides medical, health, disability, accident, life insurance, death, dental or any other welfare benefit, including, without limitation, any post-employment benefit. 1.2 CERTAIN CONSTRUCTIONS. References to the singular in this Agreement shall refer to the plural and vice-versa and references to the masculine shall refer to the feminine and vice-versa. 1.3 SCHEDULES; SECTIONS. References to a "Schedule" are, unless otherwise specified, to one of the Schedules attached to this Agreement, and references to a "Section" are, unless otherwise specified, to one of the Sections of this Agreement. 1.4 SURVIVAL. Obligations described in this Agreement shall remain in full force and effect and shall survive the Distribution Date. -6- ARTICLE 2 EMPLOYEE BENEFITS 2.1 EMPLOYMENT. (a) ALLOCATION OF RESPONSIBILITIES ON DISTRIBUTION DATE. On the Distribution Date, except to the extent retained or assumed by USLD under this Agreement or any other agreement related to the Distribution, Billing shall retain or assume, as the case may be, responsibility as employer for the Billing Employees. On the Distribution Date, except to the extent retained or assumed by Billing under this Agreement or any other agreement relating to the Distribution, USLD shall retain or assume, as the case may be, responsibility as employer for the Retained Employees. The assumption or retention of responsibility as employer by USLD or Billing described in this Section 2.1 shall not, of itself, constitute a severance or a termination of employment under any plan of severance, of income or other Plan extension maintained by USLD or Billing, and no such severance, separation or termination shall be deemed to occur. (b) SERVICE CREDITS. (i) DISTRIBUTION DATE TRANSFERS. On the Distribution Date, for purposes of determining Service Credits under any Plans, USLD shall credit each Retained Employee and Billing shall credit each Billing Employee with such Employee's Service Credits and original hire date as are reflected in the USLD payroll system records. Such Service Credits and hire date shall continue to be maintained as described herein for as long as the Employee does not terminate employment. (ii) POST-DISTRIBUTION DATE TERMINATIONS. Subject to the provisions of ERISA, USLD may, in the case of Retained Employees, and Billing may, in the case of Billing Employees, each in its sole discretion, make such decisions as it deems appropriate with respect to determining Service Credits for such Employees who terminate employment from the other company after the Distribution Date. 2.2 401(k) RETIREMENT PLANS. (a) CONTINUATION OF USLD 401(k) RETIREMENT PLAN. Effective as of the Distribution Date, USLD shall continue sponsorship of the USLD 401(k) Retirement Plan. (b) ESTABLISHMENT OF THE BILLING 401(k) RETIREMENT PLAN. Effective as of the Distribution Date, Billing shall take, or cause to be taken, all action necessary and appropriate to establish and administer a new Plan named the Billing 401(k) Retirement Plan and Trust in the form approved by the Billing Board of Directors. Billing shall provide benefits under such Billing 401(k) Retirement Plan after the Distribution Date for all Billing Employees who, immediately prior to the Distribution Date, were participants in or otherwise entitled to benefits under the USLD 401(k) Retirement Plan. The Billing 401(k) Retirement Plan shall be intended to qualify for tax-favored treatment under Section 401(a) and 401(k) of the Code and to be in compliance with the requirements of ERISA. All Billing Employees who wish to participate in -7- the Billing 401(k) Retirement Plan will be required to enroll in the Billing 401(k) Retirement Plan as provided by such Plan. (c) OBLIGATION TO MAKE COMPANY CONTRIBUTION. USLD is responsible for USLD's obligation to make payment of Company Contributions under the USLD 401(k) Retirement Plan in accordance with the terms and conditions of the USLD 401(k) Retirement Plan for the period up to and including the Cutoff Date. The Company Contribution to the Billing 401(k) Retirement Plan for the remainder of the Current Plan Year shall be paid by Billing in accordance with the provisions of the Billing 401(k) Retirement Plan document and applicable law. (d) ADJUSTMENT MADE TO ACCOUNT BALANCES. As of the Distribution Date, the plan administrator of the USLD 401(k) Retirement Plan shall adjust the account balances of all participants entitled under such Plan to Company Contributions and forfeitures for the Current Plan Year to reflect such Company Contributions and forfeitures. (e) TRANSFER AND ACCEPTANCE OF ACCOUNT BALANCES. As soon as practicable after the Distribution Date, USLD shall cause the trustees of the USLD 401(k) Retirement Plan to transfer to the trustee or other funding agent of the Billing 401(k) Retirement Plan the amounts (in cash, securities, other property, plan loans, or a combination thereof) acceptable to the Billing administrator or trustee of the Billing 401(k) Retirement Plan representing the account balances of all Billing Individuals, and Billing shall credit the accounts of such individuals under the Billing 401(k) Retirement Plan with said amounts. Each such transfer shall comply with Section 414(l) of the Code and the requirements of ERISA and the regulations promulgated thereunder. Billing shall cause the trustees or other funding agent of the Plan to accept the plan-to-plan transfer from the USLD 401(k) Retirement Plan trustees, and to credit the accounts of such Billing Individuals under the Billing 401(k) Retirement Plan with amounts transferred on their behalf. (f) USLD TO PROVIDE INFORMATION. USLD shall provide Billing, as soon as practicable after the Distribution Date (with the cooperation of Billing to the extent that relevant information is in the possession of Billing or a Billing Subsidiary, and in accordance with Section 5.2), with a list of Billing Individuals who, to the best knowledge of USLD, were participants in or otherwise entitled to benefits under the USLD 401(k) Retirement Plan on the Cutoff Date, together with a listing of each participant's Service Credits under the USLD 401(k) Retirement Plan and a listing of each such Billing Individual's account balance thereunder. USLD shall, as soon as practicable after the Distribution Date and in accordance with Section 5.2, provide Billing with such additional information in the possession of USLD or a Retained Subsidiary (and not already in the possession of Billing or a Billing Subsidiary) as may be reasonably requested by Billing and necessary for Billing to administer effectively the Billing 401(k) Retirement Plan. (g) REGULATORY FILINGS. Billing and USLD shall, in connection with the plan-to-plan transfer described in Section 2.2(e), cooperate in making any and all appropriate filings required by the Commission or the IRS, or required under the Code, ERISA, or any applicable securities laws and the regulations thereunder, and take all such action as may be necessary and appropriate to cause such plan-to-plan transfer to take place as soon as practicable after the -8- Distribution Date or otherwise when required by law. Further, Billing shall seek a favorable IRS determination letter to the effect that the Billing 401(k) Retirement Plan, as organized, satisfies all qualification requirements under Section 401(a) and 401(k) of the Code, and the transfers described in Section 2.2(e) shall take place as soon as practicable. Such transfers may take place pending issuance of a favorable determination letter, upon receipt of an opinion of counsel reasonably satisfactory to both USLD and Billing that the Billing Plan so qualifies, or can be made to so qualify by retroactive amendment, and that the transfer will not adversely affect the qualified status of either Plan or decrease the accrued benefits of any participant. 2.3 COMPENSATION DEFERRAL PLANS. (a) USLD COMPENSATION DEFERRAL PLANS. USLD shall continue sponsorship of the USLD Executive Compensation Deferral Plan and USLD Director Compensation Deferral Plan and to provide future deferred compensation benefits thereunder accruing after the Cutoff Date for all Retained Employees and outside directors of USLD, as the case may be, who are admitted to participation in such respective Plans on or after the Distribution Date. USLD shall be responsible for all liabilities and obligations of USLD relating to Retained Individuals and such outside directors of USLD, as the case may be, accrued through the Cutoff Date with respect to the USLD Executive Compensation Deferral Plan and USLD Director Compensation Deferral Plans, respectively, along with earnings required to be credited to account balances included therein. (b) BILLING COMPENSATION DEFERRAL PLANS. Billing shall adopt new plans named the Billing Executive Compensation Deferral Plan and Billing Director Compensation Deferral Plan. Billing shall thereafter (1) provide similar deferred compensation opportunities to Billing Individuals and outside directors of Billing as shall have been provided to participants in the USLD Executive Compensation Deferral Plan and USLD Director Compensation Deferral Plan, respectively, prior to the Distribution Date; and (2) shall assume all liabilities and obligations of USLD relating to Billing Individuals and outside directors of Billing accrued through the Cutoff Date with respect to the USLD Executive Compensation Deferral Plan and USLD Director Compensation Deferral Plan, respectively, along with earnings required to be credited to account balances included in such Plans. The foregoing shall be subject to the requirements of ERISA and the Code. All Billing Employees who wish to participate in the Billing Executive Compensation Deferral Plan or Director Deferral Plan, as applicable, must so elect as provided by such Plan. 2.4 STOCK PLANS. (a) USLD STOCK OPTION PLAN AND RESTRICTED STOCK PLAN. USLD shall continue the USLD 1990 Employee Stock Option Plan, the USLD 1993 Non-Employee Director Plan and the USLD 1995 Employee Restricted Stock Plan. All awards under these Plans will continue to be denominated in USLD Common Stock. USLD shall continue to reserve those shares already reserved under the USLD 1990 Employee Stock Option Plan, the USLD 1993 Non-Employee Director Plan and the USLD 1995 Employee Restricted Stock Plan. Additionally, USLD, after the Distribution, will cause to be reserved any additional shares identified for reservation thereunder to the extent authorized by the stockholders. -9- (b) BILLING COMPREHENSIVE STOCK PLAN AND NON-EMPLOYEE DIRECTOR PLAN. As soon as practicable after the date hereof, Billing shall take, or cause to be taken, all action necessary and appropriate (i) to ratify the adoption of the Billing 1996 Employee Comprehensive Stock Plan and the Billing Non-Employee Director Plan, and (ii) to present such Plans to USLD, as the sole stockholder of Billing, for its approval of these Plans. All awards of options under the Billing 1996 Employee Comprehensive Stock Plan and the Billing Non-Employee Director Plan will be denominated in Billing Common Stock. To the extent authorized by USLD, its sole stockholder, prior to the Distribution Date, Billing will reserve as shares under the Billing 1996 Employee Comprehensive Stock Plan and the Billing Non-Employee Director Plan ________ shares and _______ shares, respectively, of Billing Common Stock, identified for reservation thereunder. Any such shares not used to grant Billing Stock Options or restricted share awards pursuant to Section 2.4(c) will be available for future awards to Billing Individuals. Billing shall administer all grants of Billing Stock Options and awards of restricted shares of Billing Common Stock under the Billing 1996 Employee Comprehensive Stock Plan and all grants of Billing Stock Options under the Billing Non-Employee Director Plan under the terms of such Plans governing such grants or awards. (c) EFFECT OF THE DISTRIBUTION ON GRANTS AND AWARDS MADE PRIOR TO THE CUTOFF DATE. (i) RESTRICTED STOCK. On the Distribution Date, the grantee of each restricted share of USLD Common Stock awarded under the USLD 1995 Employee Restricted Stock Plan shall retain such share and shall receive as part of the Distribution one restricted share of Billing Common Stock under the Billing 1996 Comprehensive Stock Plan for each restricted share of USLD Common Stock awarded under the USLD 1995 Employee Restricted Stock Plan as of the record date for the Distribution. For the Retained Employees and USLD Terminees, the restricted shares of Billing Common Stock will be held by Billing and will be subject to restrictions identical to those applicable to the underlying restricted shares of USLD Common Stock, which are and will continue to be held by USLD. For Billing Employees and Billing Terminees, their restricted shares of USLD Common Stock will continue to be held by USLD under the 1995 Employee Restricted Stock Plan, the Billing Common Stock will be subject to restrictions for the benefit of Billing identical to the restrictions for the benefit of USLD that are applicable to the underlying shares of USLD Common Stock and Billing will hold the restricted shares of Billing Common Stock under the Billing 1996 Comprehensive Stock Plan. Restricted shares of Billing Common Stock awarded as part of the Distribution shall be released by Billing from restrictions at the same time and on the same schedule as the restricted shares of USLD Common Stock retained, under the terms of the restrictions to which the grantee's award under the USLD 1995 Employee Restricted Stock Plan were subject. The Distribution shall not be deemed a termination of employment by any Retained Employee or Billing Employee for purposes of the USLD 1995 Restricted Stock Plan. (ii) GRANT OF STOCK OPTIONS. As soon as practicable after the date hereof and prior to the Distribution Date, Billing shall grant to (1) each Retained Employee or Billing Employee that is a grantee of a Nonqualified Award of an Existing USLD Stock Option under the USLD 1990 Employee Stock Option Plan, a Nonqualified Award of a Billing Stock Option to purchase a number of shares of Billing Common Stock under the Billing 1996 Comprehensive Stock Plan equal to the number of shares of USLD Common Stock purchasable under the Existing USLD Stock Option and (2) each non-employee director of USLD that is a grantee of -10- an Existing USLD Stock Option under the USLD 1993 Non-Employee Director Plan, a Billing Stock Option to purchase a number of shares of Billing Common Stock under the Billing 1996 Comprehensive Stock Plan equal to the number of shares of USLD Common Stock purchasable under the Existing USLD Stock Option. The Billing Stock Options will be subject to the same terms and conditions of the corresponding Existing USLD Stock Options, except that the exercise price of the Billing Stock Options shall be set as described in paragraph 2.4(c)(iii) and the Distribution shall not be deemed a termination of employment of any Retained Employee or Billing Employee for purposes of the USLD 1990 Employee Stock Option Plan or the Billing 1996 Comprehensive Stock Plan. The Existing USLD Stock Options shall remain in effect with the same terms and conditions, including that the same number of shares of USLD Common Stock shall be purchasable upon exercise thereof, except that the exercise price of the Existing USLD Stock Options shall be adjusted pursuant to paragraph 2.4(c)(iii). (iii) ADJUSTMENT AND SETTING OF EXERCISE PRICES. The adjusted exercise price (the "Adjusted USLD Option Exercise Price") of each Existing USLD Stock Option and the exercise price of the related Billing Stock Option shall be as follows. The Adjusted USLD Option Exercise Price shall equal the product of (1) the exercise price of the Existing USLD Stock Option multiplied by (2) the ratio of (a) the Post Conversion Stock Price of USLD Common Stock to (b) the sum of (x) the Post Conversion Stock Price of the USLD Common Stock plus (y) the Post Conversion Stock Price of the Billing Common Stock. The exercise price of the related Billing Stock Option shall equal the product of (1) the exercise price of the related Existing USLD Stock Option multiplied by (2) the ratio of (a) the Post Conversion Stock Price of Billing Common Stock to (b) the sum of (x) the Post Conversion Stock Price of the Billing Common Stock plus (y) the Post Conversion Stock Price of the USLD Common Stock. (d) COMMUNICATION REGARDING TERMINATION OF EMPLOYMENT, VESTING AND LAPSE OF RESTRICTIONS. USLD shall promptly notify Billing of the termination of employment of any Retained Employee holding Billing Stock Options or restricted shares of Billing Common Stock and of any amendment to an Existing USLD Stock Option held by a Retained Employee holding a related Billing Stock Option. Billing shall promptly notify USLD of the termination of employment of any Billing Employee holding an Existing USLD Stock Option or restricted shares of USLD Common Stock and of any amendment to a Billing Stock Option held by a Billing Employee holding a related Existing USLD Stock Option. Such notices with respect to termination shall specify the date of termination, the reason for termination (e.g. for cause, without cause, upon a change of control, etc.), whether the termination is with or without written consent and that the impact that such termination has on any outstanding grant or award of options on restricted shares. Such notices with respect to amendments to an Existing USLD Stock Option or Billing Stock Option shall specify the amendment, the name of the Retained Employee or Billing Employee, as applicable, and such other information as the other party shall reasonably require. USLD agrees that each Existing USLD Stock Option held by a Billing Employee whose related Billing Stock Option is amended following the Distribution Date shall be deemed amended and shall be amended to the same extent as the related Billing Stock Option is amended without further action. Billing agrees that each Billing Stock Option held by a Retained Employee whose related Existing USLD Stock Option is amended following the Distribution Date shall be deemed amended and shall be amended to the same extent as the related Existing USLD Stock Option is amended without further action. (e) CHANGE IN CONTROL. Each Existing USLD Stock Option agreement provides, and each related Billing Stock Option agreement will provide, that upon a change of control (as defined in the applicable stock option agreement) of either USLD or Billing, all nonvested Existing USLD Stock Options and all nonvested Billing Stock Options shall immediately vest, whether held by a Retained Employee or a Billing Employee. (f) DETERMINATION OF CONSENT TO TERMINATION OF EMPLOYMENT OF BILLING EMPLOYEES UNDER USLD EMPLOYEE STOCK PLAN. USLD agrees that with respect to Billing Employees who hold USLD Stock Options under the USLD 1990 Employee Stock Plan, for purposes of Section 14 of the USLD 1990 Employee Stock Plan, the giving or withholding of consent to the termination of employment of a Billing Employee shall be as determined by Billing and stated in the notice of termination provided by Billing to USLD as required by Section 2.4(d) above. 2.5 STOCK PURCHASE PLAN. (a) USLD STOCK PURCHASE PLAN. The current six-month enrollment period for the USLD Stock Purchase Plan shall close early on June 30, 1996, or such other date preceding the Distribution Date as the Plan administrator shall specify, and shares of USLD Common Stock shall be purchased for all eligible Plan participants so as to allow Plan participants to participate in the Distribution of the shares of Billing Common Stock. The next six-month enrollment period for the USLD Stock Purchase Plan shall begin on August 1, 1996, or such other date as the Plan Administrator shall specify following the Distribution Date. (b) BILLING STOCK PURCHASE PLAN. The Billing Stock Purchase Plan, approved by USLD in its role as sole stockholder of Billing on _________, 1996, but effective as of the Distribution Date, shall begin its initial enrollment period on August 1, 1996, or such other date -11- as Plan administrator shall specify following the Distribution Date. All Billing Employees who wish to participate in the Billing Stock Purchase Plan must so elect as provided by such Plan. 2.6 MEDICAL/DENTAL PLAN LIABILITY AND COVERAGE. (a) USLD. USLD shall sponsor and continue the existing USLD Medical/Dental Plans and be responsible for providing medical/dental coverage, including appropriate stop-loss insurance, and assuming responsibility for the associated liabilities and accrued obligations of these plans relating to Retained Employees and Retained Individuals. The medical/dental plans to be sponsored and continued by USLD are listed on Schedule 2.6(a) attached to and incorporated into this Agreement. (b) BILLING. After the Distribution Date, Billing shall be responsible for providing medical/dental coverage and assuming responsibility for the associated liabilities and accrued obligations of and relating to all Billing Employees and their eligible dependents who will be offered participation in the Billing Medical/Dental Plan or plans on terms and conditions deemed appropriate by Billing. Billing Employees shall have no preexisting condition limitation imposed other than that which is or was imposed under their existing plan or plans, and they will be credited with any expenses incurred toward deductibles, out-of-pocket expenses, maximum benefit payments, and any benefit usage toward plan limits that would have been applicable to the plan in which they were enrolled prior to the Distribution. The medical/dental plans to be sponsored and continued by Billing are listed on Schedule 2.6(b) attached to and incorporated into this Agreement. (c) CONTINUATION COVERAGE ADMINISTRATION. As of the Distribution Date, USLD or a Retained Subsidiary shall assume or retain and shall be solely responsible for, or cause its insurance carriers (including for this purpose HMOs and PPOs providing coverage) to be responsible for, the administration of the continuation coverage requirements imposed by Code Section 4980B and ERISA Sections 601 through 608 as they relate to any USLD Current Qualified Beneficiary or any USLD Future Qualified Beneficiary. As of the Distribution Date, USLD or a Retained Subsidiary shall assume or retain and shall be responsible for, or cause its insurance carriers (including for this purpose HMOs and PPOs providing coverage) to be responsible for, all liabilities and obligations in connection with coverage to be provided, claims incurred and premiums owed on or after the Cutoff Date under any USLD Medical/Dental Plan in respect of any USLD Current Qualified Beneficiary or any USLD Future Qualified Beneficiary. As of the Distribution Date, Billing or a Billing Subsidiary shall assume or retain and shall be solely responsible for, or cause it insurance carriers (including for this purpose HMOs and PPOs providing coverage) to be responsible for, the administration of the continuation coverage requirements imposed by Code Section 4980B and ERISA Sections 601 through 608 as they relate to any Billing Current Qualified Beneficiary or any Billing Future Qualified Beneficiary. As of the Distribution Date, Billing or a Billing Subsidiary shall assume or retain and shall be responsible for, or cause its insurance carriers (including for this purpose HMOs and PPOs providing coverage) to be responsible for, all liabilities and obligations in connection with coverage to be provided, claims incurred and premiums owed on or after the Cutoff Date under any Billing Medical/Dental Plan in respect of any Billing Current Qualified Beneficiary or any Billing Future Qualified Beneficiary. -12- (d) In the event that subsequent to the Distribution Date, refunds are received from or additional premium adjustments become payable to carriers providing health or medical insurance where such amounts are the result of actual experience differing from that used to compute premiums for any periods prior to the Distribution Date, such refunds or obligations will be shared between USLD and Billing based on the following formula. Billings share will equal the percentage represented by the average number of Billing employees during the period to which the refund or obligation relates divided by the average total of Billing and USLD employees during such period. USLD's share will equal the percentage represented by the average number of USLD employees during the period to which the refund or obligation relates divided by the average total of Billing and USLD employees during such period. 2.7 VACATION AND SICK PAY LIABILITIES. (a) DIVISION OF LIABILITIES. Effective on the Distribution Date, USLD shall retain, as to the Retained Employees, and, Billing shall assume, as to the Billing Employees, all accrued liabilities (whether vested or unvested, and whether funded or unfunded) for vacation and sick leave in respect of such employees as of the Cutoff Date. USLD shall be solely responsible for the payment of such vacation or sick leave to Retained Employees after the Cutoff Date and Billing shall be solely responsible for the payment of such vacation or sick leave to Billing Employees after the Cutoff Date. Each party shall provide to its own Employees on the Distribution Date the same vested and unvested balances of vacation and sick leave as credited to such Employee on the USLD payroll systems on the Cutoff Date. The preceding sentence shall not be construed as in any way limiting the right of either USLD or Billing to change its vacation or sick leave policies as it deems appropriate. (b) FUNDED RESERVES. Assets attributable to funded reserves for the vacation or sick leave liabilities being divided in accordance with Section 2.7(a) (whether held in a trust, a voluntary employees beneficiary association, or any other funding vehicle) shall be allocated in an appropriate and equitable manner between USLD and Billing. 2.8 PRESERVATION OF RIGHT TO AMEND OR TERMINATE PLANS. Except as otherwise expressly provided in Article 2, no provisions of this Agreement, including, without limitation, the agreement of USLD or Billing, or any Retained Subsidiary or Billing Subsidiary, to make a contribution or payment to or under any Plan herein referred to for any period, shall be construed as a limitation on the right of USLD or Billing or any Retained Subsidiary or Billing Subsidiary to amend such Plan or terminate its participation therein which USLD or Billing or any Retained Subsidiary or Billing Subsidiary would otherwise have under the terms of such Plan or otherwise. No provision of this Agreement shall be construed to create a right in any employee or former employee, or dependent or beneficiary of such employee or former employee, under a Plan which such person would not otherwise have under the terms of the Plan itself. 2.9 NOTICE. USLD and Billing acknowledge that USLD and the Retained Subsidiaries, on the one hand, and Billing and the Billing Subsidiaries, on the other hand, may incur costs and expenses, including, but not limited to, contributions to Plans and the payment of insurance premiums arising from or related to any of the Plans that are, as set forth in this Agreement, the responsibility of the other party hereto. Accordingly, USLD (and any Retained Subsidiary -13- responsible therefor) and Billing (and any Billing Subsidiary responsible therefor) shall (i) give notice to the other party of the costs to be incurred prior to payment and (ii) demand that the other party which has the obligation to pay shall pay the cost and expense. 2.10 PAYROLL REPORTING AND WITHHOLDING. (a) FORM W-2 REPORTING. Billing and USLD hereby adopt the "alternative procedure" for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in Section 5 of Revenue Procedure 84-77, 1984-2 IRS Cumulative Bulletin 753 ("Rev. Proc. 84-77"). Under this procedure Billing as the successor employer shall provide all required Forms W-2 to all Billing Individuals reflecting all wages paid and taxes withheld by both USLD as the predecessor and Billing as the successor employer for the entire year during which the Distribution takes place. USLD shall provide all required Forms W-2 to all Retained Individuals reflecting all wages and taxes paid and withheld by USLD before, on and after the Distribution Date. In connection with the aforesaid agreement under Rev. Proc. 84-77, each business unit or business operation of USLD shall be assigned to either USLD or Billing, depending upon whether it is a Retained Business or a Billing Business, and each Retained Individual or Billing Individual associated with such business unit or business operation shall be assigned for payroll reporting purposes to USLD or Billing, as the case may be. (b) FORMS W-4 AND W-5. Billing and USLD agree to adopt the alternative procedure of Rev. Proc. 84-77 for purposes of filing IRS Forms W-4 (Employee's Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment Certificate). Under this procedure USLD shall provide to Billing as the successor employer all IRS Forms W-4 and W-5 on file with respect to each Billing Individual, and Billing will honor these forms until such time, if any, that such Billing Individual submits a revised form. (c) GARNISHMENTS, TAX LEVIES, CHILD SUPPORT ORDERS, QUALIFIED MEDICAL CHILD SUPPORT ORDERS AND WAGE ASSIGNMENTS. With respect to Employees with garnishments, tax levies, child support orders, qualified medical child support orders, and wage assignments in effect with USLD on the Cutoff Date, Billing with respect to each Billing Individual shall honor such payroll deduction authorizations or court or governmental orders applicable to Billing Plans, and will continue to make payroll deductions and payments to any authorized payee, as specified by the court or governmental order that was filed with USLD. Likewise, USLD with respect to each Retained Individual shall honor such payroll deduction authorization or court or governmental orders applicable to USLD Plans and will continue to make payroll deductions and payments to any authorized payee, as specified by the court or governmental order that was filed with USLD. (d) AUTHORIZATIONS FOR PAYROLL DEDUCTIONS. Unless otherwise prohibited or provided by this Agreement or another agreement entered into in connection with the Distribution, or by a Plan document, with respect to Employees with authorizations for payroll deductions in effect with USLD on the Cutoff Date, Billing as the successor employer will honor such payroll deduction authorizations relating to each Billing Individual, including, without limitation, scheduled loan repayments to the 401(k) Retirement Plan and direct deposit of payroll, bonus advances and types of authorized company receivables usually collectible through payroll -14- deductions, and shall not require that such Billing Individual submit a new authorization to the extent that the type of deduction by Billing does not differ from that made by USLD. ARTICLE 3 LABOR AND EMPLOYMENT MATTERS Notwithstanding any other provision of this Agreement or any other Agreement between USLD and Billing to the contrary, USLD and Billing understand and agree that: 3.1 SEPARATE EMPLOYERS. After the Distribution Date and the separation of Employees into their respective companies, USLD and Billing will be separate and independent employers. 3.2 EMPLOYMENT POLICIES AND PRACTICES. USLD and Billing may adopt, continue, modify or terminate such employment policies, compensation practices, retirement plans, welfare benefit plans, and other employee benefit plans or policies of any kind or description, as each may determine, in its sole discretion, are necessary and appropriate. 3.3 CLAIMS. (a) SCOPE. This section is intended to allocate all liabilities for employment-related claims involving USLD or Billing including, but not limited to, claims against either or both USLD and Billing and their respective officers, directors, agents and employees, or against or by their respective employee benefit plans and plan administrators and fiduciaries; provided, however, that this section shall not apply to any indemnification between the parties for matters and services contemplated in that certain Transitional Services and Sublease Agreement between the parties dated ______, 1996 and effective as of the Distribution Date. (b) EMPLOYMENT-RELATED CLAIMS. An employment-related claim shall include any actual or threatened lawsuit, arbitration, ERISA claim, or federal, state or local judicial or administrative proceeding of whatever kind involving a demand by or on behalf of or relating to Retained Individuals or Billing Individuals, or by or relating to any federal, state or local government agency alleging liability against USLD or Billing, or against any employee health, welfare, deferred compensation or other benefit plan and/or their respective officers, directors, agents, employees, administrators, trustees and fiduciaries. (c) OBLIGATION TO INDEMNIFY. The duty of a party to indemnify, defend and hold harmless the other party under this Section 3.3 shall include the following obligations of the party having such duty: to provide a legal defense and incur all attorneys' fees and litigation costs that may be associated with such a defense; to pay all costs of settlement or judgment where the indemnifying party has the full duty to do so or to pay the full percentage of the party's share when the duty is only a percentage of the full settlement or judgment; and to hold harmless from all claims and costs that may be asserted with or arising from the duty of the indemnifying party to defend and indemnify. -15- (d) PRE-DISTRIBUTION CLAIMS. (i) USLD shall indemnify, defend and hold harmless Billing from any employment-related claims of a Retained Individual arising from acts occurring on or before the Cutoff Date. (ii) Billing shall indemnify, defend and hold harmless USLD from any employment-related claims of a Billing Individual arising from acts occurring on or before the Cutoff Date. (e) DISTRIBUTION AND OTHER JOINT LIABILITY CLAIMS. Where employment-related claims alleging or involving joint and several liability asserted against USLD and Billing are not separately traceable to liabilities relating to Retained Individuals or Billing Individuals, any liability shall be appointed between USLD and Billing in accordance with the percentage that each party's Employees represents of the combined total number of Employees of both parties, as described below. The percentage of the liability assumed by USLD shall equal the ratio of (i) the total number of Retained Employees on the Distribution Date to (ii) the combined total number of Retained Employees and Billing Employees on such date. The percentage of the liability assumed by Billing shall equal the ratio of (i) the total number of Billing Employees on the Distribution Date, to (ii) the combined total number of Retained Employees and Billing Employees on such date. Each party will indemnify, defend and hold harmless the other to the extent of the indemnifying party's apportioned percentage determined in accordance herewith. (f) POST-DISTRIBUTION EMPLOYMENT-RELATED CLAIMS. Employment related claims arising from acts occurring after the Distribution and division of the Employees between the parties and not relating to, arising from, or in connection with the Distribution will be the sole responsibility of USLD as to Retained Individuals and of Billing as to Billing Individuals. Each Company will indemnify, defend, and hold harmless the other from employment-related claims of the other company. 3.4 FUNDING OF PLANS. Without limitation to the scope and application of Section 3.3, any claims by or on behalf of Employees or any federal, state or local government agency for alleged underfunding of, or failure to make payments to, health and welfare funds based on acts or omissions occurring on or before the Cutoff Date or arising from or in connection with the Distribution, will be the sole responsibility of each party as to its own employees (i.e., USLD with respect to Retained Individuals and Billing with respect to Billing Individuals), and the responsible party will indemnify, defend, and hold harmless the other from any such claims. 3.5 NOTICE OF CLAIMS. Without limitation to the scope and application to each party in the performance of its duties under Section 3.3 and 3.4 herein, each party will notify in writing and consult with the other party prior to making any settlement of an employee claim, for the purpose of avoiding any prejudice to such other party arising from the settlement. 3.6 ASSUMPTION OF EMPLOYMENT TAX RATES. Changes in state unemployment tax experience as of the Cutoff Date shall be handled as follows: In the event an option exists to allocate state unemployment tax experience of USLD, the USLD experience shall be transferred to Billing if this results in the lowest aggregate unemployment tax costs for both USLD and -16- Billing combined, and the USLD experience shall be retained by USLD if this results in the lowest aggregate unemployment tax costs for USLD and Billing combined. 3.7 INTERCOMPANY SERVICE CHARGE. Legal, professional, managerial, administrative, clerical, consulting and support or production services provided to one party by personnel of the other party, upon the request of the first party or when such services are otherwise required by this Agreement between Billing and USLD, shall be charged to the party receiving such services on commercially reasonable terms to be negotiated (or in accordance with the provisions of any applicable agreement between the parties). 3.8 WARN CLAIMS. Before and after the Distribution Date, each party shall comply in all material respects with the Worker Adjustment and Retraining Act ("WARN"). USLD shall be responsible for WARN claims relating to Retained Individuals or to Employees who prior to the Distribution Date were employed in a Retained Business. Billing shall be responsible for WARN Claims relating to Billing Individuals or to Employees who prior to the Distribution Date were employed in a Billing Business. Each party shall indemnify, defend and hold harmless the other in connection with WARN Claims for which the indemnitor is responsible and which are brought against the indemnitee. 3.9 EMPLOYEES ON LEAVE OF ABSENCE. After the Distribution Date, USLD shall assume responsibility, if any, as employer for all Employees returning from an approved leave of absence who prior to the Distribution Date were employed in a Retained Business. After the Distribution Date, Billing shall assume responsibility, if any, as employer for all Employees returning from an approved leave of absence who prior to the Distribution Date were employed in a Billing Business. 3.10 NO THIRD-PARTY BENEFICIARY RIGHTS. Neither this Agreement nor any other intercompany agreement between Billing and USLD is intended to nor does it create any third party contractual or other common law rights. No person shall be deemed a third-party beneficiary of the agreement between Billing and USLD. 3.11 ATTORNEY-CLIENT PRIVILEGE. Consistent with the provisions of the Distribution Agreement, the provisions herein requiring either party to this Agreement to cooperate shall not be deemed to be a waiver of the attorney/client privilege for either party or shall it require either party to waive its attorney/client privilege. ARTICLE 4 DEFAULT 4.1 DEFAULT. If either party materially defaults hereunder, the nondefaulting party shall be entitled to all remedies provided in the Distribution Agreement, including the arbitration of disputes set forth in Section 11.13. 4.2 FORCE MAJEURE. Billing and USLD shall incur no liability to each other due to a default under the terms and conditions of this Agreement resulting from fire, flood, war, strike, lock-out, work stoppage or slow-down, labor disturbances, power failure, major equipment -17- breakdowns, construction delays, accident, riots, acts of God, acts of United States' enemies, laws, orders or at the insistence or result of any governmental authority or any other delay beyond each other's reasonable control. ARTICLE 5 MISCELLANEOUS 5.1 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein. 5.2 ACCESS TO INFORMATION; COOPERATION. USLD and Billing and their authorized agents will be given reasonable access to and may take copies of all information relating to the subjects of this Agreement (to the extent permitted by federal and state confidentiality laws) in the custody of the other party, including in the custody of any agent, contractor, subcontractor, agent or any other person or entity under contract by such party. The parties will provide one another with such information within the scope of this Agreement as is reasonably necessary to administer each party's Plans and to otherwise carry out the provisions of this Agreement. The parties will cooperate with each other to minimize the disruption caused by and such access and providing of information. 5.3 ASSIGNMENT. Neither party shall, without the prior written consent of the other, have the right to assign any rights or delegate any obligations under this Agreement. 5.4 HEADINGS. The headings used in this Agreement are inserted only for the purpose of convenience and reference, and in no way define or limit the scope or intent of any provision or part hereof. 5.5 SEVERABILITY OF PROVISIONS. Neither USLD nor Billing intends to violate statutory or common law or existing contractual obligations by executing this Agreement. If any section, sentence, paragraph, clause or combination of provisions in this Agreement is in violation of any law, such sections, sentences, paragraphs, clauses or combinations shall be inoperative and the remainder of this Agreement shall remain in full force and effect and shall be binding upon the parties. 5.6 PARTIES BOUND. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing herein, expressed or implied, shall be construed to give any other person any legal or equitable rights hereunder. 5.7 NOTICES. All notices, consents, approvals and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given when delivered personally or by overnight courier or three days after being mailed by registered or certified mail (postage prepaid, return receipt requested) to the named representatives of the -18- parties at the following addresses (or at such other address for a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt): (a) if to USLD: U.S. Long Distance Corp. 9311 San Pedro, Suite 100 San Antonio, Texas 78216 Attention: W. Audie Long, General Counsel (b) if to Billing: Billing Information Concepts Corp. 9311 San Pedro, Suite 400 San Antonio, Texas 78216 Attention: _________________ Billing agrees that, upon the request of USLD, Billing will give copies of all of its notices, consents, approvals and other communications hereunder to any lender to USLD or other person specified by USLD. 5.8 FURTHER ACTION. Billing and USLD each shall cooperate in good faith and take such steps and execute such papers as may be reasonably requested by the other party to implement the terms and provisions of this Agreement. 5.9 WAIVER. Billing and USLD each agree that the waiver of any default under any term or condition of this Agreement shall not constitute a waiver of any subsequent default or nullify the effectiveness of that term or condition. All waivers must be in writing and must be signed by the party against whom the waiver is sought to be enforced. 5.10 GOVERNING LAW. All controversies and disputes arising out of or under this Agreement shall be determined pursuant to the laws of the State of Texas regardless of the laws that might be applied under applicable principles of conflicts of law. 5.11 CONSENT TO JURISDICTION. The parties irrevocably submit to the exclusive jurisdiction of (a) the courts of the State of Texas in Bexar County, or (b) any federal district court where there is federal jurisdiction for the purpose of any suit, action or other court proceeding arising out of this Agreement. The parties hereby irrevocably designate, appoint and empower the President of USLD or Billing, as the case may be, as its true and lawful agent and attorney-in-fact in its name, place and stead to receive on its behalf service of process in any action, suit, or proceeding with respect to any matters as to which it has submitted to jurisdiction as set forth in the immediately preceding sentence. 5.12 ENTIRE AGREEMENT. This Agreement and the Distribution Agreement constitute the entire understanding between the parties hereto, and supersede all prior written or oral communications, relating to the subject matter covered by said agreements. No amendment, modification, extension or failure to enforce any condition of this Agreement by either party -19- shall be deemed a waiver of any of its rights herein. This Agreement shall not be amended except by a writing executed by the parties. -20- IN WITNESS HEREOF, the parties have executed this Agreement as of the date first above written. U.S. LONG DISTANCE CORP., a Delaware corporation By: ---------------------------- Larry M. James President BILLING INFORMATION CONCEPTS CORP., a Delaware corporation By: ---------------------------- Alan W. Saltzman President -21- SCHEDULE 2.6(a) Medical/Dental Plans to be Sponsored and Continued by USLD [Add List] SCHEDULE 2.6(b) Medical/Dental Plans to be Sponsored and Established by Billing [Add List] EX-10.5 8 EXHIBIT 10.5 ZERO PLUS - ZERO MINUS BILLING AND INFORMATION MANAGEMENT SERVICES AGREEMENT This Zero Plus - Zero Minus Billing and Information Management Services Agreement (the "Agreement") is entered into this ____ day of ___________ 1996, by and between BILLING INFORMATION CONCEPTS INC., a Delaware corporation ("BMC"), and U.S. LONG DISTANCE, INC., a Texas corporation ("Customer"). W I T N E S S E T H: WHEREAS, Customer is engaged in the business of providing certain "zero plus" or "zero minus" telecommunication services for which Customer desires to bill and collect for these services through the local exchange companies (LECs); and WHEREAS, BMC has entered into billing and collection agreements with certain LECs which allow BMC to provide billing and information management services for qualifying "zero plus" and "zero minus" Message Telephone Service ("MTS") calls on behalf of BMC's customers; and WHEREAS, BMC has the ability through its computer hardware, computer software and accounting systems to provide billing and information management services for qualifying MTS calls for Customer, and Customer desires to obtain such billing and information management services from BMC on the terms and conditions contained herein: NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, do hereby agree as follows: SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below, unless the context otherwise requires: BAD DEBT: See Uncollectible Amounts and Written-Off Accounts. BILLING TELEPHONE COMPANY (BTC): See Local Exchange Carrier. BOC: Bell Operating Company. BUSINESS DAY: A day other than Saturday and Sunday on which commercial banks are open in the State of Texas. CLAIM: Claim, loss, liability, damage, cost, correction and expense, and whether ordinary, special, consequential or otherwise. CONFIDENTIAL INFORMATION: See Section 8. EMI BILLING RECORDS: Computer readable records containing the billing data for Customer's qualifying MTS calls, in the Bellcore EMI (electronic message interface) format, for which each LEC has the capability of processing through its billing and collection systems. END USER: A natural person, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental agency or instrumentality, or other entity that subscribes to or uses Customer's services. FCC: The Federal Communications Commission. FOREIGN INTRASTATE TAXES: Those applicable Taxes for MTS calls originating and terminating in the same state but billed in another state as described in Section 9 herein. INDEPENDENT TELEPHONE COMPANIES: Those LECs that are not BOCs, which presently include, subject to revision by BMC from time to time: General Telephone Operating Companies (GTOCs), United Telecommunications Operating Companies (United), Alltel, the alliance of Independent Telephone Companies through Independent NECA Services, and U. S. Intelco. INTEREXCHANGE CARRIER (IXC): Those telephone companies, other than the LECs, that can provide intraLATA (where applicable), interLATA, interstate and international telecommunications service. LEC PROCESSING FEES: As described in paragraph 4.(c)(i) and 4.(f). LOCAL EXCHANGE CARRIER (LEC): Any one of the local telephone companies, as listed on Exhibit A hereto, providing intraLATA exchange telephone services or issuing calling cards and with whom BMC has entered into a billing and collection agreement. MTS (MESSAGE TELEPHONE SERVICES): Direct dialed or operator assisted station-to-station or person-to-person telephone calls billed: (i) to the originating telephone number, (ii) collect to the terminating telephone number, (iii) to a third telephone number other than the originating or terminating telephone number, or (iv) to a LEC or IXC calling card. "ENHANCED TELECOMMUNICATIONS SERVICES" OR "INFORMATION SERVICES" ARE NOT CONSIDERED MTS CALLS HEREIN AND CANNOT BE BILLED UNDER THIS AGREEMENT. POST-BILLING ADJUSTMENT OR CREDIT: Credits or rate adjustments applied to an End User's account by the LEC or by BMC. RBOCS: Regional Bell Operating Companies. SUBMISSION DATE: As Described in paragraph 3.(a). TARIFFS: The rates, terms and conditions for providing intraLATA, interLATA (intrastate), interstate and international telecommunication services as authorized and filed with the FCC, or with state or local regulatory authorities. 2 TAXES: The word "Taxes" shall mean all those taxes and tax-like surcharges described in paragraph 9.(a) herein. UNBILLABLE RECORDS: Those EMI Billing Records that pass BMC's edits and screens and are submitted to the LECs for billing and collection but subsequently fail the LEC's edits and screens and are not posted to an End User's account by the LECs. UNCOLLECTIBLE AMOUNTS: Those amounts that are billed to an End User's account for Customer's Valid EMI Billing Records but are not collected due to the End User receiving a Post-Billing Adjustment or Credit to its bill or the End User failing to pay its bill to the LEC and the account subsequently being written off as Bad Debt by the LEC. VALID EMI BILLING RECORDS: As described in paragraph 3.(b). WRITTEN-OFF ACCOUNTS: Those End Users' accounts that are not paid by the End Users and are subsequently written off as Bad Debt by the LECs. BMC REJECTED RECORDS: Those EMI Billing Records that fail BMC's edits and screens and are returned to Customer and not submitted to the LECs for billing and collection. SECTION 2. SCOPE OF AGREEMENT. Customer hereby agrees to purchase from BMC the services described in Section 3 herein, and BMC agrees to provide such services at the time and in the manner, and subject to the terms and upon the conditions, set forth herein. Customer agrees that BMC shall be the EXCLUSIVE source for LEC billing and information management services in the United States and Canada for the billing telephone companies listed in Exhibit A, attached hereto. However, nothing contained herein shall be interpreted to prohibit Customer from contracting directly with any LEC for its own direct LEC billing and collection agreement, provided that Customer shall notify BMC of its intent at least sixty (60) days prior to activation of such agreement. As BMC enters into billing and collection arrangements with additional LECs, BMC will provide billing and information management services to Customer for such LECs on the same terms and conditions as contained herein. SECTION 3. BILLING SERVICES. (a) SUBMISSION OF EMI BILLING RECORDS. Customer shall submit to BMC its EMI Billing Records for its qualifying MTS calls for BMC to submit to each LEC under contract with BMC. Customer shall be responsible for submitting to BMC EMI Billing Records that contain adequate information so that BMC and the LECs can process such EMI Billing Records. Customer shall submit these EMI Billing Records to BMC once per week, except when Customer cannot satisfy BMC's minimum volume requirements as described in paragraph 7.(f), in which case Customer shall submit its EMI Billing Records at least once per month. The cost of these submissions shall be borne by Customer. The date BMC receives Customer's EMI Billing Records will be, for those records, the "Submission Date." 3 (b) BMC'S EDITS AND SCREENS. Upon receipt of Customer's EMI Billing Records, BMC will promptly process Customer's EMI Billing Records through BMC's computer edits and screens. Those EMI Billing Records that pass BMC's edits and screens shall be "Valid EMI Billing Records." Those EMI Billing Records that do NOT pass BMC's edits and screens shall be "BMC Rejected Records," and shall be returned to Customer. (c) SUBMISSION TO LECS. Promptly after receipt of Customer's EMI Billing Records (within five (5) Business Days after such receipt for the RBOCs and GTE, or within ten (10) Business Days after such receipt for Independent Telephone Companies), BMC will submit Customer's Valid EMI Billing Records to the appropriate LECs. (d) PURCHASE BY LEC. Each LEC shall be responsible, to the extent required by its agreement with BMC, to purchase Customer's Valid EMI Billing Records. (e) BILLING AND COLLECTION BY LEC. Each LEC shall be responsible, for such Valid EMI Billing Records purchased by the LEC, for the billing and collection of the revenue, for Customer's qualifying MTS calls, from End Users residing within the applicable billing area of such LEC. (f) PRINTING OF CUSTOMER'S NAME ON END USER'S LEC TELEPHONE BILL: Wherever possible, BMC will use its best efforts to cause each Billing Telephone Company to print Customer's name, along with the associated Valid EMI Billing Records, on each End User's telephone bill. Customer acknowledges that where the Billing Telephone Companies do not provide this service, Customer's name shall not appear on the End User's telephone bill. SECTION 4: LEC PAYMENTS, FEES AND CHARGES: (a) PAYMENT BY LECS: Each LEC shall make payments to BMC for Valid EMI Billing Records purchased from Customer in accordance with the LEC's billing and collection agreement with BMC. (b) AMOUNT PAID BY LECS: The LEC shall pay to BMC the gross amount of Valid EMI Billing Records purchased by the LEC LESS the then-applicable fees, charges, charge backs, credits and adjustments as prescribed in its billing and collection agreement with BMC. (c) LEC FEES, CHARGES, CHARGE BACKS, CREDITS AND ADJUSTMENTS: Customer acknowledges and understands that BMC is and will be bound by the terms of its billing and collection agreement with each LEC with respect to each LEC's right to deduct or to reduce its collectible funds for: (i) the amount charged by each LEC for processing, billing and collecting Customer's Valid EMI Billing Records ("LEC Processing Fees"), (ii) any Unbillable Records, (iii) any Post-Billing Adjustments or Credits provided to End Users, (iv) any reserve for anticipated Uncollectible Amounts ("Bad Debt Holdback Reserve"), and (v) any LEC Bad Debt "true-ups" (i.e. periodic true-ups between the Bad Debt Holdback Reserve and the actual Uncollectible Amounts realized by the LECs). In addition, Customer shall be responsible for any data transmission and distribution fees for delivering or receiving Customer's EMI Billing Records and for any other LEC charges specifically related to billing and collecting Customer's EMI Billing Records. Customer further agrees that payment of all amounts described in this paragraph 4.(c) 4 shall be its sole responsibility and that BMC may withhold such amounts from payments to Customer. Should such amounts exceed the amounts due to Customer, such amounts shall be due and payable by Customer to BMC within ten (10) Business Days of notification by BMC of any amounts due. A schedule setting forth BMC's contractual average LEC Processing Fees for each LEC is attached hereto as Exhibit B hereto. (d) BAD DEBT HOLDBACK RESERVE: BMC will holdback or cause the LECs to holdback an amount estimated to be sufficient to set-off any Uncollectible Amounts that may be determined after the date BMC makes its final payment to Customer for Customer's Valid EMI Billing Records billed and collected by the LEC. Any Bad Debt Holdback Reserve withheld by the LEC shall be passed through to Customer on the same percentage or the same amount as BMC was assessed by the individual LECs. However, once sufficient data becomes available to BMC from the LECs to enable BMC to determine a specific Bad Debt history attributable to Customer, the Bad Debt Holdback Reserve rate shall be based on Customer's specific historical Uncollectible Amounts. A schedule setting forth the past twelve months' average Bad Debt Holdback Reserve withheld by each LEC is attached hereto, for your reference, as Exhibit G. (e) MONTHLY LEC BAD DEBT TRUE-UP. Between six and eighteen (6 - 18) months after BMC submits Customer's EMI Billing Records to the LECs for billing and collection, the LECs will determine the actual amounts collected from the End Users and true-up the difference between this amount and the face amount of Customer's Valid EMI Billing Records purchased by the LEC. BMC will provide Customer monthly reports on Bad Debt true-ups for these differences. If the amount of these true-ups is "in favor" (positive) of Customer, BMC will remit such amount to Customer when BMC receives the true-up amount from the LECs. If the amount of these true-ups is "not in favor" (negative) of Customer, BMC will withhold such amounts from the next scheduled payment due to Customer. If the amounts due to Customer are not sufficient to satisfy such true-up amounts, such amounts shall be due and payable by Customer to BMC within ten (10) Business Days of notification by BMC of any amounts due. (f) LEC PROCESSING FEE CALCULATION. Each calendar month BMC will determine the number of End User bills (renderings) that were or will be required to bill all of BMC's similarly situated customer's Valid EMI Billing Records submitted to BMC during that month and the average number of Valid EMI Billing Records contained on each End User's bill. BMC will then multiply these quantities by its contractual LEC Processing Fee schedules for each LEC to calculate the "Average LEC Processing Fees" for each LEC. Exhibit B, attached hereto, contains the Average LEC Processing Fees for each LEC for the date thereof. BMC will then multiply this Average LEC Processing Fee for each LEC by the number of Customer's Valid EMI Billing Records submitted to each LEC to calculate Customer's LEC Processing Fees. These Average LEC Processing Fees will also include any data transmission fees, distribution fees, programming fees and any other charges directly associated with billing Customer's Valid EMI Billing Records. (g) END USER INQUIRY AND REBATE. Primary End User inquiry, investigation and rebate policies are set forth in Exhibit F attached hereto. Customer shall be responsible for payment of all Post-Billing Adjustments and Credits provided to End Users by either the LEC or BMC. Such amounts may be deducted weekly from the amounts due to Customer. If the amount due to Customer is not sufficient to satisfy these amounts, then Customer shall pay BMC such amount 5 as is required to satisfy these amounts within ten (10) Business Days of notification by BMC of any amounts due. (h) REJECTED RECORDS. Those EMI Billing Records that fail BMC's edits and screens and not submitted to the LECs for billing and collection, BMC Rejected Records, shall be returned to Customer at no charge. Unbillable Records rejected by the LEC, through no fault of BMC, shall be charged the same BMC Processing Fees as described in Exhibit C attached hereto. (i) RESUBMITTED EMI BILLING RECORDS: Unbillable Records which are resubmitted to the LECs for billing and collection shall be charged the standard BMC Processing Fees as described in Exhibit C attached hereto. SECTION 5. BMC BILLING SERVICE FEES, CHARGES AND CHARGE BACKS. In addition to the LEC Processing Fees, charges, charge backs, credits and adjustments set forth in Section 4, Customer agrees to pay to BMC and BMC may deduct from amounts collected by the LECs on behalf of Customer and paid to BMC, the following BMC billing service fees, charges, charge backs, credits and assessments: (a) A billing and information management service fee, the BMC Processing Fee, for each Valid EMI Billing Record submitted to the LECs for billing and collection by BMC, as specified in Exhibit C attached hereto; (b) An End User inquiry, investigation and rebate fee for each Valid EMI Billing Record submitted to the LECs for billing and collection by BMC, as specified in Exhibit C attached hereto; (c) Any Post-Billing Adjustment or Credit amounts refunded to End Users by BMC's customer service inquiry and investigation activities, along with any LEC charges associated with making such refunds to End Users; (d) A charge, as specified in Exhibit C attached hereto, for any submission of EMI Billing Records that contains less than the minimum volume requirements of BMC for each "library code"; (e) An additional End User inquiry, investigation and rebate fee, as described in Exhibit C attached hereto, for each inquiry that exceeds one percent (1%) of the number of Valid EMI Billing Records for each library code processed by BMC on behalf of Customer each month; and (f) ACCOUNTS RECEIVABLE RECONCILIATION SYSTEM - FASTRACK: Customer shall pay to BMC an initial, one-time fee, as described in Exhibit C attached hereto, for BMC's accounts receivable reconciliation system known as FASTRACK. As collateral for all obligations now existing or hereafter arising from Customer to BMC, Customer hereby grants to BMC a security interest in all the following property of Customer, whether now owned or hereafter acquired or created, and all proceeds and products thereof: 6 (a) All amounts paid, and all amounts owing, by each LEC to BMC on accounts for Customer's EMI Billing Records; (b) All accounts owing from an End User to Customer arising from services which give rise to Customer's EMI Billing Records; (c) All amounts deposited by Customer with BMC pursuant to paragraph 13.(b) hereof; and (d) all amounts owing and all amounts to be owing from BMC to Customer. SECTION 6. PAYMENTS TO CUSTOMER. (a) DETERMINATION OF AMOUNT DUE TO CUSTOMER. BMC will determine the amount collected by each LEC for Customer's Valid EMI Billing Records and deduct the then-applicable fees, charges, charge backs, credits and adjustments of the LECs and BMC. If the amount due to Customer is not sufficient to satisfy these fees, charges, charge backs, credits and adjustments, then Customer shall pay this difference to BMC within ten (10) Business Days of notification by BMC of any amounts due. (b) RESERVES AND TRUE-UPS FOR UNBILLABLE RECORDS: BMC will reserve an amount, from one month to the next, that is equal to Customer's prior history for Unbillable Records. BMC will recalculate Customer's historical experience quarterly from its prior three months results. Until such history can be determined for Customer, BMC will reserve two and one-half percent (2.5%) from the amount due to Customer. BMC will true-up this reserve each month when the information becomes available from the LECs. BMC will then return excess amounts to Customer or withhold additional amounts as may be required to satisfy these liabilities from the amounts due to Customer. (c) PAYMENT SCHEDULES: BMC will advance to Customer the estimated amount determined under paragraph 6.(a) above within seven (7) Business Days of receipt by BMC of any funds from a LEC for Customer's EMI Billing Records; PROVIDED, HOWEVER, that if Customer has ceased doing business for five (5) Business Days, is the subject of a bankruptcy proceeding, or a receiver, trustee or custodian is appointed over substantially all of Customer's assets, or if Customer fails to make any deposit required under paragraph 13.(b), or if BMC has reasonable grounds to believe that the fees, charges, charge backs, credits and adjustments to Customer may exceed any amount owing or to become owing from BMC to Customer, BMC may withhold payments to Customer until all such amounts have been determined and deducted from the amount owing to Customer. If the amount owing to Customer is determined not sufficient to satisfy these fees, charges, charge backs, credits and adjustments, then Customer shall pay the difference to BMC within ten (10) Business Days of notification by BMC of any amount due. (d) METHOD OF PAYMENT: BMC will make all advance payments and final payments due to Customer, using ACH wire transfer, each Tuesday or the first Business Day following Tuesday should Tuesday not fall on a Business Day based on the schedule described in paragraph 6.(c) herein. 7 (e) ACCOUNTING FOR FUNDS: Funds received from the LECs for Customer's Valid EMI Billing Records, less applicable fees, charges, charge backs, credits and adjustments, shall be deposited and held by BMC in a common account until such time as the amount determined to be due Customer is paid to Customer. BMC will maintain an accounting of the balance owing or to be owing by BMC to Customer of such amounts deposited and held by BMC. SECTION 7. CUSTOMER'S OBLIGATIONS. The Customer agrees as follows: (a) COOPERATION BY CUSTOMER. Customer agrees to cooperate with BMC to the fullest extent possible and to the best of Customer's ability to facilitate the provisioning of services described in Section 3 herein. Such cooperation shall include, but not be limited to, the following: (i) Supplying BMC with Customer's identification codes, any and all certifications of regulatory authority necessary for Customer to offer its services, and any other information and documents necessary or helpful to BMC; and (ii) Supplying BMC with all technical information and assistance with testing that may be necessary or helpful to BMC in providing its services herein. (b) APPLICABLE APPROVALS AND COMPLIANCE WITH LAW. Customer shall obtain and keep current all applicable federal, state and local licenses, certifications and approvals and shall fully comply with all other applicable federal, state and local regulations, laws, rules and Tariffs. Customer agrees that BMC shall assume and will assume no responsibility for such compliance whatsoever. Customer acknowledges and understands that certain LEC billing systems contain edits and screens that "block" Customer's EMI Billing Records from being billed to End Users until BMC can demonstrate to such LECs that Customer has proper authority for providing its services to the End User. Customer further acknowledges and understands that it may take as long as sixty (60) days after notification to the LECs of such authority before the LECs will begin billing Customer's EMI Billing Records. Therefore, BMC will not be responsible for billing Customer's EMI Billing Records for services provided prior to the LECs removing their regulatory edits and screens from their billing systems. (c) VALIDATION. Customer shall validate all collect, third party and calling card billed MTS calls using the LECs' LIDBs (line information data bases) or some other alternative validation method that is acceptable to the LECs and to BMC. (d) COMPLETED CALLS. Customer acknowledges and agrees that where required, Customer shall be in compliance with the FCC's order to determine call connection using hardware or software "answer detection." Customer further agrees that it will submit to BMC only those EMI Billing Records for calls that represent valid, completed calls as defined in Exhibit D attached hereto. (e) AGED EMI BILLING RECORDS. Customer shall not submit EMI Billing Records to BMC that are more than ninety (90) days old or that exceed the "age of toll" acceptable by the LECs, whichever is less. 8 (f) MINIMUM TRANSMISSION VOLUMES. Customer shall not submit to BMC fewer than five thousand (5,000) EMI Billing Records per "library code" in any transmission of its EMI Billing Records. The minimum BMC Processing Fee, as set forth in Exhibit C attached hereto, shall apply if the minimum volume per transmission is not met. (g) OBJECTIONABLE CONTENT. Customer agrees, as a condition of BMC's performance under this Agreement, that BMC will not provide billing and information management services which BMC deems harmful, damaging or against public policy, including, but not limited to: (i) Services which explicitly or implicitly refer to sexual conduct; (ii) Services which contain indecent, obscene or profane language; (iii) Services which allude to bigotry, racism, sexism or other forms of discrimination; (iv) Services which through advertising, content or delivery are deceptive, or that may take unfair advantage of minors or the general public; (v) Services which are publicly accessible, multi-party connections commonly known as "gab" or "chat" services; (vi) Services which are prohibited by Federal, state, or local laws or Tariffs; or (vii) Services which individual LECs exclude from the "types" of services or products for which their policies permit them to bill and collect. (h) NO OTHER BILLING ARRANGEMENT: Customer warrants that the EMI Billing Records submitted and to be submitted by Customer to BMC pursuant to this Agreement are NOT and will NOT be subject to any other valid or existing billing and collection agreement, have NOT been billed previously and will NOT be billed by another party following their submission by Customer to BMC. SECTION 8. PROTECTION OF CONFIDENTIAL INFORMATION. As used herein, "Confidential Information" shall mean (a) proprietary information, (b) information marked or designated as confidential, (c) information otherwise disclosed in a manner consistent with its confidential nature, (d) information of one party, whether or not in written form and whether or not designated as confidential, that is known or should reasonably be known by the other party as being treated as confidential, and (e) information submitted by one party to the second party where the second party knows or reasonably should know that the first party is obligated to keep the information confidential. The parties hereto expressly recognize and acknowledge that, as result of the provision of services pursuant to this Agreement, Confidential Information which may be proprietary to each party must or may be disclosed to the other. Each party hereby agrees that it will make no disclosure of Confidential Information provided under this Agreement without the prior written consent of the other party. Additionally, each party shall restrict disclosure of said information to its own employees, agents or independent contractors to whom disclosure is necessary and who have agreed to be bound by the obligations of confidentiality hereunder. Such employees, agents or independent contractors shall use reasonable care, but not less care than they use with respect to their own information of like character, to prevent disclosure of any Confidential Information. Nothing contained in this Agreement shall be considered as granting or conferring rights by license or otherwise in any Confidential Information disclosed. 9 SECTION 9. TAXES. (a) CALCULATION OF TELECOMMUNICATIONS TAXES: BMC will be responsible for calculating or will use its best efforts to cause the LECs to calculate the following taxes applicable to each MTS call and allow them to be passed through to the End User, such taxes being referred to herein collectively as "Taxes": Federal excise tax, any state and local sales taxes or tax-like charges, or any Foreign Intrastate Taxes or foreign tax-like charges. Notwithstanding the foregoing, Customer acknowledges and agrees it is responsible for compliance with all taxing requirements; therefore, Customer shall promptly notify BMC of any tax or tax-like surcharges and the associated rates that apply to Customer's MTS calls in any specific jurisdiction. (b) BILLING AND COLLECTION OF TAXES: BMC will, for the benefit of and on behalf of Customer, use its best efforts to cause the LECs to bill End Users for all Taxes. Customer acknowledges and agrees that BMC is acting merely as Customer's agent with respect to arranging for the billing and collection of Taxes, and in no event shall BMC be entitled to retain or receive from Customer, or from any End User, any statutory fee or share of Taxes to which the person collecting the same may be entitled under applicable law. (c) TAX EXEMPT STATUS FOR END USERS: BMC will have the authority, on behalf of Customer, to authorize the LECs to calculate Taxes in the same manner as the LECs calculate Taxes for their End Users and to authorize the LECs to establish the tax exempt status of End Users in the same manner as the LECs establish such status for their End Users. If Customer's MTS calls are exempt from federal, state and local Taxes or tax-like charges, Customer shall so indicate on each EMI Billing Record submitted to BMC. (d) FILING AND PAYMENT OF TAXES: Based upon the information calculated by BMC and/or received from the LECs with respect to Taxes assessed, billed and collected by the LECs, BMC will, on behalf of Customer, prepare and file in a timely manner with the applicable taxing authorities all returns covering Taxes, and will, on behalf of Customer, but only to the extent of amounts otherwise owing from BMC to Customer, pay in full and promptly remit to such taxing authorities all Taxes owed thereto. Upon written request, BMC will provide to Customer copies of any and all tax returns and other applicable information relating to the payment of Taxes by BMC within thirty (30) days after being filed and paid by BMC. (e) HOLD HARMLESS: Customer shall indemnify and hold BMC and its employees, agents and representatives free and harmless from and against any Claim (including, without limitation, reasonable attorneys' fees and court costs) relating to or arising out of any Taxes, penalties, interest, additions to tax, surcharge or other amounts to which BMC may be subject or incur, relating to or arising out of (i) BMC's reliance upon any calculations, determinations or other directives, or lack thereof, given by Customer to BMC with respect to the calculation, assessment, billing and/or collection of any Taxes contemplated by this Agreement; or (ii) a determination by the Internal Revenue Service or any other taxing authority that any amount paid by BMC pursuant to paragraph 9.(d) above with respect to Taxes was insufficient, except in the event such insufficiency was the result of gross negligence on the part of BMC; provided, however, that Customer shall not be required to indemnify BMC or the employees, agents and 10 representatives thereof for any loss, damage, Claim, cause of action or other liability to the extent, but only to the extent, caused by the gross negligence or willful misconduct of BMC. (f) BILLED TAXES: Customer shall be responsible for the payment of any additional Taxes or tax-like charges assessed against BMC based on the revenues collected by BMC from Customer's Valid EMI Billing Records, "Billed Taxes" under this Agreement, excluding Federal and state income Taxes. SECTION 10. FORCE MAJEURE. BMC shall not be held liable for any delay or failure in performance of any part of this Agreement or Exhibits attached hereto from any cause beyond its control and without its fault or negligence, such as acts of God, acts of civil or military authority, government regulations, embargoes, epidemics, war, terrorist acts, riots, insurrections, fires, explosions, earthquakes, nuclear accidents, floods, strikes, power blackouts, volcanic action, other major environmental disturbances, unusually severe weather conditions, inability to secure products or services of other persons or transportation facilities, or acts or omissions of transportation common carriers. SECTION 11. LIMITATION OF LIABILITY. (a) BMC will use its best efforts at all times to provide prompt and efficient service; however, BMC makes no warranties or representations regarding the services except as specifically stated in this paragraph 11.(a). BMC will use due care in processing all work submitted to it by Customer and agrees that it will, at its expense, correct any errors which are due solely to malfunction of BMC's computers, operating systems or programs or errors by BMC's employees or agents. Correction shall be limited to reprocessing Customer's EMI Billing Records. BMC will not be responsible in any manner for failures of, or errors in, proprietary systems and programs other than those of BMC, nor shall BMC be liable for errors or failures of Customer's software or operational systems. THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER WARRANTIES, AND CUSTOMER HEREBY WAIVES ALL OTHER WARRANTIES, EXPRESSED, IMPLIED, OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE. Should there be any failure in performance or errors or omissions by BMC with respect to the information being processed and being submitted to the LECs for billing and collection, BMC's liability shall be limited to using its best efforts to correct such failure. In no event, except as specifically set forth herein, shall BMC be liable to Customer or any third parties (including Customer's customers) for any Claim even if BMC has been advised of the possibility of such Claim. (b) Due to the nature of the services being performed by BMC, Customer agrees that in no event will BMC be liable for any Claim caused by BMC's performance or failure to perform hereunder which is not reported by Customer in writing to BMC within thirty (30) days of such performance or failure to perform. (c) Customer shall indemnify and save harmless BMC from and against any Claim asserted against BMC by third parties and arising out of Customer's use of the services provided 11 under this Agreement, unless such Claim arises out of the willful misconduct or gross negligence of BMC. (d) Liability of BMC in any and all categories and for any and all Claims arising out of this Agreement or out of any act or omission relating thereto shall, in the aggregate, not exceed one (1) month's average of BMC's Processing Fees to Customer over the twelve (12) months preceding such date in which the damage or injury is alleged to have occurred, but if this Agreement has not been in effect for twelve (12) months preceding such date, then over such fewer number of preceding months that this Agreement has been in effect. SECTION 12. TERM OF AGREEMENT. The initial term of this Agreement shall begin on the date on page 1 of this Agreement or the date Customer begins submitting its EMI Billing Records to BMC, whichever is later, and continue in full force and effect for a minimum period of one (1) year from such date unless terminated in accordance with paragraph 14.(b)(i) and shall automatically renew for successive periods of one (1) year unless terminated by written notice from either party at least sixty (60) days prior to the scheduled expiration date. Notwithstanding anything to the contrary contained herein, if Customer is currently billing more than twenty-five thousand (25,000) EMI Billing Records per month, Customer may elect an initial term for this Agreement of two (2) or three (3) years. Should Customer elect to extend the initial term of this Agreement, Customer shall pay BMC a minimum Processing Fee, as described in Exhibit C attached hereto, each month for the entire term of this Agreement. In consideration for such, BMC will charge Customer a reduced billing services fee for the term selected which coincides with the BMC fee schedule as presented in Exhibit C, attached hereto. SECTION 13. EXPIRATION OR TERMINATION. (a) PAYMENT UPON EXPIRATION OR TERMINATION: Upon the expiration or termination of this Agreement for any reason, Customer agrees to satisfy, when or before due, any and all of its obligations arising under this Agreement. (b) DEPOSIT FOR CHARGES: In addition, Customer acknowledges and understands that certain LEC charges for Uncollectible Amounts, Bad Debt true-ups and Post-Billing Adjustments and Credits which are not determined by the LECs or provided to BMC for a period of up to eighteen (18) months after the final processing of Customer's EMI Billing Records by BMC on behalf of Customer. Customer further acknowledges and agrees that payment of these amounts shall be its sole responsibility. To ensure such payments, Customer shall, at the expiration or termination of this Agreement for any reason, deposit with BMC an amount equal to two and one-half percent (2.5%) of the face amount of Customer's gross billings for the prior twelve (12) months, or such other amount as is estimated by BMC, based on Customer's prior history, necessary to satisfy such charges. Such deposited amount shall be used by BMC to pay Uncollectible Amounts, Bad Debt true-ups, Post-Billing Adjustments and Credits and other charges incurred on behalf of Customer for billing and collecting Customer's EMI Billing Records submitted by Customer to BMC during the term of this Agreement. Each quarter BMC will re-examine the amount of funds deposited and make such adjustments as BMC estimates may 12 be necessary to satisfy the aforementioned charges. BMC will provide Customer with proper documentation to substantiate charges attributable to Customer on the same and consistent method as BMC determines such charges for all of its customers. At the end of eighteen (18) months from the expiration or termination date, BMC will return all unused amounts to Customer. (c) REMAINING LIABILITY: Notwithstanding the foregoing, the deposit of such amounts does not relieve or waive Customer's responsibility and obligation to pay its obligations to BMC including, without limitations, any and all fees, charges, charge backs, credits and adjustments associated with billing and collecting its EMI Billing Records. In the event such associated fees, charges, charge backs, credits and adjustments exceed the amount of the deposit described in paragraph 13.(b), Customer shall remit to BMC such additional amounts as are required to satisfy Customer's obligations under this Agreement to BMC within ten (10) Business Days of notification by BMC of any such amounts due. (d) SAVINGS CLAUSE: Except as otherwise provided herein, expiration or termination of this Agreement under this Section 13 shall terminate all further rights and obligations of the parties hereunder, provided that: (i) Neither BMC nor Customer shall be relieved of its respective obligations to pay any sums of money due or to become due or payable or accrued under this Agreement; (ii) If such expiration or termination is a result of a default hereunder or a breach hereof by a party hereto, the other party shall be entitled to pursue any and all rights and remedies it has to redress such default or breach in law or equity, subject to Sections 11, 14 and 24 hereof; and (iii) The provisions of Sections 8 and 9 hereof, except paragraph 9.(b), shall survive the expiration or termination of this Agreement. (e) EARLY TERMINATION OF EXTENDED TERM AGREEMENT: If Customer elects to extend the initial term of this Agreement and should Customer terminate or breach this Agreement before the expiration of the full initial term elected by Customer upon execution hereof, BMC will recalculate and Customer shall pay to BMC a processing fee for all EMI Billing Records processed under this Agreement based on the current processing fee schedule at the one (1) year rate, attached hereto as Exhibit C, plus ten percent (10%) for each EMI Billing Record processed under this Agreement, at Customer's monthly volume levels. SECTION 14. DEFAULT AND REMEDIES. (a) DEFAULT: Either Party shall be in default hereunder if it: (i) Fails to make any payment specified hereunder when or before due and such failure continues for five (5) Business Days after written notice; (ii) Breaches any other material covenant or undertaking contained in this Agreement and fails to remedy such breach within thirty (30) Business Days after written notice thereof from the non-defaulting party; or (iii) Files, or there is filed against it, any voluntary or involuntary proceeding under the Bankruptcy Code, or makes an assignment for the benefit of creditors, dissolves, ceases to conduct business for three (3) Business Days, resorts to any insolvency law, declares that it is unable to pay its debts as they mature or if a receiver, trustee or 13 custodian is appointed over, or an execution, attachment, or levy is made upon, all or any material part of the property of such party. (b) REMEDIES: Time is of the essence of this Agreement. In the event of any default hereunder, the non-defaulting party shall have the following rights and remedies: (i) To terminate or cancel this Agreement, subject to the provisions of paragraph 13.(d), by giving written notice thereof to the defaulting party; (ii) To declare all amounts due under this Agreement from the defaulting party to the non-defaulting party to be immediately due and payable; (iii) To withhold, setoff, and retain, until all obligations of Customer to BMC have been satisfied in full, any and all amounts which may otherwise be due and payable to Customer under this Agreement and apply such amounts to any balance due or to become due from Customer to BMC; (iv) All rights and remedies allowed by the applicable Uniform Commercial Code; (v) All other rights and remedies allowed by this Agreement and under applicable law; and (vi) All rights and remedies shall be cumulative and can be exercised separately or concurrently. SECTION 15. AMENDMENTS; WAIVERS. No modification, amendment or waiver of any provision of this Agreement, and no consent to any default under this Agreement, shall be effective unless the same shall be in writing and signed by or on behalf of the party against whom such modification, amendment, waiver or consent is claimed. In addition, no course of dealing or failure of any party to strictly enforce any term, right or condition of this Agreement shall be construed as a waiver or such term, right or condition. SECTION 16. ASSIGNMENT. (a) BY CUSTOMER OR BMC. Assignment by Customer or BMC of any right, obligation or duty or of any other interest hereunder, in whole or in part, shall require consent by both parties. Such consent shall not be unreasonably withheld by either party. (b) GENERALLY. All rights, obligations, duties and interests of any party under this Agreement shall inure to the benefit of and be binding on all successors in interest and assigns of such party and shall survive any acquisition, merger, reorganization or other business combination to which it is a party. SECTION 17. NOTICES AND DEMANDS. (a) HOW NOTICE GIVEN: Except as otherwise provided under this Agreement, all notices, demands and requests which may be given by any party to the other party shall be in writing and shall be: (i) delivered in person; (ii) mailed, postage prepaid, registered or certified mail, return receipt requested; (iii) placed in the hands of a national overnight delivery service 14 or (iv) sent by facsimile transmission to the recipient's facsimile machine, with an extra copy immediately following by first class mail; and addressed as follows: IF TO BMC, TO IT AT: BILLING INFORMATION CONCEPTS CORP. ATTENTION: MR. AUDIE LONG 9311 SAN PEDRO, SUITE 300 SAN ANTONIO, TEXAS 78216 TELEPHONE: (210) 525-8912 FAX: (210) 525-0511 _________________________________________________________________ IF TO CUSTOMER, TO IT AT: U.S. LONG DISTANCE, INC. ATTENTION: _____________________ 9311 SAN PEDRO, SUITE 100 SAN ANTONIO, TEXAS 78216 TELEPHONE: (210) 525-9009 FAX: (210) 525-__________ If personal delivery is selected as the method of giving notice under this Section, a receipt for such delivery shall be obtained. The address to which such notices, demands, requests, elections or other communications may be given by either party may be changed by written notice given by such party to the other party pursuant to this Section 17. (b) WHEN NOTICE EFFECTIVE: Except as otherwise expressly provided herein, all such notices shall be effective upon receipt if delivered by hand, facsimile, national overnight delivery service, certified or registered mail and otherwise five (5) Business Days after placement in the U.S. mails. SECTION 18. NO THIRD-PARTY BENEFICIARIES. This Agreement shall not provide any person not a party to this Agreement with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement. SECTION 19. GOVERNING LAW. This Agreement shall be deemed to be a contract made under the laws of the State of Texas, and the construction, interpretation and performance of this Agreement and all transactions hereunder shall be governed by the domestic laws of such State without regard to conflict of law principles. SECTION 20. ENTIRE AGREEMENT. 15 This Agreement constitutes the entire and exclusive Agreement between the parties and supersedes all prior or contemporaneous agreements, and oral or written representations, between them. SECTION 21. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same document. SECTION 22. HEADINGS. The headings in this Agreement are for convenience only and shall not be construed to define or limit any of the terms herein or affect the meaning or interpretation of this Agreement. SECTION 23. MOST FAVORED CUSTOMER. It is the intent of the parties hereto that Customer shall be considered by BMC as one of its most favored customers under this Agreement. By virtue of this consideration, Customer shall not pay a greater BMC Processing Fee per call, or in the alternative, receive a lesser number of out-cleared messages for the same or lesser BMC Processing Fee, than any other similarly situated customer of BMC under this Agreement. BMC will promptly reduce Customer's monthly BMC Processing Fee and minimum revenue guarantees if it should grant a lower rate per call or provide a greater number of out-cleared messages for the same or lesser BMC Processing Fee to any customer of BMC under this Agreement, similarly situated to Customer. Regardless of the mechanics of the aforementioned, it is the intent of this clause and the principle hereunder that Customer be treated as well as or better than the most favorably treated customer of BMC under this Agreement. SECTION 24. ARBITRATION Any controversy, dispute or Claim arising out of or in connection with this Agreement, or the breach, termination or validity hereof, shall be settled by final and binding arbitration to be conducted by an arbitration tribunal in San Antonio, Texas, pursuant to the rules of the American Arbitration Association. In the event of any procedural matter not covered by the aforesaid rules, the procedural law of the State of Texas shall govern. The arbitration tribunal shall consist of three arbitrators. The party initiating arbitration shall nominate one arbitrator in the request for arbitration and the other party shall nominate a second in the answer thereto within 15 days of receipt of the request. The two arbitrators so named will then jointly appoint the third arbitrator. If the answering party fails to nominate its arbitrator within the fifteen day period, or if the arbitrators named by the parties fail to agree on the third arbitrator within thirty days, the Office of the American Arbitration Association in Dallas, Texas shall make the necessary appointments of such arbitrator(s). The arbitrator shall only have authority to award compensatory damages and shall not have authority to award punitive damages, other non-compensatory damages or any other form of relief: the parties hereby waive all rights to and claims for relief other than compensatory damages. The decision or award of the arbitration tribunal (by a majority determination, or if there is no majority, then by the determination of the third arbitrator, if any) shall be final, and judgment upon such decision or award may be entered in the courts of the 16 State of Texas or the United States of America for the Western District of the State of Texas. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally , the jurisdiction of the aforesaid courts. The initial term of this Agreement shall be for a period of ___________ (one, two or three) years from the date hereof. IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first set forth above. BILLING INFORMATION CONCEPTS INC.: By:________________________________ Alan W. Saltzman President and Chief Operating Officer Date:______________________________ CUSTOMER: U.S. LONG DISTANCE, INC. By:________________________________ Name:______________________________ (print) Its:_______________________________ Date:______________________________ ______________________________ Account Representative 17 EX-10.7 9 EXHIBIT 10.7 TELECOMMUNICATIONS AGREEMENT This Agreement is entered into this _____ of _______, 1996, by and between U. S. LONG DISTANCE, INC., a Texas corporation with its principal office at 9311 San Pedro, Suite 100, San Antonio, Texas 78216 ("USLD"), and BILLING INFORMATION CONCEPTS INC., a Delaware corporation with its principal office at 9311 San Pedro, Suite 400, San Antonio, Texas 78216 ("Customer"). WITNESSETH: WHEREAS, USLD is in the business of providing telecommunications services; and WHEREAS, Customer desires to purchase telecommunications services from USLD: NOW, THEREFORE, in consideration of the mutual promises and convenants contained herein, and for other good and valuable consideration, the parties do hereby contract and agree as follows: 1. USLD agrees to furnish to Customer, and Customer agrees to purchase from USLD, the telecommunication services as set forth in EXHIBIT "A" attached hereto and made a part of this Agreement as if set forth verbatim herein. 2. This Agreement shall commence on the _______day of ___________, 1996 (the "Commencement Date") and continue for a period of three (3) years. This Agreement shall be extended, on the same terms and conditions, for an additional period of _______________ unless either party notifies the other party in writing not less than sixty (60) days prior to the termination date of its desire to terminate this Agreement. 3. During the term of this Agreement, USLD shall charge for the telecommunication services, and Customer shall pay for such telecommunication services, that amount as determined by using the rates set out in EXHIBIT "A." 4. USLD shall give Customer at least forty-five (45) days' notification in the event any service rate in EXHIBIT "A" is modified. Upon such notification, Customer will have the right to terminate this Agreement without penalty by providing USLD written notice within thirty (30) days of Customer's intent to cancel service sixty (60) days from notice. 5. Customer hereby acknowledges that USLD's charges for the provision of its telecommunication services will be billed on a monthly basis and that payment for such services is due and payable fifteen (15) days from the invoice date. Late payments will be assessed a late charge of 1.5% per month. Payments not received within thirty (30) days of the invoice date will result in the right of USLD to cancel and terminate the services provided herein, after providing Customer with written notice, via facsimile, of such intent to terminate service and allowing Customer ten (10) working days to cure the deficiency. 6. Should Customer dispute any of the monthly charges on its monthly invoice, it shall notify USLD of the disputed charges not later than ten (10) days from the date of invoice. This notice shall set forth in writing all details concerning the disputed charges. In the event of a dispute, Customer shall pay the entire invoice in accordance with the payment terms set forth therein. After resolution of the disputed portion of the invoice, the adjustment, if any, shall be immediately credited to Customer's account. 7. Should Customer claim any exemption of any sales, use or other tax, then Customer shall provide documentation regarding such exemption to USLD. USLD will be allowed to maintain a copy of such documentation in its offices in San Antonio, Texas. It will be the responsibility of Customer to make sure that its proof of exempt status remains current. 8. No term or provision of this Agreement shall be deemed waived, and no breach shall be deemed excused, unless such waiver or consent shall be in writing and signed by the party claimed to have waived or consented. No consent by any party to, or waiver of, a breach or default by the other, whether expressed or implied, shall constitute a consent to, waiver of or excuse for any different or subsequent breach or default. 9. Neither USLD nor Customer shall be liable to the other for any consequential, indirect, special or incidental damages whatsoever, including, without limitation, any loss of revenue, goodwill, or profits or claims by third parties or otherwise in connection with or related to any of the services provided pursuant to this Agreement. 10. USLD warrants that the equipment used in providing the services to Customer pursuant to this Agreement is suitable for the uses intended, and Customer warrants and represents that it is fully authorized to contract for the services under this Agreement. USLD MAKES NO OTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED. 11. This Agreement authorizes USLD to start provisioning of telecommunications services, as set forth herein, to Customer on the Commencement Date. This Agreement also authorizes USLD to act as Customer's agent in placing orders with other carriers in order to provide telecommunications services, if requested. 12. If the performance of the respective obligations of USLD or Customer shall be prevented or interfered with by reason of any fire, flood, epidemic, earthquake or any other act of God, explosion, strike or other disputes, riot or civil disturbance, war (whether declared or undeclared) or armed conflict, any municipal ordinance or state or federal law, governmental order or regulation or order of any court of competent jurisdiction, or other similar forces not within the control of USLD nor Customer, as the case may be, then Customer and/or USLD, as the case may be, shall not be liable to the other for its failure to perform such obligations hereunder. 13. If any term or provision of this Agreement shall be found to be illegal or unenforceable, then, notwithstanding such illegality or unenforceability, this Agreement shall remain in full force and effect and such term or provision shall be deemed to be deleted. In addition, this Agreement shall be terminated upon the determination of a governmental entity having jurisdiction over the services provided under this Agreement. 14. Except as otherwise provided herein, the remedies provided for in this Agreement are in addition to any other remedies available at law or in equity, by statute or otherwise. 15. Should it be necessary for either party to this Agreement to retain the services of an attorney to enforce its rights under this Agreement, and should any suit be necessary to enforce said rights, then the prevailing party shall be entitled to receive reasonable attorney's fees from the other party. 16. This Agreement shall be governed by the substantive laws of the State of Texas, without regard to conflict of law principles, with venue at San Antonio, Texas. 2 17. This Agreement shall be binding upon and inure to the benefit of USLD and Customer and their respective successors and assigns. USLD retains the right to assign all or part of this Agreement. This Agreement may not be assigned by Customer without the prior written consent of USLD. USLD reserves the right to obtain necessary credit information or require additional security deposits from successors and assigns. 18. This Agreement, including the exhibits hereto and the documents and instruments referred to therein, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein. This Agreement, and any documents and instruments contemplated hereby, supersedes all prior agreements and understandings between the parties with respect to such subject matter. 19. This Agreement may be amended, modified or supplemented only by an instrument in writing executed by the party against which enforcement of the amendment, modification or supplement is sought. 20. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original. It shall not be necessary in making proof of this Agreement to produce or account for more than one (1) of such counterparts. IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year first above written, and the individuals signing below warrant that they have authority to sign for and on behalf of the respective parties. U. S. LONG DISTANCE, INC. BILLING INFORMATION CONCEPTS INC. By: By: ---------------------------- ------------------------------- Name: Name: ---------------------------- ------------------------------- Title: Title: ---------------------------- ------------------------------- Date: Date: ---------------------------- ------------------------------- 3 EX-10.8 10 EXHIBIT 10.8 BILLING INFORMATION CONCEPTS CORP. 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN 1. PURPOSE. The purpose of this 1996 Employee Comprehensive Stock Plan (the "Plan") is to further the success of Billing Information Concepts Corp., a Delaware corporation (the "Company"), and certain of its affiliates by making available Common Stock of the Company to 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 stockholders in the success of the Company. Subject to compliance with the provisions of the Plan and the Code, Incentive Stock Options as authorized by Section 422 of the Code and stock options which do not qualify under Section 422 of the Code are authorized and may be granted under the Plan. Further, the Company may grant Restricted Stock, as defined below. 2. DEFINITIONS. As used in this Plan the following terms shall have the meanings indicated as follows: (a) "Award" means an award of stock options (including Incentive Stock Options) or Restricted Stock, on a stand alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms of an Award, in the form prescribed by the Committee. (c) "Board" means the Board of Directors of the Company. (d) "Cause" shall mean, in the context of the termination of a Participant, as determined by the Board, in the reasonable exercise of its business judgment the occurrence of one of the following events: (i) conviction of or a plea of NOLO CONTENDERE to a charge of a felony (which, through lapse of time or otherwise, is not subject to appeal); (ii) willful refusal without proper legal cause to perform, or gross negligence in performing, Participant's duties and responsibilities; (iii) material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise; or (iv) the unauthorized absence of Participant from work (other than for sick leave or disability) for a period of thirty working days or more during any period of forty-five working days; provided, further, within one year 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 an appeal), or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise. (e) "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 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 voting 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 Board 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 70% 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) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Committee administering the Plan described in Section 3 hereof. (h) "Common Stock" means the Company's common stock, par value $.01 per share. (i) "Continuous Status as an Employee" means that the employment relationship with any one or more of (i) the Company, (ii) any Parent, (iii) any Subsidiary or (iv) USLD has not been terminated or interrupted. (j) "Date of Grant" means the date on which an Award is granted under an Award Agreement executed by the Company and a Participant pursuant to the Plan. (k) "Disinterested Person" means a "disinterested person" as such term is defined in Rule 16b-3 promulgated under the Exchange Act or any successor provision. (l) "Effective Date" means the effective date of this Plan specified in Section 14 hereof. (m) "Exchange Act" means the Securities Exchange Act of 1934, as it may be amended from time to time. (n) "Good Reason" shall mean the occurrence of any of the following events: (a) removal from the principal office held by the Participant on the date of the most recent Award, or a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, but not including termination of the Participant for Cause; or (b) the Company otherwise commits a material breach of this Plan, or the Participant's employment agreement, if -2- applicable; provided, however, that within one year following a Change of Control, "Good Reason" shall mean (i) removal from the principal office held by the Participant on the date of the most recent Award, (ii) a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, (iii) relocation of the Company's headquarters from the San Antonio, Texas metropolitan area but not including termination of the Participant for cause, (iv) a material reduction in the Participant's compensation, or (v) the Company otherwise commits a material breach of this Plan, or the Participant's employment agreement, if applicable. (o) "Incentive Stock Option" means an option qualifying under Section 422 of the Code. (p) "Parent" means a parent corporation of the Company as defined in Section 424(e) of the Code. (q) "Participants" means the employees and officers of the Company, its Subsidiaries and its Parent (including those directors of the Company who are also employees of the Company, its Parent or one or more of its Subsidiaries). "Participants" includes the USLD Participants. (r) "Restricted Period" shall mean the period designated by the Committee during which Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered, which period shall not be less than one year nor more than two years from the Date of Grant. (s) "Restricted Stock" shall mean those shares of Common Stock issued pursuant to an Award that remain subject to the Restricted Period. (t) "Retained Distributions" shall mean any securities or other property (other than cash dividends) distributed by the Company or otherwise received by the holder in respect of Restricted Stock during any Restricted Period. (u) "Retirement" shall mean retirement of a Participant from the employ of the Company, its Parent, its Subsidiaries or USLD, as the case may be, in accordance with the then existing employment policies of any such employer. (v) "Subsidiary" means a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (w) "USLD" means U.S. Long Distance Corp. and its Subsidiaries and any Parent of USLD. (x) "USLD Participants" means the employees and officers of USLD who are or were employees and officers of USLD prior to and immediately following the distribution of the Company Common Stock by USLD to the stockholders of USLD. -3- 3. ADMINISTRATION OF THE PLAN. The Board shall appoint a committee (the "Committee") comprised of two or more 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 make determinations with respect to the participation of Participants in this Plan, to prescribe the form of Award Agreements embodying Awards made under the Plan, and, except as otherwise required by law or this Plan, to set the size and terms of Awards (which need not be identical or consistent with respect to each Participant) including vesting schedules, price, whether stock options granted hereunder shall constitute an Incentive Stock Option, restriction or option period, post-retirement and termination rights, payment alternatives such as cash, stock or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements, to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner the Committee deems advisable for the administration of the Plan and make determinations pursuant to any Plan provision or Award Agreement, which shall be final and binding on all persons. The Committee may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee. 4. COMMON STOCK SUBJECT TO PROVISIONS OF THIS PLAN. The Common Stock subject to the provisions of this Plan shall either be shares of authorized but unissued Common Stock, shares of Common Stock held as treasury stock or previously issued shares of Common Stock reacquired by the Company, including shares purchased in the open market. Subject to adjustment in accordance with the provisions of Section 11, the aggregate number of shares of Common Stock available for grant of Awards (including, without limitation, Awards of Restricted Stock) shall not exceed Three Millon Five Hundred Thousand (3,500,000). If any part of an Award under this Plan shall be forfeited, the shares of Common Stock subject to the forfeited portion of such Award shall again be available for grant under the Plan. 5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to any Participant as the Committee shall determine from time to time. In determining the Participants to whom options shall be granted and the number of shares to be covered by each 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 sole 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 sole discretion. 6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may make Awards of stock options (including Incentive Stock Options and stock options that do not qualify as Incentive Stock Options) as described in Sections 7 and 8 hereof, and of Restrictive Stock, as described in Section 10 hereof. -4- 7. OPTIONS AUTHORIZED. The options subject to Award 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 (i) determine which options shall be nonqualified stock options and which shall be Incentive Stock Options, (ii) grant only Incentive Stock Options or, alternatively, only nonqualified stock options, and (iii) 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/or 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 8(a) of the Plan as of the time the option is granted) of the Common Stock with respect 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. 8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan shall be evidenced by an Award 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 exercise 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 exercise 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 8(a), fair market value shall be, where applicable, the closing price of the Common Stock on the Date of Grant of such option as reported on any national securities exchange on which the Common Stock may be listed. If the Common Stock is not listed on a national securities exchange but is publicly traded on the Nasdaq Stock Market's National Market or on another automated quotation system, the fair market value shall be the closing price of the Common Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq Over- The-Counter market, the fair market value shall be the mean between the bid and ask prices on any such system or market. If the Common Stock was not traded on the Date of Grant of such option, 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 422(b)(4) or any successor provisions. The Committee may permit the option exercise 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 exercise price. -5- (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 of the option. (c) VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his successor in interest shall have any of the rights of a stockholder 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 that 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 Section 9(c) hereof. (e) DISQUALIFYING DISPOSITION. The Award Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the optionee makes a disposition, within the meaning of Section 424(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. (f) LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. 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 Section 424, stock possessing more than ten percent (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 one hundred ten percent (110%) of the fair market value (as defined in Section 8(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. (g) RESTRICTION ON 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. -6- (h) CONSISTENCY WITH CODE. Notwithstanding any other provision in this Plan to the contrary, the provisions of all Award Agreements relating to Incentive Stock Options pursuant to the Plan shall not violate the requirements of the Code applicable to the Incentive Stock Options authorized hereunder. 9. EXERCISE OF OPTION. (a) Any option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Award Agreement, (ii) full payment of the aggregate option exercise 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 Participant'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. (b) Upon Retirement or other termination of the Participant's Continuous Status as an Employee, other than (a) a termination that is either (i) for Cause or (ii) voluntary on the part of a Participant and without the written consent of the Company, a Parent, any Subsidiary or USLD or (b) a termination by reason of death, the Participant may (unless otherwise provided in his Award Agreement) exercise his option at any time within three (3) months after such termination of the Participant's Continuous Status as an Employee (or within one (1) year after termination of the Participant's Continuous Status as an Employee due to permanent and total disability within the meaning of Code Section 22(e)(3)), or within such other time as the Committee shall authorize, but in no event may the Participant exercise his Option after ten (10) years from the Date of Grant thereof (or such lesser period as may be specified in the Award Agreement), and only to the extent of the number of shares for which his options were exercisable by him at the date of the termination of the Participant's Continuous Status as an Employee. In the event of the termination of the Continuous Status as an Employee of a Participant to whom an option has been granted under the Plan that is either (i) for Cause or (ii) voluntary on the part of the Participant and without written consent, any option held by him under the Plan, to the extent not previously exercised, shall forthwith terminate on the date of such termination of the Participant's Continuous Status as an Employee. 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, or with respect to a USLD Participant, USLD. The Award Agreement may contain such provisions as the Committee shall approve with respect to the effect of approved leaves of absence. (c) In the event a Participant to whom an option has been granted under the Plan dies during, or within three (3) months after the Retirement or other termination of, the Participant's Continuous Status as an Employee, such option (unless it shall have been previously terminated pursuant to the provisions of the Plan or unless otherwise provided in his Award Agreement) may be exercised (to the extent of the entire number of shares covered by the option whether or not purchasable by the Participant 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 -7- 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 Award Agreement. (d) If as of the date of termination of the Participant's Continuous Status as an Employee (other than as a result of the Participant's death) the Participant is not entitled to exercise his or her entire options, the shares of Common Stock covered by the unexercisable portion of the option shall revert to the Plan. If the Participant (or his or her designee or estate as provided in Section 9(c) above) does not exercise his or her options within the time specified in the Plan and the Award Agreement, the unexercised options shall terminate and the shares of Common Stock covered by such options shall revert to the Plan. 10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. (a) GENERAL. The Committee, in its sole discretion, may make Awards of Restricted Stock to selected Participants, which Awards shall be evidenced by an Award Agreement that contains such terms and conditions, including vesting, as the Committee may determine. As a condition to any Award of Restricted Stock hereunder, the Committee may require a Participant to pay to the Company the amount (such as the par value of such shares) required to be received by the Company in order to assure compliance with applicable state law. Any Award of Restricted Stock for which such requirement is established shall automatically expire if not purchased in accordance with the Committee's requirements within sixty (60) days after the Date of Grant. Subject to the terms and conditions of the respective Award Agreement, the Participant, as the owner of the Common Stock issued as Restricted Stock and any Retained Distributions with respect thereto, shall have the rights of a stockholder, including, but not limited to, voting rights as to such Common Stock and the right to receive cash dividends or distributions thereon when, as and if paid. Within the limits set forth in the Plan, an Award of Restricted Stock may be subject to such vesting requirements as may be fixed by the Committee. Vesting may be accelerated by a Change of Control. Vesting may also be accelerated upon death, permanent disability or Retirement. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Stock is made to a Participant whose employment or service is subsequently terminated by reason of death, permanent disability or Retirement or for such other reason as the Committee may provide, such Participant (or his or her estate or beneficiary) will be entitled to receive such additional portion of his or her Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, Subsidiary or USLD, as applicable, through the date on which the next portion of the shares of unvested Restricted Stock subject to the Award of Restricted Shares would have vested. Unless otherwise provided in the Award Agreement, in the event an Award of Restricted Shares is made to a Participant whose employment with the Company, Parent, Subsidiary or USLD, as applicable, is subsequently terminated by the Participant for Good Reason or by the Company, Parent, Subsidiary or USLD, as -8- applicable, other than for Cause, then in any such event, the Participant will be entitled to receive such additional portion of his or her shares of Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, Subsidiary or USLD, as applicable, through the date on which the next portion of the shares of unvested Restricted Stock subject to the Award of Restricted Shares would have vested. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Shares is made to a Participant who subsequently voluntarily resigns or whose employment is terminated for Cause, then all such Restricted Stock and any Retained Distributions with respect thereto as to which the Restricted Period still applies shall be forfeited by such Participant and shall again become available for grant under the Plan. (b) TRANSFERABILITY. Restricted Stock and any Retained Distributions with respect thereto may not be sold, assigned, transferred, pledged, or otherwise encumbered during the Restricted Period, which shall be determined by the Committee and shall not be less than one year nor more than two years from the date such Restricted Stock was awarded. The Committee may, at any time, reduce the Restricted Period with respect to any outstanding shares of Restricted Stock and any Retained Distributions with respect thereto awarded under the Plan. Shares of Restricted Stock, when issued, will be represented by a stock certificate or certificates registered in the name of the Participant to whom such Restricted Stock shall have been granted and shall bear a restrictive legend to the effect that ownership of such Restricted Stock (and any related Retained Distributions), and the enjoyment of all rights appurtenant thereto are subject to the restrictions, terms, and conditions provided in the Plan and the applicable Award Agreement. Each certificate shall be deposited by the Participant with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting Retained Distributions that shall be forfeited or that shall not become vested in accordance with the respective Award Agreement. The certificate or certificates issued for the Restricted Stock may bear such legend or legends as the Committee may, from time to time, deem appropriate to reflect the restrictions under the Plan for such Restricted Stock. (c) STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Each Participant will have the right to vote the Restricted Stock held by such Participant, to receive and retain all cash dividends and distributions thereon and exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exception that: (i) the Participant will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restricted Period applicable to such shares or portion thereof shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; -9- (ii) other than cash dividends and distributions and rights to purchase stock which might be distributed to stockholders of the Company, the Company will retain custody of all Retained Distributions made, paid, declared or otherwise received by the holder thereof with respect to Restricted Stock (and such Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Stock with respect to which they were made, paid or declared) until such time, if ever, as the Restricted Period applicable to the shares with respect to which such Retained Distributions shall have been made, paid, declared or received shall have expired, and such Retained Distributions shall not bear interest or be segregated in separate accounts; and (iii) upon the breach of any restrictions, terms or conditions provided in the Plan or the respective Award Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions, such Restricted Stock and any related Retained Distributions shall thereupon be automatically forfeited. (d) MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in the Award Agreement, upon the occurrence of a Change of Control, all restrictions imposed on the Participant's Restricted Stock and any Retained Distributions shall automatically terminate and lapse and the Restricted Period shall automatically terminate; provided, however, that if the Change of Control occurs within six months of the Date of Grant the restrictions and Restricted Period shall terminate on the six month anniversary of the Date of Grant. 11. ADJUSTMENTS. The Committee, in its discretion, may make such adjustments in the option price, the number or kind of shares and other appropriate provisions covered by outstanding Awards 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 and class of shares that may be the subject of Awards which are appropriate to reflect any transaction or event described in the preceding sentence. 12. AMENDMENT, SUSPENSION AND TERMINATION OF THE 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 Awards 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 stockholders of the Company voting the proper percentage of its voting power, no such amendment shall make any change in the Plan for which stockholder approval is required in order to comply with (i) Rule 16b-3, as amended, 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 Common 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 amendment, suspension, or termination of the Plan shall, without a Participant's consent, impair or negate any of the rights or obligations under any Award theretofore granted to such Participant under the Plan. -10- 13. TAX WITHHOLDING. The Company shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Company withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the fair market value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date; (ii) the election must be irrevocable; and (iii) the election must be subject to the disapproval of the Committee. To the extent required to comply with rules promulgated under Section 16 of the Exchange Act, elections by Participants who are subject to Section 16 of the Exchange Act are subject to the following additional restrictions: (i) no election shall be effective for a Tax Date which occurs within six months of the grant of the Award; and (ii) the election must be made either (a) six months or more prior to the Tax Date or (b) during the period beginning on the third business day following the date of release for publication for the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. 14. EFFECTIVE DATE OF THE 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 or by written stockholder consent. 15. SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the Committee may, from time to time, make special provisions for one or more Participants respecting a possible Change of Control of the Company, a Subsidiary, Parent or USLD, and, to the extent that any such special provisions made with the consent of the affected employee may have the effect of accelerating vesting of stock options granted under the Plan or removal of restrictions on Restricted Stock allotted under the Plan or the effect of preventing a termination or dilution of benefits, such special provisions shall be controlling over and shall be deemed to be an amendment of any inconsistent terms of the applicable Award Agreement. 16. MISCELLANEOUS PROVISIONS. (a) 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 continue to hold 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. (b) This Plan is intended and has been drafted to comply in all respects with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If any provision of this Plan does not comply with Rule 16b-3, this Plan shall be automatically amended to comply with Rule 16b-3. -11- (c) No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company, a Parent, a Subsidiary or USLD. Nothing in this Plan shall interfere with or limit in any way the right of the Company, a Parent, any Subsidiary or USLD to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company, a Parent, any Subsidiary or USLD. (d) To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the laws of the State of Delaware or the property laws of any particular state. (e) In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning this Plan with respect to other Participants. (f) None of a Participant's rights or interests under the Plan may be assigned or transferred in whole or in part, either directly or by operation of law or otherwise (except pursuant to a qualified domestic relations order or, in the event of a Participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any Participant in the Plan shall be subject to any obligation or liability of such individual. (g) No Restricted Stock or any Retained Distributions shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, or other securities laws. (h) The expenses of the Plan shall be borne by the Company. (i) By accepting any Award under the Plan, each Participant or beneficiary claiming under or through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Committee or the Board. -12- (j) Awards granted under the Plan shall be binding upon the Company, its successors and assigns. (k) The appropriate officers of the Company shall cause to be filed any reports, returns, or other information regarding Awards hereunder or any Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Exchange Act, or any other applicable statute, rule, or regulation. (l) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required. -13- EX-10.9 11 EXHIBIT 10.9 1996 NON-EMPLOYEE DIRECTOR PLAN OF BILLING INFORMATION CONCEPTS CORP. 1. PURPOSE. The purpose of this Plan is to advance the interests of Billing Information Concepts 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 Billing Information Concepts 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 or Section 5 hereof. (e) "Director" shall mean a member of the Board or a member of the board of directors of a Parent on the date of adoption of the Plan. (f) "Eligible Person(s)" shall mean those persons who are Directors of the Company or a Parent other than U.S. Long Distance Corp. 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 Nasdaq National Market or are reported on a consolidated transaction reporting system, the closing sales price of the Shares on such system, (iii) if Shares are otherwise quoted on the Nasdaq system, 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 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" shall mean any option granted under Section 4 or 5 of this Plan. (k) "Optionee" shall mean a person to whom an 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) "Parent" shall mean a parent corporation of the Company as defined in Section 424(e) of the Code and U.S. Long Distance Corp. (m) "Payment Date" shall have the meaning set forth in Section 2(a). (n) "Plan" shall mean this 1996 Non-Employee Director Plan of Billing Information Concepts Corp. (o) "Prior Plan" shall mean the 1993 Non-Employee Director Plan of U.S. Long Distance Corp. (p) "Share(s)" shall mean a share or shares of the common stock, par value one cent ($0.01) per share, of the Company. (q) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. 3. SHARES AND OPTIONS. The maximum number of Shares to be issued pursuant to Options under this Plan shall be FOUR HUNDRED THOUSAND (400,000) 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 Directors 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 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 and 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 holds one or more unexercised options under the Prior Plan (an "Unexercised Option") will automatically receive an Option for such number of Shares as is equal to the number of shares of U.S. Long Distance Corp. common stock, $.01 per share, subject to his Unexercised Options. Such Option will vest at the same time that his Unexercised Options vest (assuming that his Unexercised Options remain outstanding and exercisable); (ii) 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 (iii) 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 Option previously granted under this Section 4, 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. -2- For purposes of Section 4(c)(i), a Director's service with a Parent shall be considered service with the Company. (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 elect to receive the Annual Director Fee in cash or in 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 not later than June 15, 1996, even if prior to the effective date of the Plan, for Options to be granted for 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 earliest to occur of the following: -3- (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 (including for this purpose a Director of a Parent) 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 (including for this purpose a Director of a Parent) 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, combination of shares, merger, consolidation, issuance of rights, spin-off 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. (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 -4- 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 two (2) 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 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 LAWS OF THE STATE OF DELAWARE EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY LAWS OF ANY STATE. (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. -5- 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 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. This Plan is adopted as of June __, 1996, but shall only become effective on the Distribution Date as defined in the Distribution Agreement between the Company and U.S. Long Distance Corp. dated ____________, 1996. The effective date of any amendment to the Plan is the date on which the Board adopted 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 _____________, 2001, and any Option outstanding on such date will remain outstanding until it has either expired or has been exercised. - 6 - EX-10.10 12 EXHIBIT 10.10 BILLING INFORMATION CONCEPTS CORP. EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE The Billing Information Concepts Corp. Employee Stock Purchase Plan (the "Plan") is designed to encourage employees of Billing Information Concepts Corp. ("Billing") and its participating Subsidiaries (collectively, the "Company"), where permitted by applicable laws and regulations, to acquire an equity interest in Billing through the purchase of shares of the common stock, par value $0.01 per share, of Billing ("Common Stock"). These purchases are intended to establish a closer identification of employee, Company and stockholder interests and to provide employees with a direct means of participating in the Company's growth and earnings. It is anticipated that Plan participation will motivate employees to remain in the employ of the Company and give greater efforts on behalf of the Company. This Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. DEFINITIONS The following words or terms, when used herein, shall have the following respective meanings: "Closing Market Price" refers to the reported closing sales price for shares of the Common Stock as so reported in The Wall Street Journal for that day. "Committee" shall refer to the committee appointed by the Billing Board of Directors to administer this Plan. "Designated Broker" refers to the securities brokerage company that will assist Billing in administering the Plan and which may be designated from time to time by the Committee. Initially the Designated Broker is Merrill Lynch & Co. "Effective Date" means August 1, 1996, the first Enrollment Date under the Plan. "Employee" refers to all full-time and part-time employees, employed by Billing or a Subsidiary on a continuous basis. "Employee Contribution Amounts" refers to the amounts contributed by employees via payroll deduction. "Enrollment Date" refers to August 1, 1996, the first Enrollment Date under the Plan, the first day of the initial six-month Participation Period ending January 31, 1997, and after that latter date, refers to February 1 and August 1, the first day of the succeeding six-month Participation Periods which continue thereafter. "Enrollment Period" refers to the designated period that precedes each Enrollment Date during which employees eligible to participate are provided the opportunity to enroll in the Plan. The Enrollment Period is approximately two weeks in duration and, generally, will expire approximately 10 to 14 days prior to the Enrollment Date. The exact dates for each Enrollment Period will be communicated to all eligible employees prior to the Enrollment Period. "Exercise Date" refers to the last stock trading day in a Participation Period. "Fair Market Value" refers to the Closing Market Price on either the first or last stock trading day in the Participation Period as determined in accordance with Section 9. "Participant" refers to any employee meeting the eligibility requirements specified in Section 5 who has enrolled in the Plan. "Participation Period" refers to the six-month period from the Effective Date through January 31, 1997, and after that latter date refers to periods of February 1 through July 31 and August 1 through January 31, during which periods payroll deductions will be made to purchase stock under the Plan, or such other period as the Committee may at any time prescribe. "Plan" shall refer to this Billing Information Concepts Corp. Employee Stock Purchase Plan. "Prior Plan" refers to the U.S. Long Distance Corp. Stock Purchase Plan, the stock purchase plan of Billing's former parent. "Subsidiary" refers to any present or future corporation that is a "subsidiary corporation" of the Company within the meaning of Section 424 of the Code. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Employee Stock Purchase Plan Committee (the "Committee") appointed by the Board of Directors of Billing (the "Board"), which Committee shall consist of at least three (3) persons, who need not be members of the Board. The members of the Committee shall supervise the administration and enforcement of the Plan according to its terms and provisions and shall have all powers necessary to accomplish these purposes and discharge its duties hereunder including, but not limited to, the power to interpret the Plan, to make factual determinations and resolve issues of eligibility, stock price determination, or any other issues arising under the Plan or as a result of participation of Participants in the Plan. The Committee may act by majority decision of its members at a regular or special meeting of the Committee or by decision reduced to writing and signed by all members of the Committee without holding a formal meeting. Vacancies in the membership of -2- the Committee arising from death, resignation or other inability to serve shall be filled by appointment by the Board as soon as possible. All decisions by the Committee shall be final and conclusive and binding upon all Participants and the Company. 4. NATURE AND NUMBER OF SHARES The Common Stock subject to issuance under the terms of the Plan shall be shares of Billing's authorized but unissued shares. The aggregate number of shares that may be issued under the Plan shall not exceed one million (1,000,000) shares of Common Stock. If the total number of shares that Employees elect to purchase under the Plan exceeds the shares available, the Committee will allot shares among Employees. In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, spin-off, combination of shares, merger, consolidation, offering of rights or other similar change in the capital structure of Billing, the Committee may make such adjustment, if any, as it deems appropriate in the number, kind and purchase price of the shares available for purchase under the Plan, in the maximum number of shares that may be issued under the Plan and in the Participation Periods, subject to the approval of the Board and in accordance with Section 20 of the Plan. If Billing is acquired in a transaction whereby it is not the surviving entity or all or substantially all of Billing's assets are acquired, the Committee shall determine a Plan termination date. This date shall precede the expected effective date of such acquisition by not more than sixty (60) days. Employee Contribution Amounts accumulated during the period between the most recent Enrollment Date and Plan termination date shall be used to purchase shares for Participants in the manner provided in Section 9 utilizing the Plan termination date as the Exercise Date for determining the purchase price for shares of Common Stock. In the event the Plan is terminated and the acquisition transaction is not consummated, the Plan may be reactivated on a date determined by the Committee. 5. ELIGIBILITY REQUIREMENTS Each Employee, except as described in the next following paragraph, shall become eligible to participate in the Plan in accordance with this Section 5 on the first Enrollment Date following employment by the Company. Participation in the Plan is voluntary. The following Employees are not eligible to Participate in the Plan: i) Employees who have not completed at least six (6) months of continuous service with the Company as of the Enrollment Date; and ii) Employees who would, immediately upon enrollment in the Plan, own directly or indirectly, or hold options or rights to acquire, an aggregate of five percent (5%) or more of the total combined voting power or value of all outstanding shares of all classes of Billing or any Subsidiary. -3- Employees of any corporation that may become a Subsidiary after the Effective Date shall automatically be deemed to be eligible for participation under this Plan effective as of the Enrollment Date following the date (1) the corporation became a Subsidiary and (2) the Employees satisfied the continuous service requirements described above. All service with the former parent corporation of Billing or a subsidiary of such former parent will be taken into account as continuous service for purposes of this Section 5. 6. ENROLLMENT Each eligible Employee of the Company as of the Effective Date will become an eligible Employee in the Plan on the Effective Date if immediately prior to the Effective Date he or she was eligible to participate in the Prior Plan. Each other Employee of the Company who thereafter becomes eligible to participate may enroll in the Plan on the February 1 and August 1 Enrollment Dates following the date he or she first meets the eligibility requirements of Section 5 of the Plan. Any eligible Employee not enrolling in the Plan when first eligible may enroll in the Plan on the next succeeding February 1 or August 1 Enrollment Date. In order to enroll, an eligible Employee must complete, sign and submit the appropriate forms during the Enrollment Period to Billing's Human Resources Department. Continued enrollment in subsequent periods shall be automatic and no additional documentation is required, unless a Participant desires to revise the Employee Contribution Amount for the subsequent Participation Period. Employee Contribution Amounts shall remain constant if not changed at the Employee's request during an Enrollment Period. In order to terminate Plan participation, at any time, or change Employee Contribution Amounts during an Enrollment Period, the participant must complete, sign and submit the appropriate forms to Billing's Human Resources Department. 7. GRANT OF RIGHT TO PURCHASE SHARES ON ENROLLMENT Enrollment in the Plan by an Employee on an Enrollment Date will constitute the grant by Billing to the Participant of the right to purchase shares of Common Stock under the Plan. Re-enrollment or continued enrollment by a Participant in the Plan will constitute a grant, on the Enrollment Date on which such re-enrollment or continued enrollment occurs, by Billing to the Participant of a new right to purchase shares of Common Stock. A Participant who has not terminated employment shall have shares of Common Stock automatically purchased for him or her on the applicable Exercise Date. The participant shall automatically be re-enrolled in the Plan for subsequent Participation Periods at the same Employee Contribution Amount, unless the Participant notifies Billing's Human Resources Department on the appropriate forms that he or she elects not to re-enroll or desires to change his or her Employee Contribution Amount. A Participant who has suspended payroll deductions during any Participation Period must re-enroll on the appropriate forms to participate in the Plan in any future Participation Periods. -4- Each right to purchase shares of Common Stock under the Plan during any participation Period shall have the following terms: i) the right to purchase shares of Common Stock during any Participation Period shall expire on the earlier of (a) the completion of the purchase of shares on the Exercise Date or (b) the date on which the Participant terminates employment; ii) in no event shall the right to purchase shares of Common Stock during any Participation Period extend beyond twenty-seven (27) months from the Enrollment Date; iii) payment for shares purchased shall be made only with amounts contributed through payroll deductions; iv) purchase of shares shall be accomplished only in accordance with Section 9; v) the price per share shall be determined as provided in Section 9; vi) the right to purchase shares of Common Stock (taken together with all other such rights then outstanding under this Plan and under all other similar stock purchase plans of Billing or any Subsidiary) will in no event give the Participant the right to purchase a number of shares of Common Stock during a Participation Period in excess of the number of shares of Common Stock derived by dividing $12,500.00 by the Fair Market Value of the Common Stock on the applicable Grant Date, as defined in Section 9, determined in accordance with Section 9; and vii) the right to purchase shares of Common Stock shall in all respects be subject to the terms and conditions of the Plan, as interpreted by the Committee from time to time. 8. METHOD OF PAYMENT Payment of shares of Common Stock shall be made as of the applicable Exercise Date with amounts contributed through payroll deductions collected over the Plan's designated Participation Period, with the first such deduction commencing with the payroll period ending after the Enrollment Date. Each Participant will authorize such deductions from his or her pay for each month during the Participation Period. No changes in monthly deduction amounts are permitted subsequent to the Enrollment Period other than ceasing ongoing payroll deductions for the remainder of the Participation Period. Payroll deductions will be made in equal installments on each of the first two payrolls of each month during the Participation Period. No lump sum or prepayments are permitted. Employees may select any monthly Employee Contribution Amount as long as the following requirements are met: i) at least $10.00 is deducted each month; -5- ii) amount selected is a multiple of $5.00; iii) total amount deducted does not exceed Employee's net pay of their base salary; and iv) the aggregate of monthly deduction amounts does not exceed $10,625.00 in any Participation Period (under this Plan and under all other similar stock purchase plans of Billing or any Subsidiary). If for any reason a Participants's contributions to the Plan exceed $10,625.00 during any Participation Period, such excess amounts shall be refunded to the Participant as soon as practicable after such excess has been determined to exist. A Participant may suspend payroll deductions at any time during a Participation Period by given written notice to Billing's Human Resources Department on the appropriate forms, which will be processed effective for the first payroll period that is administratively feasible. In such case, the Participant's account balance shall still be used to purchase Common Stock at the end of the Participation Period. Any Participant who suspends payroll deductions during any Participation Period cannot resume payroll deductions during such period and must re-enroll in the Plan during a subsequent Enrollment Period in order to participate in any future Participation Periods. Except in the case of termination of employment, the amount in a Participant's account at the end of any Participation Period shall be applied to the purchase of shares, as provided in Section 9. 9. PURCHASE OF SHARES The right to purchase shares of Common Stock granted by the Company under the Plan is for the term of a Participation Period. The price to be paid for the Common Stock to be purchased at the expiration of such Participation Period shall be determined as the lower of: (a) 85% of the Closing Market Price on the first trading day of the Participation Period (Grant Date) or (b) 85% of the Closing Market Price on the last trading day in the Participation Period (Exercise Date). These dates constitute the date of grant and the date of exercise for valuation purposes under Section 423 of the Code. The number of shares of Common Stock, including fractional shares, purchased on behalf of a Participant shall be recorded in the Designated Broker stock trading account established for each Participant as soon as administratively feasible, but no later than five (5) business days following the last business day of the preceding Participation Period. The number of shares purchased shall be computed by dividing the aggregate Employee Contribution Amount by the price for the Common Stock determined in the manner described in the preceding paragraph. Participants shall be treated as the record owners of the shares, with all rights of a stockholder, effective as of the date the shares are posted to the Participant's stock trading account. Any fees associated with maintaining these stock trading accounts shall be the obligation of the Company. -6- 10. WITHDRAWAL OF SHARES The record of shares of Common Stock purchased shall be maintained in an individual stock trading account established at the Designated Broker on behalf of the Participant until the shares are either withdrawn or sold. A Participant may elect to withdraw all shares held in his or her account at any time (without withdrawing from the Plan) by giving notice to the Designated Broker. Upon receipt of such notice, the Designated Broker will arrange for either (a) the issuance and delivery of all shares held in the Participant's account as soon as administratively feasible or (b) the sale of the shares, as described by the Participant. Certificates shall be issued only in the following situations: i) if the Participant requests a certificate; or ii) if the Participant terminates employment with the Company and requests a certificate. In both of these cases, the Participant will be required to notify the Designated Broker and pay an issuance fee. The share certificate will be issued to the Participant as soon as administratively feasible after the receipt by the Designated Broker of the required form and payment of the issuance fee. Fractional shares shall be handled as follows: For share withdrawals, only whole shares will be certified and issued to Participants. A payment will be made to the Participant for any fractional shares owned by the Participant. This payment shall be computed using the Closing Market Price of a share of Common Stock on the date the withdrawal is processed by the Designated Broker. For shares sold, Participants shall receive credit for all whole and fractional shares at the actual price for which the shares were sold. 11. INCOME TAX OBLIGATIONS Participants shall be responsible for all personal income tax obligations associated with selling shares of Common Stock purchased through this Plan. The Committee recommends that each Participant seek competent, professional tax advice prior to enrolling in the Plan to ensure he or she fully understands the tax consequences resulting from stock sales. 12. TERMINATION OF PARTICIPATION The right to participate in the Plan terminates immediately when a Participant ceases to be employed by Billing or any Subsidiary. Employee Contribution Amounts collected prior to the date of termination of employment shall be paid in cash. The cash shall be delivered to the Participant as soon as administratively feasible following the end of the Participation Period in which the Participant's employment terminates. Employee -7- Contribution Amounts for Participants who are on a Leave of Absence will be used to purchase Common Stock at the conclusion of the Participation Period in accordance with Section 9. 13. DEATH OF A PARTICIPANT As soon as administratively feasible after receiving notification of the death of a Participant, Employee Contribution Amounts collected prior to the date of termination of employment shall be paid in cash to the Participant's estate. No additional shares of Common Stock may be purchased on behalf of a Participant after notification of death is received. All assets in a Participant's stock trading account will remain in the Participant's account until the person whom the Participant has elected a joint tenant, with or without right of survivorship, or the representative of the Participant's estate requests delivery thereof from the Designated Broker and submits such documentation as the Designated Broker may require to show proof of entitlement thereto. 14. ASSIGNMENT The rights of a Participant under the Plan shall not be assignable or otherwise transferable by the Participant except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order . No purported assignment or transfer of any rights of a Participant under the Plan, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right therein whatsoever, but immediately upon such assignment or transfer, or any attempt to make the same, such rights shall terminate and become of no further effect. If the foregoing provisions of this Section 14 are violated, the Participant's election to purchase Common Stock shall terminate and the only obligation of the Company remaining under the Plan shall be to pay the person entitled thereto the Employee Contribution Amount then credited to the Participant's account. No Participant may create a lien on any funds, securities, rights or other property held for the account of the Participant under the Plan, except to the extent permitted by will or the laws of descent and distribution if beneficiaries have not been designated. A Participant's right to purchase shares of Common Stock under the Plan shall be exercisable only during the Participant's lifetime and only by him or her. 15. COSTS Billing will pay all expenses incident to establishing and administering the Plan. Expenses to be incurred by Participants shall be limited to brokerage fees relating to sales of stock from the Participant's account (as described herein), issuance fees (as described in Section 10) and any personal income tax obligations. 16. REPORTS -8- At least annually, the Company shall provide or cause to be provided to each Participant a report of their Employee Contribution Amounts and the shares of Common Stock purchased with such Employee Contribution Amounts by that Participant on each Exercise Date. 17. EQUAL RIGHTS AND PRIVILEGES All eligible Employees shall have equal rights and privileges with respect to the Plan so that the Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and related regulations. Any provision of the Plan that is inconsistent with Section 423 or any successor provision of the Code shall without further act or amendment by the Company be reformed to comply with the requirements of Section 423. This Section 17 shall take precedence over all other provisions in the Plan. 18. RIGHTS AS A STOCKHOLDER A Participant shall have no rights as a stockholder under his or her rights to purchase Common Stock until he or she becomes a stockholder as herein provided. A Participant will become a stockholder with respect to shares for which payment has been completed as provided in Section 9 effective as of the date the shares are posted to the Participant's stock trading account. 19. MODIFICATION AND TERMINATION The Board may amend or terminate the Plan at any time as permitted by law, with the exception that the provisions of the Plan (including, without limitation, the provisions of Sections 8 and 9) that constitute a formula award for purposes of Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), may not be amended more than once every six (6) months, other than to comply with changes in the Code, or the rules thereunder. No amendment shall be effective unless within one (1) year after the change is adopted by the Board it is approved by the holders of a majority of the voting power of Billing's outstanding shares: i) if and to the extent such amendment is required to be approved by stockholders to continue the exemption provided for in Rule 16b-3 (or any successor provision); or ii) if such amendment would cause the rights granted under the Plan to purchase shares of Common Stock to fail to meet the requirements of Section 423 of the Code (or any successor provision). 20. BOARD AND STOCKHOLDER APPROVAL; EFFECTIVE DATE -9- The Plan was approved by the Board and by the sole stockholder of Billing on __________, 1996. The Plan will become effective as of August 1, 1996. 21. GOVERNMENTAL APPROVALS OR CONSENTS The Plan and any offering or sale made to Employees under the Plan are subject to any governmental approvals or consents that may be or become applicable in connection therewith. Subject to the provisions of Section 19, the Board may make such changes in the Plan and include such terms in any offering under the Plan as may be desirable to comply with the rules or regulations of any governmental authority. 22. USE OF FUNDS All Employee Contribution Amounts received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such amounts. 23. NO ADDITIONAL PURCHASE RIGHTS OR EMPLOYMENT RIGHTS Other than for rights to purchase Common Stock under the Plan, the Plan does not, directly or indirectly, create any right for the benefit of any Employee or class of Employee to purchase any shares under the Plan, or create in any Employee or class of Employee any right with respect to continuance of employment with the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, any Employee's employment at any time. 24. EFFECT OF PLAN The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Employee participating in the Plan, including, without limitation, such Employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Employee. 25. GOVERNING LAW The laws of the State of Delaware will govern all matters relating to the Plan except to the extent superseded by the laws of the United States or the property laws of any particular state. 26. NO PAYMENT OF INTEREST No interest will be paid or allowed on any Employee Contribution Amounts or amounts credited to the account of any Participant. -10- 27. OTHER PROVISIONS The agreement to purchase shares of Common Stock under the Plan shall contain such other provisions as the Committee and the Board shall deem advisable, provided that no such provision shall in any way conflict with the terms of the Plan. - 11 - EX-10.12 13 EXHIBIT 10.12 BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN (With Company Matching Contribution) PLAN DOCUMENT THE BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN (the "Plan") is hereby adopted effective the _____ day of , 1996 (the "Effective Date"). The Plan is established and maintained by Billing Information Concepts 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 Eligible Compensation and to provide for a partial Company Matching Contribution. Accordingly, Billing Information Concepts Corp. hereby adopts the Plan pursuant to the terms and provisions hereinafter set forth, and designates the Company as Plan Administrator of this Plan. ARTICLE I 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 6.5 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 BILLING INFORMATION CONCEPTS 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 IV. 1.6 "Deferred Compensation Accounts" means the Accounts established in the name of a Plan Participant pursuant to Article V. 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 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 "Enrollment Form" means the Enrollment Form completed by each Eligible Employee, substantially in the form of Exhibit A hereto, pursuant to which an Eligible Employee elects to participate in the Plan, makes an annual deferral election and elects a payment timing option from the Plan. 1.11 "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. 1.12 "Participant" means an employee of the Company who qualifies to participate in the Plan under the eligibility requirements set forth in Article II and who elects to participate in the Plan by filing with the Company an Enrollment Form. 1.13 "Plan" means the Executive Compensation Deferral Plan provided for herein for selected management and/or highly compensated employees of the Company. -2- 1.14 "Plan Entry Date" shall mean the Effective Date, the date an Employee first becomes an Eligible Employee (as defined in Article II), and each January 1st thereafter. 1.15 "Plan Year" means each 12-month calendar year, except that the first Plan Year shall be a short Plan Year beginning on the Effective Date and ending on December 31st of that calendar year. 1.16 "Prior Plan" means the U.S. Long Distance Corp. Executive Compensation Deferral Plan, as in effect prior to the Effective Date. 1.17 "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 Enrollment Form filed at the time of the Participant's initial election to defer Eligible Compensation under the Plan. 1.18 "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. 1.19 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 II 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") shall be eligible to participant hereunder. All Eligible Employees may thereafter participate in the Plan beginning on the effective date of the Plan or any Plan Entry Date thereafter. Each Eligible Employee shall complete and deliver to the Company an Enrollment Form. ARTICLE III ELIGIBLE COMPENSATION DEFERRAL ELECTION 3.1 AMOUNT OF ELIGIBLE COMPENSATION DEFERRAL. An Eligible Employee 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 Enrollment 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 -3- may be made within 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 up to 100% of a Participant's Eligible Compensation. 3.2 VESTING OF ELIGIBLE COMPENSATION DEFERRAL. All amounts credited to a Participant's Eligible Compensation Deferral Account are 100% vested, unless the Participant's employment terminates as a result of Termination for cause, in which case all amounts credited to the Participant's Eligible Compensation Deferral Account shall be forfeited. ARTICLE IV COMPANY MATCHING CONTRIBUTIONS 4.1 AMOUNT OF COMPANY MATCHING CONTRIBUTIONS. 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 Eligible Compensation Deferral Contribution for such Plan Year or (b) an amount which when combined with the Eligible Compensation Deferral Contribution which actuarily determined would yield a 10-year annuity equal to 50% of the Participant's Eligible Compensation payable at age 65. 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 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 V 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. For purposes of this Section 4.2, a Participant's service with the former parent corporation of the Company or a subsidiary of such former parent shall be considered service with the Company. Such vested portion shall be determined in accordance with the following schedule: YEARS OF SERVICE VESTED PORTION -4- 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 V 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 Enrollment Form. Such amount shall be credited to the Deferral Account on 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. (c) PRIOR PLAN ACCOUNT. The Company shall credit to the Deferral Account and the Matching Account of each Participant who, as of the Effective Date, was a participant in the Prior Plan the amounts so credited to such Participant's deferral account and matching account under the Prior Plan. 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 prorated 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 Account in the foregoing manner 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 -5- interest earned on federally insured passbook savings accounts at Frost National Bank of San Antonio, Texas. ARTICLE VI BENEFIT OF PAYMENT 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 V 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 equal to twelve (12) times the monthly Eligible 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 1.17; (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 work for the Company as a result of illness or injury; (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 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 with respect to amounts credited to a Participant's Account pursuant to Section 5.1(c), and not subsequently revoked shall be honored. The Retirement of a Participant under Section 1.17 may be changed at any time by means of execution and filing of a new Enrollment Form, but any new Enrollment Form shall not become effective until the date that is two calendar years following the date of the -6- new election. In addition, a Participant who has elected payment of benefits in installment form prior to December 12, 1995 with respect to amounts credited to a Participant's Account pursuant to Section 5.1(c), 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 BENEFITS 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 Enrollment 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 any 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 VII 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 -7- 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 (including questions of fact) 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 VIII 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 IX 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 thereunder. 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. -8- 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 for 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 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 -9- 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 X CLAIM 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 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 claim, 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 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. -10- 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, BILLING INFORMATION CONCEPTS CORP. has caused this instrument to be executed by its duly authorized officer this ____ day of _________________, 1996, effective as of the ____ day of _______________, 1996. BILLING INFORMATION CONCEPTS CORP. ATTEST: By: - - --------------------------- ------------------------------------- Name: ---------------------- Title: ---------------------- 145340.1A (4/25/96 Compare Version) 145338.1A (4/25/96 Clean Version) -11- EXHIBIT A BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN ENROLLMENT FORM Name: ________________________________________ Date:__________________ Social Security #: ______________________________ Plan Year:_____________ - - ----------------------------------------------------------------------------- ANNUAL DEFERRAL ELECTION - - ----------------------------------------------------------------------------- I have received information about the Billing Information Concepts Corp. Executive Compensation Deferral Plan, and I elect to participate in the Plan at this time. I understand that the Plan permits elective deferrals from compensation not yet earned, during the current year and during each year the Plan is in effect. This annual Enrollment Form indicates the amount of compensation I elect to defer for the Plan Year stated above. The election made cannot be revoked for the Plan Year. This election will remain in effect for future Plan Years unless otherwise changed or revoked by me by the prior December 31st. If the amount I designate exceeds my base compensation for the Plan Year, my actual deferral amount will be equal to my base compensation. I understand that this election does not guarantee me any compensation. I understand further that amounts deferred by me under the Plan will earn interest at a rate determined annually by the interest rates declared by the Company. As a participant in the Billing Information Concepts Corp. Executive Compensation Deferral Plan, I hereby elect to defer the following amount of base compensation otherwise payable to me in the Plan Year indicates above: Monthly Deferral Amount _________ The deferral election I am choosing is effective beginning_______________. - - ----------------------------------------------------------------------------- PAYMENT OF BENEFIT - - ----------------------------------------------------------------------------- As a Participant in the Billing Information Concepts Corp. Executive Compensation Deferral Plan, I understand that the payment of my accumulated account balance will be made as a lump sum, unless I have previously elected payment in installments under the U.S. Long Distance Executive Compensation Deferral Plan and such election was made and signed prior to December 12, 1995, and not subsequently revoked. Additionally, I elect the choice checked below regarding the time of payment: _______Actual Retirement _______Age 65 if Later Than Actual Retirement I also understand that the foregoing election regarding the time of payment of benefits under the Plan is revocable up until December 31st two years prior to the year the payments are payable under the Plan and thereafter may not be changed. I understand further the foregoing election applies to all deferrals made by me under the Plan and to all interest credited thereto. I HAVE READ AND UNDERSTAND THE FOREGOING MATERIAL. I AGREE TO BE BOUND BY THE TERMS OF THIS ELECTION AND THE REQUIREMENTS, CONDITIONS, AND TERMS OF THE BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN. EMPLOYEE SIGNATURE: _______________________________________________________ - - ----------------------------------------------------------------------------- WAIVER OF PARTICIPATION I have received information about the Billing Information Concepts Corp. Executive Compensation Deferral Plan, and I elect not to participate in the Plan at this time. Employee Signature ___________________________________Date:_________________ EX-10.13 14 EXHIBIT 10.13 BILLING INFORMATION CONCEPTS CORP. DIRECTOR COMPENSATION DEFERRAL PLAN (With Company Matching Contribution) PLAN DOCUMENT The Billing Information Concepts Corp. DIRECTOR COMPENSATION DEFERRAL PLAN (the "Plan") is hereby adopted effective the ________ day of ____________, 1996 (the "Effective Date"). The Plan is established and maintained by Billing Information Concepts Corp. (the "Company") solely for the purpose of permitting a group of 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, Billing Information Concepts Corp. hereby adopts the Plan pursuant to the terms and provisions hereinafter set forth and designates the Company as Plan Administrator of this Plan. ARTICLE I 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 individual 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 6.5 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 BILLING INFORMATION CONCEPTS 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 IV. 1.6 "Deferred Compensation Accounts" means the Accounts established in the name of a Plan Participant pursuant to Article V. 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 "Enrollment Form" means the Enrollment Form completed by each Eligible Director, substantially in the form of Exhibit A hereto, pursuant to which an Eligible Director elects to participate in the Plan, makes an annual deferral election and elects a payment timing option from the Plan. 1.11 "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. 1.12 "Outside Directors" shall mean those Directors of the Company that are not employed by the Company on a full time basis. 1.13 "Participant" means an individual who qualifies to participate in the Plan under the eligibility requirements set forth in Article II and who elects to participate in the Plan by filing with the Company an Enrollment Form. -2- 1.14 "Plan" means the Director Compensation Deferral Plan provided for herein for selected Directors of the Company. 1.15 "Plan Entry Date" shall mean the Effective Date, the date a Director first becomes an Eligible Director (as defined in Article II), and each January 1st thereafter. 1.16 "Plan Year" means each 12-month calendar year, except that the first Plan Year shall be a short Plan Year beginning on the date of adoption of the Plan and ending on December 31st of that calendar year. 1.17 "Prior Plan" means the U.S. Long Distance Corp. Director Compensation Deferral Plan, as in effect prior to the Effective Date. 1.18 "Retirement" means either (i) a Participant's actual retirement from service with the Company, whether under the terms of the Company's regular 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 Enrollment Form filed at the time of the Participant's initial election to defer Eligible Compensation under the Plan. 1.19 "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. 1.20 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 the ease of reference only and are not to be construed as to alter the meaning of the substantive provisions of the Plan. ARTICLE II 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 Director"). All Eligible Directors may thereafter participate in the Plan beginning on the effective date of the Plan or any Plan Entry Date thereafter. Each Eligible Director shall complete and deliver to the Company an Enrollment Form. ARTICLE III ELIGIBLE COMPENSATION DEFERRAL ELECTION 3.1 AMOUNT OF ELIGIBLE COMPENSATION DEFERRAL. An Eligible Director of the Company 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 Enrollment Form prior to the Plan Year to which such election relates; provided, however, that (i) for Directors -3- who are eligible to participate in the Plan upon adoption of the Plan, the election for the first Plan Year may be made within 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 may be made within the first pay period immediately after becoming eligible. Deferrals from Eligible Compensation may be made up to 100% of a Participant's Eligible Compensation. 3.2 VESTING OF ELIGIBLE COMPENSATION DEFERRAL. All amounts credited to a Participant's Eligible Compensation Deferral Account are 100% vested, unless the Participant is removed for cause, in which case all amounts credited to the Eligible Compensation Deferral Account shall be forfeited. ARTICLE IV 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 (33%) percent of the amount of such Participant's Eligible Compensation Deferral Contribution for such Plan Year, provided, however, that 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 V 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. For purposes of this Section 4.2, a Participant's service with the former parent corporation of the Company or a subsidiary of such former parent shall be considered service with the Company. 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% -4- ARTICLE V 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 Enrollment Form. Such amounts shall be credited to the Deferral Account on 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. (c) Prior Plan Account. The Company shall credit to the Deferral Account and the Matching Account of each Participant who, as of the Effective Date, was a participant in the Prior Plan the amounts so credited to such Participant's deferral account and matching account under the Prior Plan. 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 prorated 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 Account in the foregoing manner as long as the Participant is a Director of 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 VI BENEFIT OF PAYMENT 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 -5- 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 V 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 amount equal to the annual standard fee which the Participant received as of 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 1.18; (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 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 with respect to amounts credited to a Participant's Account pursuant to Section 5.1(c), and not subsequently revoked shall be honored. The Retirement of a Participant under Section 1.18 may be changed at any time by means of execution and filing of a new Enrollment Form, but any new Enrollment 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 with respect to amounts credited to a Participant's Account pursuant to Section 5.1(c) 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 Enrollment Form filed with the Company. -6- 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 any 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 VII 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 (including questions of fact), and the eligibility of any person to participant 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 -7- (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 VIII 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 IX 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 or, or other obligations or claims against, such person or entity, including claims for 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 -8- 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 OF 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 X CLAIM 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 -9- 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 claim, 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 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. -10- IN WITNESS WHEREOF, Billing Information Concepts Corp. has caused this instrument to be executed by its duly authorized officer this __________ day of ________________, 19____, effective as of the _________ day of ________________, 19____. BILLING INFORMATION CONCEPTS CORP. ATTEST: _______________________ By ___________________________________ Name ______________________________ Title _____________________________ -11- EXHIBIT A BILLING INFORMATION CONCEPTS CORP. DIRECTOR COMPENSATION DEFERRAL PLAN ENROLLMENT FORM Name: ________________________________________ Date:___________________ Social Security #: ______________________________ Plan Year:______________ - - ----------------------------------------------------------------------------- ANNUAL DEFERRAL ELECTION - - ----------------------------------------------------------------------------- I have received information about the Billing Information Concepts Corp. Director Compensation Deferral Plan, and I elect to participate in the Plan at this time. I understand that the Plan permits elective deferrals from compensation not yet earned, during the current year and during each year the Plan is in effect. This annual Enrollment Form indicates the amount of compensation I elect to defer for the Plan Year stated above. The election made cannot be revoked for the Plan Year. This election will remain in effect for future Plan Years unless otherwise changed or revoked by me by the prior December 31st. If the amount I designate exceeds my base compensation for the Plan Year, my actual deferral amount will be equal to my base compensation. I understand that this election does not guarantee me any compensation. I understand further that amounts deferred by me under the Plan will earn interest at a rate determined annually by the interest rates declared by the Company. As a participant in the Billing Information Concepts Corp. Director Compensation Deferral Plan, I hereby elect to defer the following amount of base compensation otherwise payable to me in the Plan Year indicates above: Deferral Percentage _________ The deferral election I am choosing is effective beginning____________. - - ----------------------------------------------------------------------------- PAYMENT OF BENEFIT - - ----------------------------------------------------------------------------- As a Participant in the Billing Information Concepts Corp. Director Compensation Deferral Plan, I understand that the payment of my accumulated account balance will be made as a lump sum, unless I have previously elected payment in installments under the U.S. Long Distance Director Compensation Deferral Plan and such election was made and signed prior to December 19, 1995, and not subsequently revoked. Additionally, I elect the choice checked below regarding the time of payment: _______Actual Retirement _______Age 65 if Later Than Actual Retirement I also understand that the foregoing election regarding the time of payment of benefits under the Plan is revocable up until December 31st two years prior to the year the payments are payable under the Plan and thereafter may not be changed. I understand further the foregoing election applies to all deferrals made by me under the Plan and to all interest credited thereto. I HAVE READ AND UNDERSTAND THE FOREGOING MATERIAL. I AGREE TO BE BOUND BY THE TERMS OF THIS ELECTION AND THE REQUIREMENTS, CONDITIONS, AND TERMS OF THE BILLING INFORMATION CONCEPTS CORP. DIRECTOR COMPENSATION DEFERRAL PLAN. Director Signature: _________________________________________________________ - - ----------------------------------------------------------------------------- WAIVER OF PARTICIPATION I have received information about the Billing Information Concepts Corp. Director Compensation Deferral Plan, and I elect not to participate in the Plan at this time. Director Signature ______________________________________Date:_______________ - - ----------------------------------------------------------------------------- - 12 - EX-10.14 15 EXHIBIT 10.14 BILLING INFORMATION CONCEPTS CORP. EXECUTIVE QUALIFIED DISABILITY PLAN 1. Purpose: The purpose of this Plan is to help provide income during disability for each participating employee. It is the intention of the Company that this Plan qualify as an accident and health plan within the meaning of Section 105(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that the benefits payable under the Plan not be eligible for exclusion from gross income under that section of the Code. 2. Eligibility: The following specified classes of employees of the Company shall be eligible to participate in this Plan: Vice Presidents and above of the Company and its subsidiaries. 3. Participation: Each eligible employee shall become a participant in the Plan (a "participant") on the effective date of the Plan. Each future eligible employee shall become a participant upon being covered by the insurance policy providing the base plan benefits. 4. Benefits: The benefits provided under this Plan are provided in part by disability insurance coverage issued by the Company's Long-Term Disability insurance carrier (the "base plan benefits") and in part by Company funded payments. During the first 90 days of disability, a participant shall receive 100% of his or her wages reduced by benefits, if any, received from Social Security, Workers' Compensation, State Disability Plan or other similar governmental plan or other plan (e.g., group insurance) paid for by the Company. The benefits during the first 90 days of disability will be provided directly by the Company based on definitions contained in the insurance policies providing base plan benefits. After 90 days of disability, the participant shall receive 70% of his or her wages (up to an $8,000 monthly maximum, assuming the participant has purchased LTD Plan II benefit option, and if not, 60% of his or her wages up to a $1,000 monthly maximum) from the Company's Long-Term Disability insurance carrier and 30% of his or her wages from the Company, based on definitions of disability contained in the Company's Long-Term Disability insurance policy, for up to one year. If the disability continues after one year, the participant will continue to receive 70% or 60% of wages (as capped and discussed above) from the Long-Term Disability insurance carrier until age 65 or until no longer disabled, whichever comes first. All benefits received from the Long-Term Disability insurer will be reduced by any benefits received from Social Security, Workers' Compensation State Disability Plan or other similar governmental plan or any other plan (e.g. group insurance) paid for by the Company. 5. Funding: The Company shall pay the entire premium for the base plan benefits so long as the participant remains employed by the Company and eligible for participation in the Plan. In addition, the Company shall pay amounts not covered by base plan benefits as described in Paragraph 4. 6. Claims Procedures: Claims for benefits under any insurance policy shall be made on forms furnished by the insurer. 7. Review Procedure: If any claim for insurance benefits under this Plan is denied in whole or in part, the claimant shall be furnished promptly by the insurer with a written notice (a) setting forth the reasons for the denial, (b) making reference to pertinent policy provisions, (c) describing any additional material or information from the claimant which is necessary and the reasons therefor, and (d) explaining the claim review procedure set forth herein. Failure by the insurer to respond to a claim within a reasonable time shall be deemed a denial. Within 60 2 days after denial of any claim for benefits under this Plan, the claimant may request in writing a review of the denial. Any claimant seeking review hereunder is entitled to examine all pertinent documents, and to submit issues and comments in writing. The insurer shall render a decision on review of a claim no later than 60 days after receipt of a request for review hereunder. The decision of the insurer on review shall be in writing and shall state the reason for the decisions, referring to the policy provisions upon which it is based. Similar rules will apply to benefits provided under the Plan not covered by an insurance policy. In such case, claims for benefits shall be made to the Company. 8. Administration: The Company shall have authority and responsibility to control and manage the operation and administration of this Plan. 9. Amendment; Termination: This Plan may be amended or terminated at any time by the Company; provided, however, that termination shall not affect the right of any participant to reimbursement for any disability incurred prior to any amendment or termination. 10. Miscellaneous: This Plan shall not be deemed to constitute a contract between the Company and any participant or to be a consideration or an inducement for the employment of any employee, nor is any provision of this Plan deemed to give any employee the right to continued employment with the Company or to interfere in any way with the right of the Company to discharge any employee at any time. 3 EX-10.18 16 EXHIBIT 10.18 10.18 Amended and Restated Loan and Security Agreement dated May 22, 1991 between Zero Plus Dialing Inc. U.S. Long Distance, Inc. ("USLDI"), U.S. Long Distance Corp. ("USLD") and Bell Atlantic Capital Corp. (f/k/a Bell Atlantic - Tricon Leasing Corporation and currently FINOVA Capital Corporation) ("Lender"); Revolving Credit Note dated May 24, 1991 payable by ZPDI to the order of Lender; Replacement Term Note dated May 24, 1991 payable by USLDI to the order of Lender; First Amendment and Joinder to Amended and Restated Loan and Security Agreement dated December 28, 1992 among ZPDI, USLD, USLDI, U.S Billing, Inc. ("USBI") and Lender; Second Amendment to Amended and Restated Loan and Security Agreement dated April 2, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Third Amendment to Amended and Restated Loan and Security Agreement dated October 15, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Fourth Amendment and Joinder to Amended and Restated Loan and Security Agreement dated October 1, 1993 among ZPDI, USLD, USLDI, USBI, USLD Acquisition Corp. ("USAcq") and Lender; Fifth Amendment and Joinder to Amended and Restated Loan and Security Agreement dated November 16, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS Telecommunications, Inc. ("STS") and Lender; Sixth Amendment to Amended and Restated Loan and Security Agreement dated December 7, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS and Lender; Seventh Amendment to Amended and Restated Loan and Security Agreement dated March 17, 1994 among ZPDI, USLD, USLDI, USBI, USAcq, STS, Enhanced Services Billing, Inc. ("ESBI"), California Acquisition Corp. ("CAC") and Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLDI for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by ZPDI for the benefit of Lender; Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender; Corporate Guaranty dated October , 1993 executed by USAcq for the benefit of Lender; Corporate Guaranty dated November , 1993 executed by STS for the benefit of Lender; Corporate Guaranty executed by Telecom Acquisition Corp. for the benefit of Lender; Corporate Guaranty executed by ESBI for the benefit of Lender; Corporate Guaranty executed by CAC for the benefit of Lender; Escrow and Disbursing Agreement dated May 24, 1991 among ZPDI, Lender and Texas Commerce Bank, N.A. AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BETWEEN ZERO PLUS DIALING INC. ("BORROWER") AND BELL ATLANTIC-TRICON LEASING CORPORATION ("LENDER") May 22, 1991 TABLE OF CONTENTS PAGE NUMBER ------ SECTION 1. GENERAL DEFINITIONS 1 1.1. Defined Terms 1 1.2. Accounting Terms 14 1.3. Other Terms 14 1.4. Certain Matters of Construction 14 SECTION 2. CREDIT FACILITY 14 2.1. Revolving Credit Loans 15 2.2. Manner of Borrowing 15 2.3. Term Loan Facility 16 2.4. All Loans to Constitute One Obligation 17 2.5. Loan Account 17 SECTION 3. INTEREST, FEES, TERM AND REPAYMENT 17 3.1. Interest and Charges 17 3.2 Fees 18 3.3. Term of Agreement 19 3.4. Termination 19 3.5. Payments 20 3.6. Application of Payments and Collections 21 3.7. Statements of Account 21 SECTION 4. COLLATERAL: GENERAL TERMS 21 4.1. Security Interest in Collateral 21 4.2 Consent to Sale 22 4.3. Representations, Warranties and Covenants - Collateral 23 4.4. Financing Statements 23 -i- PAGE NUMBER ------ 4.5. Location of Collateral 24 4.6. Insurance of Property 24 4.7. Protection of Collateral 24 SECTION 5. PROVISIONS RELATING TO ACCOUNTS 25 5.1. Representations, Warranties and Covenants 25 5.2. Assignments, Records and Schedules of Accounts 27 5.3. Administration of Accounts 27 5.4. Collection of Accounts 28 SECTION 6. REPRESENTATIONS AND WARRANTIES 30 6.1. General Representations and Warranties 30 6.2. Reaffirmation 36 6.3. Survival of Representations and Warranties 36 SECTION 7. COVENANTS AND CONTINUING AGREEMENTS 36 7.1. Affirmative Covenants 36 7.2. Negative Covenants 41 SECTION 8. CONDITIONS PRECEDENT 44 8.1. Documentation 45 8.2. Other Conditions 46 SECTION 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 47 9.1. Events of Default 47 9.2. Acceleration of the Obligations 49 -ii- TABLE OF CONTENTS PAGE NUMBER ------ 9.3. Remedies 50 9.4. Remedies Cumulative; No Waiver 51 SECTION 10. MISCELLANEOUS 51 10.1. Power of Attorney 51 10.2. Indemnity 52 10.3. Modification of Agreement; Sale of Interest 53 10.4. Reimbursement of Expenses 53 10.5. Indulgences Not Waivers 54 10.6. Severability 54 10.7. Successors and Assigns 54 10.8. Cumulative Effect; Conflict of Terms 54 10.9. Execution in Counterparts 55 10.10. Notices 55 10.11. Lender's Consent 56 10.12 Regulated Activities of Lender 57 10.13. Time of Essence 57 10.14. Entire Agreement 57 10.15 Consent to Advertising and Publicity 57 10.16. GOVERNING LAW; CONSENT TO FORUM 57 10.17. WAIVERS BY BORROWER AND GUARANTORS 58 10.18 Section Titles 58 -iii- EXHIBITS SECTION REFERENCE --------- Carrier Contract 1.1 Revolving Credit Note 2.1 Disbursing Letter 2.2 (A) OSP Wire Confirmation Letter 2.2 (B) Term Note 2.3 (A) Acknowledgement and Acceptance Certificate 2.3 (B) Chief Executive Office and Principal Place of Business 4.4 Jurisdictions Qualified 6.1 (A) Corporate Tradenames; Mergers 6.1 (B) General Intangibles; Patents, Trademarks 6.1 (H) Corporate Structure; Subsidiaries; Securities 6.1 (I) Restrictive Agreements 6.1 (J) Litigation 6.1 (K) Taxes 6.1 (P) Labor Contracts 6.1 (Q) Surety Obligations 6.1 (S) No Defaults 6.1 (T) Business Locations 6.1 (V) Trade Relations 6.1 (W) Capitalized and Operating Leases 6.1 (X) Billing Contracts 6.1 (Y) List of Carriers and Credit Limits 6.1 (Z) Escrow and Disbursing Agreement 8.1 (I) -iv- OSP Background Form 8.1 (K) Class 1 OSP Certification Form 8.1 (N) Collateral and Credit Criteria Lists 8.1 (O) -v- AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made this ____ day of May, 1991 by and between BELL ATLANTIC-TRICON LEASING CORPORATION ("Lender"), a Delaware corporation with a place of business at 1060 First Avenue, King of Prussia, PA 19406, ZERO PLUS DIALING INC. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. LONG DISTANCE CORP., a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, TX 78216 and U.S. LONG DISTANCE, INC., a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216. BACKGROUND A. Borrower entered into a certain Loan and Security Agreement on March 20, 1990 (the "Loan and Security Agreement") whereby Borrower desired to borrow funds from Lender from time to time pursuant to a revolving credit facility subject to the terms and conditions set forth therein. B. Borrower and Lender entered into a certain Amendment to Loan and Security Agreement on June 18, 1990 (the "Loan Amendment") whereby Borrower and Lender amended certain terms and provisions of the Loan and Security Agreement. C. By and through this Amended and Restated Loan and Security Agreement (the "Agreement"), Borrower and Lender intend to further amend the Loan and Security Agreement and amend the Loan Amendment, both of which shall be amended and restated through this Agreement and intend to establish a certain term loan facility whereby funds shall be borrowed by U.S. Long Distance, Inc., as set forth herein. SECTION 1. GENERAL DEFINITIONS 1.1. DEFINED TERMS. When used herein, the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): ACCOUNTS - all accounts, contract rights (as defined in the Code as now or previously in effect including but not limited to all rights of Borrower relating to the Billing Contracts) chattel paper, instruments and documents, all LEC Receivables and all End User Accounts whether now owned or hereafter created or acquired by Borrower or Guarantors or in which Borrower or Guarantors now have or hereafter acquire any interest. ACCOUNT DEBTOR - any Person, including any End User or LEC, who is or may become obligated under or on account of an Account. AFFILIATE - a Person (other than a Subsidiary): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Borrower; (ii) which beneficially owns or holds 10% or more of any class of Voting Stock of Borrower; or (iii) 10% or more of the Voting Stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by Borrower or a Subsidiary of Borrower. For purposes hereof, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of fifty-one percent (51%) of the Voting Stock or by written contract providing for such power. AGREEMENT - this Amended and Restated Loan and Security Agreement, as the same may be modified or amended from time to time. APPROVED CARRIER - any operator service provider or interexchange carrier (collectively the "OSP") which meets each of the following requirements to Lender's satisfaction in the exercise of its sole discretion: (i) the OSP has a minimum period of operating history acceptable to Lender; (ii) Lender shall have reviewed the dilution applicable to such OSP?s Accounts and determined that such dilution rates are acceptable to Lender; (iii) the OSP has management background and experience acceptable to Lender, and experience in the telecommunications industry which is also acceptable to Lender; (iv) such OSP shall have executed and delivered the Carrier Contract and the Addendum thereto, and UCC-1 financing statements to perfect Borrower's interests in the Accounts being purchased, which financing statements shall also indicate that Lender is the assignee thereof; (v) Lender shall have received copies of a Uniform Commercial Code searches; and judgment and federal tax lien searches against such OSP where such OSP's principle pace of business is located, indicating that there are no liens against any of the Accounts of such OSP; (vi) Lender shall have the right, as assignee of Borrower's rights under the Carrier Contract and the Addendum thereto, to at any time conduct an examination of such OSP's financial condition, the results of which must be acceptable to Lender; and (vii) Lender shall have approved in writing the financing of such OSP's Accounts under the Revolving Credit Facility; (viii) Borrower shall have submitted all information and met all conditions on the appropriate Collateral and Credit Criteria List and shall have submitted a completed OSP Background Form for such OSP, both in -2- form and substance satisfactory to Lender in its sole discretion. Approved Carriers shall be divided into Class 1 Approved Carriers, Class 2 Approved Carriers and Class 3 Approved Carriers based on the requirements for Approved Carriers listed on the Collateral and Credit Criteria Lists (attached hereto as Exhibit 8.2(L)) for each class of approved carriers. Borrower shall submit duly executed Class 1 OSP Certification Forms (attached hereto as Exhibit 8.2(O)) for each Class 1 Approved Carrier certifying that all preconditions for borrowing based upon Eligible Accounts from such Class 1 Approved Carrier have been met. A Class 1 Carrier shall be deemed an Approved Carrier upon receipt by Lender of the Class 1 OSP Certification Form and all of the information set forth on the Class 1 Collateral and Credit Criteria List, provided that Borrower shall resolve any issues in the credit criteria information within thirty (30) days notice of such issues from Lender to Borrower. BASE RATE - that highest rate of interest on any Business Day for corporate loans at large United States money center commercial banks as quoted in the Wall Street Journal under the caption "Prime Rate" in the section entitled "Money Rates". BORROWING BASE - as at any date of determination thereof, an amount equal to the sum of eighty percent (80%), or such amount as Lender may establish for any Approved Carrier and which advance rate shall at no time exceed the actual advance rate from Borrower to the Approved Carrier (the "Advance Rate"), of the gross amount of Eligible Accounts outstanding at such date for Approved Carriers, less any reserves; provided however that (i) Lender may, in its sole discretion and as reviewed on a quarterly basis, adjust the advance rate as follows: if the Dilution Factor exceeds seven percent (7%), the Advance Rate may be reduced by Lender to seventy-five percent (75%), if the Dilution Factor exceeds ten percent (10%), the Advance Rate may be reduced by Lender to seventy percent (70%), if the Dilution Factor exceeds fifteen percent (15%), the Advance Rate may be reduced by Lender two (2) percentage points for each one (1) percentage point increase in the Dilution Factor over fifteen percent (15%), if the Dilution Factor exceeds fifty percent (50%), the Advance Rate may be reduced by Lender to zero; (ii) advances against Eligible Accounts for any Class 1 Approved Carrier shall not exceed Two Hundred Fifty Thousand Dollars ($250,000.00) for each Class 1 Approved Carrier and shall not exceed Two Million Dollars ($2,000,000.00) in the aggregate for all Class 1 Approved Carriers, which credit limits shall be reviewed by Lender on a semi-annual basis; (iii) advances against Eligible Accounts for all Class 1 and Class 2 Approved Carriers shall not exceed at any one time in the aggregate for all Class 1 -3- and Class 2 Approved Carriers the sum of Fifteen Million Dollars ($15,000,000.00); (iv) advances against Eligible Accounts for any Class 3 Approved Carrier shall not exceed the limit established in writing by Lender in its sole discretion for such Class 3 Approved Carrier; and (v) advances against Eligible Accounts of US Long Distance, Inc. (which shall be treated as a Class 2 Approved Carrier) shall not exceed Three Million Dollars ($3,000,000.00) at any time in the aggregate. For purposes hereof, the gross amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts without deducting any discounts, credits, unbillability or uncollectibility, whether or not due to fraud and allowances of any nature at any time, but not including any excise taxes owing in connection with such Accounts. BILLING CONTRACT - shall mean any agreement for billing and/or collection services by and between any LEC and Borrower, and any tariff of any LEC for billing and/or collection services pursuant to which Borrower receives billing and/or collection services. BUSINESS DAY - a day on which the Federal Reserve Bank of Philadelphia is open for business in Philadelphia, Pennsylvania. CAPITAL EXPENDITURES - expenditures made and liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, in accordance with GAAP. CAPITALIZED LEASE OBLIGATION - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. CARRIER - any person listed on EXHIBIT 6.1(Z) which as of the date hereof has executed the Carrier Contract, or which shall after the date hereof execute and deliver to Borrower the Carrier Contract. CARRIER CONTRACT(S) - the Billing and Collection Services Agreement and the Addendum thereto in the form of EXHIBIT 1.1 attached hereto which is executed and delivered by each Carrier and which form shall not be materially changed or amended without the prior written consent of Lender which consent -4- shall not be unreasonably withheld. Lender Agrees to respond to Borrower's requests hereunder within five (5) business days. CLASS 1 OSP CERTIFICATION FORM - certification provided by Borrower to Lender for each Class 1 Approved Carrier substantially in the form attached hereto as Exhibit 8.1(N). CLEARING ACCOUNT - the bank account to which all payments are first deposited by the Escrow Agent and to which the Escrow Agent shall have sole access, as more fully set forth in the Escrow and Disbursing Agreement. CLOSING DATE - the date on which all of the conditions precedent in Section 8 are satisfied and the initial Loan is made hereunder. CREDIT LINE - as at any date of determination thereof, the total amount available to Borrower under the Revolving Credit Facility which is the sum of (A) Fifteen Million Dollars ($15,000,000.00) and (B) the aggregate amount of the credit limit as requested by Borrower and approved in writing by Lender for all Class 3 Approved Carriers. The credit limits for each Class 3 Approved Carrier as of the date hereof are listed on Exhibit 6.1(Z). CODE - the Uniform Commercial Code as adopted and in force in the Commonwealth of Pennsylvania, as from time to time in effect. COLLATERAL - all of the Property and interests in Property described in Section 4 hereof, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations. COLLATERAL AND CREDIT CRITERIA LIST - Collateral and credit information provided by Borrower to Lender for each Carrier submitted for approval, substantially in the forms attached hereto as Exhibit 8.1(O) for each class of Approved Carriers. DEFAULT - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. DEFAULT RATE - as defined in Section 3.1(B) of this Agreement. DILUTION FACTOR - an average of the aggregate dilution factors charged by each LEC to Borrower for all receivables processed by Borrower and transmitted to the LEC for all -5- Carriers, calculated as a percentage, (a) the numerator of which is the sum of the following adjustments which the applicable LEC makes to gross billings: (i) pre-billing adjustments, including but not limited to LEC reject edits, formatting edits, unbillable calls, upfront edits, other miscellaneous items as may be appropriate, (ii) post-billing adjustments (including but not limited to adjustments or credits issued and accruals for such adjustments), (iii) bad debt adjustments and true-up settlements; and (iv) miscellaneous and other adjustments as determined to be appropriate by Lender (b) and the denominator of which is equal to gross billings. Lender shall have sole discretion to determine the time period over which the above adjustments shall be considered in computing the Dilution Factor. Such formula shall be subject to change in Lender's reasonable discretion. DISBURSING LETTER - a letter of instruction to be provided by Borrower to Lender and accompanying each request in accordance with the terms of this Agreement substantially in the form attached hereto as Exhibit 2.2(A). DISTRIBUTION - the payment of money or transfer of assets of Borrower or any Guarantor to any Person. DOMINION ACCOUNT - a special joint account of Lender and Borrower established by Borrower pursuant to this Agreement and the Escrow and Disbursing Agreement at a bank selected by Borrower, but acceptable to Lender, in its sole discretion, and over which Lender shall have sole and exclusive authority to authorize all disbursements consisting of proceeds of the Collateral and shall have joint authority with Borrower for disbursements of other proceeds, all as more fully set forth in the Escrow and Disbursing Agreement. END USERS - Persons to whom a Carrier renders telecommunication services. END USER ACCOUNTS - Accounts arising from services rendered by Carriers to End Users of telecommunications services, which have been processed and formatted for billing on a billing tape. Each End User Account shall cease to be an End User Account and become a LEC Receivable upon its sale, assignment or transfer by Borrower to a LEC for billing and collection pursuant to a Billing Contract. ELIGIBLE ACCOUNT - a LEC Receivable arising in the ordinary course of business which Lender, in its reasonable judgment, deems to be an Eligible Account. No LEC Receivable shall be an Eligible LEC Receivable if: (i) such Account arises out of a sale made by an -6- Approved Carrier to a Subsidiary or an Affiliate of such Approved Carrier or of Borrower (except Accounts arising out of sales by Borrower to its Affiliates National Telephone Exchange, Inc. (provided that the pending acquisition is consummated) and U.S. Long Distance, Inc.) or to a Person controlled by an Affiliate of such Approved Carrier or of Borrower; or (ii) such Account is unpaid more than ninety (90) days after the date of the applicable billing tape or transmission date; or (iii) fifty percent (50%) or more of the LEC Receivables from a LEC are not deemed Eligible Accounts hereunder; or (iv) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; or (v) the LEC has disputed liability with respect to a LEC Receivable, or has made any claim with respect to any other LEC Receivable due from the LEC to Borrower, to the extent of any dispute or claim; or (vi) the LEC has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction over the LEC in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the LEC, or if the LEC has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (vii) Lender believes, in its reasonable judgment, that collection of such LEC Receivable is insecure or that payment thereof is doubtful or will be delayed by reason of the LEC's financial condition; or (viii) the LEC Receivable is subject to a Lien; or (ix) more than thirty-five percent (35%) of Borrower's total Accounts consist of LEC Receivables from the LEC; or (x) the LEC Receivable is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xi) Borrower has made any agreement with a LEC for any deduction therefrom, except for post-billing adjustments which are made in the ordinary course of business and except as provided in the applicable Billing Contract; (xii) Borrower has made an agreement with the LEC to extend the time of payment thereof, unless notwithstanding such agreement payment is made within ninety (90) days of the billing tape date or transmission date; (xiii) such LEC Receivable does not arise from the purchase by Borrower from the Approved Carrier originating the End User Account which has been sold, assigned or transferred to a LEC to create such LEC Receivable pursuant to the terms set forth in the Carrier Contract in the form attached hereto as EXHIBIT 1.1; or (xiv) call records for such account have not been subjected to validation acceptable to Lender or have dilution rates which are unacceptable to Lender. -7- Lender has financed, and may continue in the future to finance Persons in the same or similar business as Borrower, which loans are, and shall be, secured by LEC Receivables of various Persons (the "LEC Loan Program"). Borrower acknowledges that Lender's LEC Loan Program (which shall include Lender's loans under this Agreement to Borrower) limits Lender's aggregate loans to all borrowers thereunder which are secured by LEC Receivables as follows: (i) the aggregate Accounts due from any single Bell Operating Telephone Company (each, a "BOC") which secure loans under the LEC Loan Program shall not exceed at any one time in the aggregate for all Persons Twenty Five Million Dollars ($25,000,000.00), (ii) the aggregate Accounts due from any single telephone company unit of GTE, United Telephone, and Centel which secure loans under the LEC Loan Program shall not exceed at any one time in the aggregate for all Persons Fifteen Million Dollars ($15,000,000.00), and (iii) the aggregate Accounts due from any other single LEC which is not a BOC which secure loans under the LEC Loan Program shall not exceed such lesser ceilings as may be established by Lender from time to time on a case by case basis. Borrower acknowledges that Lender may from time to time in its sole discretion increase or decrease the above per BOC and per LEC ceilings. Due to the above stated restrictions on the LEC Loan Program, Lender may from time to time exclude certain Eligible Accounts from the respective Borrowing Bases of borrowers under the LEC Loan Program (even though such Accounts are otherwise Eligible) to the extent that the aggregate outstanding amount of all Accounts due from all BOCs and LECs which secure loans under the LEC Loan Program exceed the ceilings set forth above, as such ceilings may from time to time be increased or decreased by Lender. Lender shall provide Borrower with prompt notice of Lender's becoming aware that Lender has reached ninety percent (90%) of its limit for a specific LEC. ENVIRONMENTAL LAWS - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters, including, but not limited to, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Toxic Substances Control Act, the Clean Water Act, the Clean Air Act, the Superfund Amendments and Reauthorization Act of 1986, and similar state and federal environmental cleanup laws, and U.S. Department of Transportation regulations. EQUIPMENT - all of Borrower's and Guarantors' machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles and other tangible personal Property of every kind and description used or useful in Borrower's operations or owned by Borrower or Guarantors or in which Borrower or Guarantors have an -8- interest, whether now owned or hereafter acquired by Borrower or Guarantors and wherever located, and all parts, accessories and special tools and increases and access ions thereto and substitutions and replacements thereof, including, without limitation, all XACT telephone call accounting computers manufactured by XETA Corporation, but shall not include switches, dialers and other equipment used directly and exclusively in providing long distance telephone services. ERISA - the Employee Retirement Income Security Act of 1974, as amended from time to time, and all rules and regulations from time to time promulgated thereunder. ESCROW AGENT - the bank designated as Escrow Agent for Lender in the Escrow and Disbursing Agreement. ESCROW AND DISBURSING AGREEMENT - agreement among Lender, Borrower and Escrow Agent dated the date hereof pursuant to which collections and disbursements into and out of the Dominion Account shall be governed substantially in the form attached hereto as Exhibit 8.1(I). EVENT OF DEFAULT - as defined in Section Il.l of this Agreement. GAAP - Generally Accepted Accounting Principles in the United States of America in effect from time to time. GENERAL INTANGIBLES - all general intangibles of Borrower or Guarantors, whether now owned or hereafter created or acquired by Borrower or Guarantors, including, without limitation, all choses in action, causes of action, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, computer programs, Carrier Contracts and any addenda thereto, Billing Contracts, all claims under guaranties, security interests or other security held by or granted to Borrower to secure payment of any of the LEC Receivables and payments pursuant to the Carrier Contracts and the Billing Contracts, all rights to indemnification and all other intangible property of every kind and nature. GUARANTORS - U.S. Long Distance Corp. and U.S. Long Distance, Inc. (hereinafter jointly and severally referred to as "Guarantors"). GUARANTY AGREEMENTS - the guaranty agreements which are to be executed by each Guarantor and by which each Guarantor shall unconditionally guarantee payment of the Obligations. -9- INDEBTEDNESS - as applied to a Person means, without duplication (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all obligations of other Persons which such Person has guaranteed and (iii) in the case of Borrower (without duplication), the Obligations. LEC - shall mean any regional Bell Operating Company, Bell Operating Company, independent local exchange company, credit card company or provider of local telephone services which is a party to any Billing Contract. LEC RECEIVABLES - shall mean all accounts receivable, debts and any other amounts payable to Borrower by any LEC pursuant to any Billing Contract. LIEN - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including, but not limited to, the security interest, security title or lien arising from a security agreement, mortgage, deed of trust, deed to secure debt, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purpose of this Agreement, Borrower or Guarantors shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. LOAN ACCOUNT - the loan account established on the books of Lender pursuant to Section 2.4 hereof and in which Lender will record all Loans, payments made on such Loans and other appropriate debits and credits as provided by this Agreement. LOAN DOCUMENTS - this Agreement, the Other Agreements and the Security Documents. LOANS - all loans and advances made by Lender pursuant to this Agreement, including, without limitation, all Revolving Credit Loans and Term Loans. MONEY BORROWED - as applied to Indebtedness, means (i) Indebtedness for borrowed money; (ii) Indebtedness, whether or not in any such case the same was for borrowed money, (A) which is represented by notes payable or drafts accepted which evidence extensions of credit, (B) which constitute obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon -10- which interest charges are customarily paid (other than accounts payable) or which are issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; and (iv) Indebtedness under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof. MULTIEMPLOVER PLAN - has the meaning set forth in Section 4001(a) (3) of ERISA. NOTE - the Revolving Credit Note. OBLIGATIONS - all Loans and all other advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Borrower or Guarantors to Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Loan Documents or otherwise and whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorney's fees and any other sums chargeable to Borrower or Guarantors under any of the Loan Documents. ORIGINAL TERM - as defined in Section 3.3 of this Agreement. OSHA - the Occupational Safety and Health Act, as amended from time to time, and all rules and regulations from time to time promulgated thereunder. OTHER AGREEMENTS - any and all agreements, instruments and documents (other than this Agreement and the Security Documents), heretofore, now or hereafter executed by Borrower or delivered to Lender in connection with the execution of this Agreement. OSP BACKGROUND FORM - document prepared by Carrier and presented by Borrower to Lender for each Carrier submitted for approval, substantially in the form attached hereto as Exhibit 8.1(K) as may be modified by Lender from time to time. PARTICIPATING LENDER - shall mean each Person who shall be granted the right by Lender to participate in any of the Loans described in this Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Lender. -11- PERMITTED PURCHASE MONEY INDEBTEDNESS - Purchase Money Indebtedness of Borrower incurred after the date hereof which is secured by a Purchase Money Lien. PERMITTED LIENS - any Lien of a kind specified in sub-paragraphs (i) through (x) of Section 7.2(H) of this Agreement. PERSON - an individual, partnership, corporation, joint stock company, trust or unincorporated organization, or a government or agency or political subdivision thereof. PLAN - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. PROHIBITED TRANSACTION - any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time. PROPERTY - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. PURCHASE MONEY INDEBTEDNESS - means and includes (i) Indebtedness for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. PURCHASE MONEY LIEN - a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. RENEWAL TERMS - as defined in Section 3.3 of this Agreement. REPORTABLE EVENT - any of the events set forth in Section 4043(b) of ERISA as to which the thirty (30) day notice requirement of Section 4043(a) of ERISA has not been waived by the Pension Benefit Guaranty Corporation. RESTRICTED INVESTMENT - any investment in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) Property to be used in the ordinary course of business; (ii) Current Assets arising from the sale of goods and services in the ordinary course of business of -12- Borrower; (iii) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one year from the date of acquisition thereof; (iv) investments in certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus aggregating at least $100,000,000; and (v) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than two hundred seventy (270) days from the date of creation thereof. REVOLVING CREDIT FACILITY - the revolving credit line described in Section 2.1 of this Agreement. REVOLVING CREDIT LOAN - a Loan made by Lender as provided in Section 2.1 of this Agreement. REVOLVING CREDIT NOTE - the promissory note to be executed and delivered by Borrower substantially in the form of Exhibit 2.1 to this Agreement, as the same may hereafter be modified, replaced, or supplemented. SECURITY - shall have the same meaning as in Section 2(l) of the Securities Act of 1933, as amended. SECURITY DOCUMENTS - all instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. SERVICE CONTRACT - any contract pursuant to which a Carrier provides service to any Person. SOLVENT - as to any Person, such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business transactions in which it is about to engage. TERM LOAN FACILITY - an amount not exceeding One Million Five Hundred Thousand Dollars ($1,500,000.00) to be advanced for the purchase of certain XETA telephone equipment to be installed at certain hotels with which U.S. Long Distance, Inc. has agreements, which shall be evidenced by Term Notes, all as more fully set forth in Section 2.3(B) hereof. -13- TERM NOTES - the promissory notes to be executed and delivered by U.S. Long Distance, Inc. substantially in the form of Exhibit 2.3(A) of this Agreement, as the same may hereinafter be modified, replaced, or supplemented in Lender's sole discretion. TERM LOAN - a loan made pursuant to Section 2.3 hereof and the existing Term Loan dated ___________________ between Source, Inc. and U.S. Long Distance, Inc. in the principal amount of Three Hundred and Twenty Thousand Dollars ($320,000.00). VOTING STOCK - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). WORKING CAPITAL - at any date means Current Assets minus Current Liabilities. 1.2. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with that applied in preparation of the financial statements referred to in Section 7.1(M), and all financial data pursuant to the Agreement shall be prepared in accordance with such principles. 1.3. OTHER TERMS. All other terms contained in this Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. 1.4. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of this Agreement. SECTION 2. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender agrees to make a total credit facility available upon Borrower's request for Loans thereunder, as follows: -14- 2.1. REVOLVING CREDIT LOANS. (A) Pursuant to the terms and subject to the conditions of this Agreement, Lender agrees for so long as no Default or Event of Default exists, to make Revolving Credit Loans to Borrower up to a maximum principal amount at any time outstanding equal to the Borrowing Base at such time. The Revolving Credit Loans shall be evidenced by the Revolving Credit Note substantially in the form attached as EXHIBIT 2.1 to this Agreement. If the unpaid balance of the Revolving Credit Loans should exceed the Borrowing Base or any other limitation set forth in this Agreement, such Revolving Credit Loans shall nevertheless constitute Obligations that are secured by the Collateral and entitled to all the benefits thereof. Notwithstanding the foregoing provisions of this Section 2.1(A), Lender shall have the right to establish reserves in such amounts, and with respect to such matters, as Lender shall deem necessary or appropriate, against the amount of the Borrowing Base, including, without limitation, with respect to (i) past due federal excise and payroll taxes; (ii) billing and collection charges payable to the LECs, unless Borrower has provided a Letter of Credit to Lender, in form and from an institution acceptable to Lender, in its sole discretion; (iii) other sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement; and (iv) such other matters, events, conditions or contingencies as to which Lender, in its reasonable credit judgment determines reserves should be established from time to time hereunder, provided, however, Lender shall not create reserves with respect to items included in the numerator of the Dilution Factor calculation. (B) The Revolving Credit Loans shall be used by Borrower to purchase certain End User Accounts of Approved Carriers to the extent not inconsistent with the provisions of this Agreement. Lender shall have a maximum of twenty (20) days from the point at which all relevant credit information is received in order to consider requests and advise Borrower of its determination for approval of a Carrier or an increase of credit for an Approved Carrier. Lender shall use its best efforts to promptly inform Borrower of any additional information it deems necessary to consider such a request. Upon approval of a Carrier or an increase of credit for an Approved Carrier, Lender shall provide Borrower with written notification thereof within five (5) Business Days. 2.2. MANNER OF BORROWING. Borrowings under the Revolving Credit Facility established pursuant to Section 2.1 shall be as follows: -15- (A) A request for a Loan shall be made, or shall be deemed to be made, in the following manner: (i) the chief financial officer of Borrower and/or his designee (which designee shall be indicated to Lender in writing) shall be the sole representative of Borrower authorized to give Lender telephonic, facsimile or written notice of Borrower's intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date and other information as required in the Disbursing Letter; (ii) the becoming due of any amount required to be paid under this Agreement as interest shall be deemed irrevocably to be a request for a Loan on the due date in the amount required to pay such interest; and (iii) the becoming due of any other Obligations shall be deemed irrevocably to be a request for a Loan on the due date in the amount then so due. (B) Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Loan requested, or deemed to be requested, pursuant to this Section 2.2 as follows: the proceeds of each Loan requested under Section 2.2(A) (i) shall be disbursed once daily by Lender in lawful money of the United States of America in immediately available funds, in accordance with the terms of Borrower's Disbursing Letter, by wire transfer to an account belonging to Borrower as may be satisfactory to Lender from time to time, or Lender, upon notice by Borrower, may agree to advance funds directly to an Approved Carrier. Within twenty-four (24) hours of a transfer to Borrower's account, Borrower shall supply Lender with written confirmation acceptable to Lender (substantially in the form attached hereto as Exhibit 2.2(B)) that the proceeds of the transfer have been distributed to the Approved Carrier. Any amounts subject to written confirmation not received by Lender within twenty-four (24) hours shall be subject to reserve by Lender. Following an initial advance, Lender shall not make any subsequent advances for an Approved Carrier until stamped, certified copies of UCC-l financing statements are received by Lender for such Approved Carrier. The proceeds of each Loan requested under Section 2.2(A) (ii) or (iii) shall be disbursed by Lender by way of direct payment of the relevant Obligation. Lender agrees to fund each Loan Request within one Business Day after Lender's receipt of such Loan Request for that portion of the Loan Request which meets with Lender's satisfaction. 2.3. TERM LOAN FACILITY. (A) Pursuant to the terms and subject to the conditions of this Agreement, Lender agrees for a one (1) year period from the date of this Agreement, as long as no Default or Event of Default exists, to make term loans to U.S. Long Distance, Inc. in an amount not exceeding ?ne Million Five Hundred Thousands Dollars ($1,500,000.00) in the aggregate, to be -16- used by U.S. Long Distance, Inc. to purchase certain XETA telephone equipment and which term loans shall be evidenced by the Term Notes and shall be repaid in twenty-four (24) monthly equal principal installments, plus interest. The amount of each Term Loan shall not exceed eighty percent (80%) of the purchase price of XETA telephone equipment as set forth on the invoice. (B) A request for a Term Loan shall be made, or shall be deemed to be made when the chief executive officer of U.S. Long Distance, Inc. or his designee shall supply Lender with the following: (i) an invoice for the purchase of the XETA telephone equipment; (ii) an Acknowledgment and Acceptance Certificate, substantially in the form of Exhibit 2.3(B) attached hereto, executed by the recipient the XETA telephone equipment; (iii) a duly executed Term Loan Note; and (iv) UCC-1 financing statements filed in the appropriate jurisdiction or jurisdictions where the XETA telephone equipment is located, evidencing Lender's lien in such equipment. 2.4. ALL LOANS TO CONSTITUTE ONE OBLIGATION. All Loans shall constitute one general obligation of Borrower and Guarantors and shall be secured by Lender's security interest in and Lien upon all of the Collateral, and by all other security interests and Liens heretofore, now or at any time or times hereafter granted by Borrower or Guarantors to Lender. 2.5. LOAN ACCOUNT. Lender shall enter all Loans as debits to the Loan Account and shall also record in the Loan Account all payments made by Borrower on Revolving Credit Loans and all proceeds of Collateral which are finally paid to Lender as credits, and may record therein all charges and expenses properly chargeable to Borrower hereunder. Lender may charge all amounts advanced to or for the benefit of Borrower pursuant to the terms of this Agreement (including, without limitation, any amounts due Lender under Section 3 below, any principal amounts due Lender, and/or any amounts due Lender pursuant to any other provision of this Agreement) to Borrower's Loan Account. SECTION 3. INTEREST, FEES, TERM AND REPAYMENT 3.1. INTEREST AND CHARGES. (A) Interest shall accrue on the principal amount of the Revolving Credit Loans outstanding at the end of each day at a fluctuating rate per annum equal to one and one-eighth percent (1-1/8%) above the Base Rate in effect on such day. Interest shall accrue on the principal amount of the Term Loans outstanding at the end of each day such Term Loans are outstanding at a fluctuating rate equal to one and three quarters percent (l 3/4%) above the Base Rate in effect on such day. After the date -17- hereof, the foregoing rates of interest shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Base Rate becomes effective. The Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the date hereof, but if this Agreement is executed on a day that is not a Business Day, the Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the last Business Day immediately preceding the date hereof. Interest shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days), commencing on the date hereof, and shall be payable monthly, in arrears, on the first Business day of each month. (B) Upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of the Obligations shall bear interest, calculated daily (computed on the actual days elapsed over a year of 360 days), at a fluctuating rate per annum equal to six percent (6%) above the Base Rate (the "Default Rate"). (C) In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder and charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Lender has charged or received interest hereunder in excess of the highest applicable rate, Lender shall promptly refund such excess interest to Borrower and such rate shall automatically be reduced to the maximum rate permitted by such law. 3.2 FEES. (A) Borrower shall pay to Lender on the date hereof a loan origination fee equal to three quarters of one percent (.75%) of the Credit Line as of the date hereof which fee shall be deemed to have been earned and shall be payable in full on the date hereof. (B) U.S. Long Distance, Inc. shall pay to Lender a term loan facility fee equal to one half of one percent (.50%) of the maximum Term Loan Facility payable on the date hereof. (C) Borrower shall pay to Lender on the date of any increase in the Credit Line due to either the addition of any new Class 3 Approved Carrier or any increase in the credit limit for any existing Class 3 Approved Carrier an additional loan -18- origination fee equal to one half of one percent (.50%) per annum of the amount of such increase which fee shall be prorated for the number of days remaining until the next one year anniversary and shall be deemed to be earned and shall be payable on the date such increase of new approval is made by Lender. (D) Borrower shall pay to Lender on each one year anniversary of this Agreement an annual commitment fee equal to one half of one percent (.50%) of the Credit Line as determined on each one year anniversary of this Agreement. (E) Borrower shall pay to Lender quarterly an unused facility fee equal to one half of one percent (.50%) per annum multiplied by the difference between the average outstanding daily loan balance of the Revolving Line of Credit and the average amount of the Credit Line for the preceding three month period, which fee shall be payable quarterly from the date hereof on the first Business Day after the end of Borrower's fiscal quarter until the end of the Original Term or any Renewal Term. (F) Lender agrees to review the amount of the fees set forth in Sections 3.2 (C), (D) and (E) above on an annual basis upon written request from Borrower; however, Lender shall have no obligation whatsoever to make any adjustment to any such fees and the nature, basis and extent of any review by Lender shall be in Lender's sole determination. 3.3. TERM OF AGREEMENT. Subject to Lender's right to cease making Loans to Borrower at any time upon or after the occurrence of any Default or Event of Default, the provisions of this Agreement shall be in effect for a period of three (3) years from the date hereof, through and including May 21, 1994 (the "Original Term"), unless terminated as provided in Section 3.4 hereof and may be extended by the written consent of Lender and Borrower (the "Renewal Term"). 3.4. TERMINATION. (A) Upon at least sixty (60) days prior written notice to Lender, Borrower may, at its option, terminate this Agreement at the end of the Original Term or any Renewal Term ; PROVIDED, HOWEVER, no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds. Any termination under this Section 3.4(A) shall be deemed a termination of the entire Agreement. (B) Lender may terminate this Agreement upon sixty (60) days prior written notice to Borrower at the end of the Original Term or any Renewal Term, or at any time without notice to Borrower upon or after the occurrence of an Event of Default. -19- (C) All of the Obligations shall be forthwith due and payable upon any termination of this Agreement. Except as otherwise expressly provided for in this Agreement or the other Loan Documents, no termination or cancellation (regardless of cause or procedure) of this Agreement or any of the other Loan Documents shall in any way affect or impair the powers, obligations, duties, rights, and liabilities of Borrower or Lender in any way relating to (i) any transaction or event occurring prior to such termination or cancellation, or (ii) any of the undertakings, agreements, covenants, warranties or representations of Borrower contained in this Agreement or any of the other Loan Documents. All such undertakings, agreements, covenants, warranties and representations shall survive such termination or cancellation and Lender shall retain its Liens in the Collateral and all of its rights and remedies under this Agreement and the other Loan Documents notwithstanding such termination or cancellation, until all of the Obligations have been paid in full, in immediately available funds. 3.5. PAYMENTS. Except where evidenced by notes or other instruments issued or made by Borrower to Lender specifically containing payment provisions which are in conflict with this Section 3.5 (in which event the conflicting provisions of said notes or other instruments shall govern and control), that portion of the Obligations consisting of: (A) Principal, payable on account of Revolving Credit Loans made by Lender to Borrower pursuant to Section 2.1 of this Agreement shall be payable by Borrower to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of such Loans, (iii) the end of the Original Term or any Renewal Term; or (iv) termination of this Agreement pursuant to Section 3.3 hereof, provided, however, that if the principal balance of Revolving Credit Loans outstanding at any time shall exceed the Borrowing Base at such time, Borrower shall, on demand, repay the Revolving Credit Loans in an amount sufficient to reduce the aggregate unpaid principal amount of such Loans by an amount equal to such excess; (B) Interest accrued on the Obligations shall be due on the earliest of (i) the first Business Day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (iii) termination of this Agreement pursuant to Section 3.3 hereof; PROVIDED, HOWEVER, that Borrower hereby irrevocably authorizes Lender, in Lender's -20- sole discretion, to advance to Borrower, and to charge to Borrower's Loan Account in the event that an invoice has not been paid within one (l) day of such invoice hereunder as a Revolving Credit Loan, a sum sufficient each month to pay all interest accrued on the Obligations during the immediately preceding month; (C) Costs, fees and expenses payable pursuant to this Agreement shall be payable by Borrower, on demand, to Lender or to any other Person designated by Lender in writing provided, however, that upon ten (10) days after receipt of an invoice from Lender and immediately upon the occurrence of an Event of Default, Borrower hereby irrevocably authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's Loan Account hereunder as a Revolving Credit Loan, a sum sufficient each month to pay all costs, fees and expenses incurred by Lender; and (D) The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrower to Lender as and when provided in this Agreement, the Other Agreements or the Security Documents, or on demand, whichever is earlier. 3.6. APPLICATION OF PAYMENTS AND COLLECTIONS. Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower hereby irrevocably agrees that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records. 3.7. STATEMENTS OF ACCOUNT. Lender will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within Forty-five (45) days after the last day of the period covered by the statement as provided in Section 10.10 hereof. Such notice shall only be deemed an objection to those items specifically objected to therein. SECTION 4. COLLATERAL: GENERAL TERMS 4.1. SECURITY INTEREST IN COLLATERAL. To secure the prompt payment and performance to Lender of the Obligations, Borrower and Guarantors hereby grant to Lender a continuing security -21- interest in and Lien upon all of the following Property and interests in Property of Borrower and Guarantors whether now owned or existing or hereafter created, acquired or arising and wheresoever located: (A) Accounts; (B) General Intangibles; (C) LEC Receivables; (D) End User Accounts; (E) Equipment; (F) All rights of Borrower or Guarantors pursuant to or relating to a Carrier Contract (as the same may hereafter be amended or replaced), all rights and claims now or hereafter arising under any Carrier Contract, as well as all rights and claims now or hereafter arising under any guarantees now or hereafter given to Borrower or Guarantors in connection with any Carrier Contract, and all rights of Borrower or Guarantors pursuant to or arising out of the Escrow and Disbursing Agreement. (G) All monies and other Property of any kind, now or at any time or times hereafter, in the possession or under the control of Lender or a bailee of Lender; (H) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (A), (B), (C), (D), (E) and (F) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (I) All books and records (including, without limitation, customer lists, credit files, billing tapes, whether processed or unprocessed, computer programs, printouts, and other computer materials and records) of Borrower or Guarantors pertaining to any of (A), (B), (C), (D), (E), (F) and (G). All liens granted in the collateral under the Loan and Security Agreement survive the execution of this Agreement and shall remain liens under this Agreement. The grant of a security interest in the Collateral hereunder restates and expands, but in no manner extinguishes, the grant of the security interest in the collateral under the Loan and Security Agreement. 4.2 CONSENT TO SALE. Lender consents to the sale of End User Accounts to LECs to enable such LECs to bill for and collect -22- such End User Accounts from the End User, provided however that such consent is expressly conditioned on the sale being subject to Lender's Lien continuing on such End User Accounts sold. Upon any such sale of an End User Account to a LEC, Lender agrees that its Lien shall be subject to and subordinate in all respects to the right, title and interest in such End User Account purchased by the LEC and Lender further agrees that for so long as the LEC has not transferred, whether voluntarily or involuntarily, such End User Account back to Borrower, Lender shall take no action to collect such End User Account. 4.3. REPRESENTATIONS, WARRANTIES AND COVENANTS - COLLATERAL. To induce Lender to enter into this Agreement, Borrower and Guarantors represent, warrant, and covenant to Lender: (A) The Collateral is now and, so long as any Obligations are outstanding, will continue to be owned solely by Borrower or Guarantor. No other Person has or will have any right, title, interest, claim, or Lien therein, thereon or thereto other than a Permitted Lien. (B) Except as specifically consented to in writing by Lender, the Liens granted to Lender shall be first and prior on the Collateral and as to the Accounts and proceeds, including insurance proceeds, resulting from the sale, disposition, or loss thereof. No further action need be taken to perfect the Liens granted to Lender, other than the filing of financing and continuation statements under the Code or other applicable law, continued possession by Lender of that portion of the Collateral constituting monies, instruments or documents, notation of Lender as loss payee under insurance policies to the extent provided for in Section 4.6 hereof. 4.4. FINANCING STATEMENTS. (a) Borrower and Guarantors agree to execute the financing statements provided for by the Code together with any and all other instruments, assignments or documents and shall take such other action as may be required to perfect or to continue the perfection of Lender's security interest in the Collateral. Unless prohibited by applicable law, Borrower and Guarantors hereby authorize Lender to execute and file any such financing statement on Borrower's or Guarantors behalf. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof to the extent permitted by applicable laws. (b) Borrower and Guarantors agree to file the financing statements provided for by the Code together with any and all other instruments, assignments or documents, and shall take such other action as may be required to perfect, and -23- continue the perfection, of Borrower's security interest in the End User Accounts granted to Borrower by each Carrier. Lender shall be noted on each such financing statement as the assignee of all security interests of Borrower thereunder. 4.5. LOCATION OF COLLATERAL. Borrower and Guarantors will maintain their chief executive offices and principal places of business and the locations at which records regarding the Accounts are maintained, at the locations set forth in EXHIBIT 4.5 and shall not move such locations, except as permitted pursuant to Section 7.2(J) of this Agreement. Borrower and Guarantors will not change the location of any of the Equipment without sixty (60) days prior written notice to Lender, except for XACT call accounting equipment which shall not be moved without ten (10) days prior written notice to Lender. 4.6. INSURANCE OF PROPERTY. Borrower and Guarantors agrees to maintain and pay for insurance upon all Property wherever located, in such amounts and with such insurance companies as shall be reasonably satisfactory to Lender, including business interruption insurance and insurance covering the cost of recreating any books and records damaged by fire or other casualty. At Lender's request, Borrower and Guarantors shall deliver the copies of such policies to Lender and to the extent Lender has an insurable interest will obtain and deliver to Lender a Lender's loss payable endorsement naming Lender loss payee. At Lender's request, Borrower and Guarantors agree to deliver to Lender, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. Borrower and Guarantors Will maintain, with financially sound and reputable insurers, insurance with respect to their Properties and businesses against such casualties and contingencies of such type and in such amounts as is customary in the businesses of Borrower and Guarantors. 4.7. PROTECTION OF COLLATERAL. Lender may, at any time or times, in its reasonable judgment upon notice to Borrower or Guarantors, without waiving or releasing any obligations, liability or duty of Borrower and Guarantors under this Agreement or the Other Agreements, or any Event of Default, pay when due, acquire or accept an assignment of any Lien or claim asserted by any Person against any of the Collateral. All sums paid by Lender in respect thereof and all costs, fees and expenses, including, without limitation, attorney's fees and court costs, which are incurred by Lender on account thereof, shall be payable, upon demand, by Borrower and Guarantors to Lender together with interest accruing at the Default Rate, if applicable to the Loans, and shall be secured by the Collateral. Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage -24- thereto (except for reasonable care in the custody thereof while any Collateral is in Lender's actual possession). SECTION 5. PROVISIONS RELATING TO ACCOUNTS 5.1. REPRESENTATIONS, WARRANTIES AND COVENANTS. With respect to the following, Borrower and Guarantors represent and warrant to Lender that Lender may rely, in determining which Accounts are Eligible Accounts, on all of the following statements and representations made by Borrower and Guarantors with respect to any Account or Accounts, and, unless otherwise indicated in writing to Lender, as follows: (A) With respect to each LEC Receivable: (l) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (2) It arises out of the sale, assignment, transfer or delivery of End User Accounts by the Borrower to a LEC in the ordinary course of its business and in accordance with the terms and conditions of any Billing Contracts or other documents relating thereto; (3) It is for a specific amount due and owing reflected on the billing tape covering the applicable LEC Receivable, a copy of which is available to Lender; (4) Such Account, and Lender's security interest therein, is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition, and each such LEC Receivable is absolutely owing to Borrower and is not contingent in any respect or for any reason, except as otherwise provided in the Billing Contract relating only to billing and collection services for such LEC Receivable; (5) Borrower has made no agreement with regard to any Account for any deduction therefrom, except discounts, credits or allowances which are granted by Borrower in the ordinary course of business; (6) There are no facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the amount reflected on the billing tape or billing transmission therefor; (7) To the best of Borrower's and Guarantors' knowledge, the LEC thereunder (i) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (ii) such LEC is Solvent; -25- (8) Borrower or Guarantors have no knowledge of any fact or circumstance which would impair the validity or collectibility by Borrower of the LEC Receivable, and to the best of Borrower's or Guarantors' knowledge there are no proceedings or actions which are threatened or pending against any LEC thereunder which might result in any material adverse change in such LEC's financial condition or the collectibility of such LEC Receivable; (9) All supporting documents and other evidence of LEC Receivables, if any, delivered to Lender are complete and correct and valid and enforceable in accordance with their terms, and all signatures and endorsements that appear thereon are genuine, and all signatories and endorsers have full capacity to contract; and (10) The LEC Receivable is not subject to any prohibition or limitation upon assignment except as may be set forth in the applicable Billing Contract. (B) With respect to each End User Account: (1) It is genuine and in all respects what it purports to be, and is not evidenced by a judgment; (2) It arises out of the completed delivery of telephone services in the ordinary course of a Carrier's business in the name of such Carrier, unless otherwise approved by Lender, which approval shall not be unreasonably withheld, and in accordance with the terms and conditions of any contracts or other documents relating thereto; (3) It is for a specific amount due and owing as reflected on the billing tapes or billing transmissions covering such End User Account; (4) Such End User Account is not subject to any offset, Lien, deduction, defense, dispute, counterclaim or any other adverse condition, and is absolutely owing to Borrower and is not contingent in any respect or for any reason except for matters for which discounts, credits or allowances are granted by Borrower in the ordinary course of business consistent with past practices; (5) Neither Borrower nor the applicable Carrier has made any agreement with any End User thereunder for any deduction therefor, except discounts, credits or allowances which are granted by such Carrier in the ordinary course of business; (6) There are no facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the amount reflected on the billing tape therefor; -26- (7) The Account Debtor thereunder (i) had the capacity to contract at the time any contract or other document relating to the End User Account was executed and (ii) to the best of Borrower's and Guarantors' knowledge, such Account Debtor is Solvent; (8) Borrower or Guarantors have no knowledge of any fact or circumstance which would impair the validity or collectibility by Borrower of the End User Account and to the best of Borrower's and Guarantors' knowledge, there are no proceedings or actions which are threatened or pending against the Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such End User Account; (9) All supporting documents and other evidence of End User Accounts, if any, delivered to Lender are complete and correct and valid and enforceable in accordance with their terms, and all signatures and endorsements that appear thereon are genuine, and all signatories and endorsers have full capacity to contract; and (10) The End User Account is not subject to any prohibition or limitation upon assignment except as provided in the applicable Billing Contract. 5.2. ASSIGNMENTS, RECORDS AND SCHEDULES OF ACCOUNTS. Borrower shall execute and deliver to Lender formal written assignments as security for the payment of the Obligations of all of its LEC Receivables daily, which shall include all that have been created since the date of the last assignment, and if requested by Lender together with copies of confirmations of other statements related thereto, if any. Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on a daily basis a sales and collections report for the preceding day, in form satisfactory to Lender. Upon Lender's request therefor, copies of proof of delivery and the original copy of all documents maintained by Borrower in the ordinary course of business, including, without limitation, any repayment histories and present status reports relating to the LEC Receivables so scheduled and such other matters and information relating to the status of then existing LEC Receivables as Lender shall reasonably request. 5.3. ADMINISTRATION OF ACCOUNTS. (A) Upon and after the occurrence of an Event of Default, Lender shall have the right to settle or adjust all disputes and -27- claims directly with the Account Debtor and to compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Lender may deem advisable, and to charge the deficiencies, costs and expenses thereof, including attorney's fees, to Borrower. (B) If an Account includes a charge for any tax payable to any governmental taxing authority, including but not limited to excise taxes, upon the occurrence of an Event of Default, Lender is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge the Loan Account therefor, except taxes being diligently contested in good faith for which adequate reserves have been established in accordance with GAAP. Borrower shall notify Lender if any Account includes any material tax due beyond the applicable payment due date to any governmental taxing authority and as between Lender and Borrower, Lender shall have the right to retain the full proceeds of the Account and shall not be liable for any taxes to any governmental taxing authority that may be due by Borrower by reason of the sale and delivery creating the LEC Receivable. (C) Any of Lender's officers, employees or agents shall have the right, at any time or times, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount.or any other matter relating to any Account by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. 5.4. COLLECTION OF ACCOUNTS. (A) Borrower shall have notified all LECs to send all payments owed to Borrower directly to a lockbox whereby all such payments will be transferred directly to the Clearing Account or to wire such payments directly to the Clearing Account (as set forth in the Escrow Disbursing Agreement). All amounts in the Clearing Account shall be automatically transferred daily to the Dominion Account and neither Borrower nor Lender shall have access to the Clearing Account. To expedite collection, Borrower shall endeavor in the first instance to facilitate collection of the Accounts for Lender. Any remittances received directly by Borrower on account of Accounts shall be held as Lender's property by Borrower as trustee of an express trust for Lender's benefit and Borrower shall immediately deposit same in the Dominion Account. Upon the occurrence of a Default or an Event of Default, Lender has the right to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name and to charge the collection costs and expenses, including attorneys' fees to Borrower. Lender has no -28- duty to protect, insure, collect or realize upon the Accounts. For the purpose of computing interest hereunder, all items of payment received by Lender shall be deemed applied by Lender on account of the Obligations (subject to final payment of such items) on the second Business Day after receipt by Lender of such items of payment. (B) Borrower shall cause all proceeds of the Collateral including all LEC remittances to be deposited in kind in the Clearing Account pursuant to a lockbox arrangement with such bank(s) as may be selected by Borrower and be acceptable to Lender. Borrower shall issue to any such bank(s) an irrevocable letter of instruction directing such bank(s) to deposit all payments or other remittances received in the lockbox to the Clearing Account, which collected remittances shall be deposited on a daily basis in the Dominion Account for application on account of the Obligations in accordance with the terms of the Escrow and Disbursing Agreement. All funds deposited in the Dominion Account which are proceeds of the Collateral shall immediately become the property of Lender. Borrower shall obtain the agreement by such bank(s) to waive any offset rights against the funds so deposited. Lender assumes no responsibility for such lockbox arrangement, including, without limitation, any claim of accord and satisfaction or release with respect to deposits accepted by any bank thereunder. (C) Borrower shall advise Lender of the allocation between Approved Carriers and all other Carriers for all proceeds deposited into the Dominion Account. Upon what Lender, in its sole discretion, deems to be sufficient confirmation of such allocation, Lender and Borrower shall jointly notify the Escrow Agent to transfer that portion of the proceeds which are attributed to Carriers other than Approved Carriers to a bank account designated by Borrower. If Borrower and Lender are unable to agree on the allocation of proceeds in the Dominion Account, the amount of disputed proceeds (the "Disputed Amount") shall remain in the Dominion Account. Upon five (5) days after the occurrence thereof, if Borrower has been unable to adequately justify its purported allocation of the Disputed Amount to Lender's satisfaction, Lender may notify the Escrow Agent to transfer directly to Lender that portion of the Disputed Amount which Lender, in its sole discretion, deems to be proceeds of Lender's Collateral, in the manner set forth in the Escrow and Disbursing Agreement. After the occurrence of an Event of Default (as defined in Section 9 hereof), upon notice from Lender to the Escrow Agent thereof, the Escrow Agent shall make disbursements from the Dominion Account in accordance with Lender's instructions as more fully set forth in the Escrow and Disbursing Agreement. -29- SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1. GENERAL REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this Agreement and to make advances here-under, Borrower and Guarantors warrant, represent and covenant to Lender that: (A) ORGANIZATION AND QUALIFICATION. Borrower and Guarantors are corporations duly organized, validly existing and in good standing under the laws of their jurisdictions of incorporation. Borrower and Guarantors have been duly qualified to do business and are in good standing as foreign corporations in each state or jurisdiction listed on EXHIBIT 6.1(A) attached hereto and made a part hereof except to the extent and subject to the qualifications set forth in such Exhibit 6.1(A). (B) TRADE NAMES. During the preceding seven (7) years, Borrower and Guarantors have not been known as or used any fictitious or trade names except as disclosed on EXHIBIT 6.1(B) attached hereto and made a part hereof. Except as set forth on EXHIBIT 6.1(B), Borrower and Guarantors have not during the preceding seven (7) years, acquired all or substantially all of the assets of any Person. (C) CORPORATE POWER AND AUTHORITY. Borrower and Guarantors have the right and power and are duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which any or all of them are a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders of Borrower or Guarantors; (ii) contravene Borrower's or Guarantors' charter, articles of incorporation or by-laws (iii) violate, or cause Borrower or Guarantors to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Borrower or Guarantors; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement which would permit the acceleration of the Indebtedness thereunder, or any other material breach of an agreement, lease or instrument to which Borrower or Guarantors are a party or by which it or its Properties may be bound or affected except for such restrictions on assignment as may appear in any Billing Contract; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Borrower or Guarantors. -30- (D) LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of Borrower and Guarantors enforceable against it in accordance with their respective terms. (E) USE OF PROCEEDS. Borrower's uses of the proceeds of any advances made by Lender to Borrower pursuant to this Agreement are, and will continue to be, legal and proper corporate uses, duly authorized by its Board of Directors and such uses are consistent with all applicable laws and statutes, as in effect as of the date hereof. (F) MARGIN STOCK. Borrower and Guarantors are not engaged principally, or as one of its important activities, in the business of purchasing or carrying "margin stock" (within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loans to Borrower will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock, or be used for any purpose which violates or is inconsistent with the provisions of Regulation X of said Board of Governors. (G) GOVERNMENTAL CONSENTS. Borrower and Guarantors have been, and are in good standing with respect to, all material governmental consents, approvals, authorizations, permits, certificates, inspections, and franchises necessary to continue to conduct their businesses as heretofore or proposed to be conducted by it and to own or lease and operate their Properties as now owned or leased by them. (H) PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. Except as otherwise noted on Exhibit 6.1(H) attached hereto and made a part hereof, Borrower or Guarantors own or possess all the material patents, trademarks, service marks, trade names, copyrights and license necessary for the present and planned future conduct of their businesses without any known conflict with the rights of others. All such patents, trademarks, service marks, tradenames, copyrights, licenses and other similar rights are listed on EXHIBIT 6.1(H) attached hereto and made a part hereof. (I) CAPITAL STRUCTURE. EXHIBIT 6.1(I) attached hereto and made a part hereof states (a) the correct name of each Subsidiary of Borrower and/or Guarantors, the jurisdictions of incorporation and the percentage of its Voting Stock owned by Borrower and/or Guarantors, (b) the number, nature and holder of all outstanding Securities of Borrower and/or Guarantors, and (c) the number of authorized, issued and treasury shares of Borrower and/or Guarantors and each subsidiary of Borrower and/or Guarantors. -31- All such shares have been duly issued and are fully paid and non-assessable. Except as otherwise set forth on EXHIBIT 6.1(I) hereto and made a part hereof, to the best of Borrower's and/or Guarantors' knowledge, there are not outstanding any options to purchase, or any rights to subscribe for, or any commitments or agreements to issue or sell, or any obligations convertible into, or any powers of attorney relating to, shares of the capital stock of Borrower and/or Guarantors and there are not outstanding any agreements or instruments binding upon any of Borrower's and/or Guarantors' shareholders relating to the ownership of its shares of capital stock. (J) RESTRICTIONS. Neither Borrower nor Guarantors are a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects their businesses or the use or ownership of any of their Properties. Neither Borrower nor Guarantors are a party or subject to any contract or agreement which restricts their rights or abilities to incur Indebtedness, other than as set forth on EXHIBIT 6.1(J) attached hereto, none of which prohibit the execution of or compliance with this Agreement by Borrower or Guarantors. Neither Borrower nor Guarantors have agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its Collateral, whether now owned or hereafter acquired, to be subject to a Lien that is not a Permitted Lien. (K) LITIGATION. Except as set forth on EXHIBIT 6.1(K) attached hereto and made a part hereof, there are no actions, suits, proceedings or investigations which might lend to a judgment or settlement in excess of One Hundred Thousand Dollars ($100,000.00) to which Borrower or Guarantors are a party or to the knowledge of Borrower or Guarantors, are pending or threatened, against or affecting Borrower or Guarantors, or the business, operations, Properties, prospects, profits or condition of Borrower or Guarantors, in any court or before any governmental authority or arbitration board or tribunal, and no action, suit, proceeding or investigation shown on EXHIBIT 6.1(K) involves the possibility of materially and adversely affecting the Properties, business, prospects, profits or condition (financial or otherwise) of Borrower or Guarantors or the ability of Borrower or Guarantors to perform this Agreement. Neither Borrower nor Guarantors are in material default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal. (L) TITLE TO PROPERTIES. Borrower and Guarantors have good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of their real -32- Property, and good title to all of their other Property, in each case, free and clear of all Liens except Permitted Liens. (M) FINANCIAL STATEMENTS. The balance sheets of Borrower and Guarantors and such other Persons described therein as of March 31, 1991 and the related statements of income, changes in stockholder's equity, and statement of cash flow for the periods ended on such dates, have been prepared in accordance with GAAP (except for changes in application in which Borrower's or Guarantors' independent certified public accountants concur), and present fairly the financial positions of Borrower and Guarantors at such dates and the results of Borrower's and Guarantors' operations for such periods. Since March 31, 1991, there has been no material change in the condition, financial or otherwise, of Borrower and Guarantors and such other Persons as shown on the balance sheet as of such date and no change in the aggregate value of Property owned by Borrower or such other Persons, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. (N) FULL DISCLOSURE. The financial statements referred to in Section 6.1(M) above, do not, nor does this Agreement or any other written statement of Borrower or Guarantors to Lender contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which Borrower or Guarantors have failed to disclose to Lender in writing which materially affects adversely or, so far as Borrower or Guarantors can now foresee, will materially affect adversely the Properties, business, prospects, profits, or condition (financial or otherwise) of Borrower or Guarantors or the ability of Borrower or Guarantors to perform this Agreement. (O) PENSION PLANS. Neither Borrower nor Guarantors have a Plan. Neither Borrower nor Guarantors have received any notice from any agency of the United States government to the effect that they are not in material compliance with any of the requirements of ERISA and the regulations promulgated thereunder with respect to any Plan. No Reportable Event with respect to any Plan or Prohibited Transaction exists in connection with any Plan. Neither Borrower nor Guarantors have withdrawal liability in connection with a Multiemployer Plan. (P) TAXES. Borrower's and Guarantors' federal tax identification numbers are as follows: 74-2467147 (Borrower), 74-2522103, (U.S. Long Distance Corp.), and 74-2430984, (U.S. Long Distance, Inc.), respectively. Except as otherwise set forth on EXHIBIT 6.1(P) attached hereto and made a part hereof, Borrower and Guarantors have filed all federal, state and local tax returns and other reports it is required by law to file and -33- has paid, or made provision for the payment of, all taxes, assessments, fees and other governmental charges that are due and payable, except such taxes, if any, as are being actively contested in good faith and as to which adequate reserves have been provided in accordance with GAAP and with the exception of taxes owed other than to federal and state authorities which do not exceed Twenty Thousand Dollars ($20,000.00) for any single entity and Two Hundred and Fifty Thousand Dollars ($250,000.00) for all entities, in the aggregate. Except as otherwise set forth on EXHIBIT 6.1(P) attached hereto and made a part hereof, the provision for taxes on the books of Borrower are adequate for all years not closed by applicable statutes, and for its current fiscal year. (Q) LABOR RELATIONS. Except as described on EXHIBIT 6.1(Q) attached hereto and made a part hereof, neither Borrower nor Guarantors are a party to any collective bargaining agreement, and there are no material grievances, disputes or controversies with any union or any other organization of Borrower's employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. (R) COMPLIANCE WITH LAWS. Borrower and Guarantors have duly complied in all material respects with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to Borrower and Guarantors, its Properties or the conduct of its business, including, without limitation, OSHA and all Environmental Laws, and there have been no citations, notices or orders of noncompliance issued to Borrower or Guarantors or any of their Subsidiaries under any such law, rule or regulation. (S) SURETY OBLIGATIONS. Except as otherwise set forth on EXHIBIT 6.1(S) attached hereto and made a part hereof, neither Borrower nor Guarantors are obligated as surety or indemnitor under any surety or similar bond or other contract issued and have not entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person. (T) NO DEFAULTS. No event has occurred and no condition exists which would, upon the execution and delivery of this Agreement or Borrower's or Guarantors' performance hereunder, constitute a Default or an Event of Default. Except as otherwise set forth on EXHIBIT 6.1(T) attached hereto and made a part hereof, neither Borrower nor Guarantors are in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both -34- would constitute, a default in the payment of any Indebtedness of Borrower or Guarantors to any Person for Money Borrowed. (U) BROKERS. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. (V) BUSINESS LOCATIONS; AGENT FOR PROCESS. During the preceding seven (7) year period, neither Borrower nor Guarantors have had any office or place of business located in any state or county other than as shown on EXHIBIT 6.1(V) attached hereto and made a part hereof. (W) TRADE RELATIONS. Except as set forth on EXHIBIT 6.1(W) attached hereto and made a part hereof, there exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between Borrower or Guarantors and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of Borrower or Guarantors, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially adversely affect Borrower or Guarantors or prevent Borrower or Guarantors from conducting such business after the consummation of the transactions contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. (X) LEASES. EXHIBIT 6.1(X) attached hereto is a complete listing of all capitalized leases and all operating leases of Borrower. (Y) BILLING CONTRACTS. EXHIBIT 6.1(Y) attached hereto is a list of all of the Billing Contracts which exist as of the date hereof setting forth the date of and the parties to each such Billing Contract, and indicates whether any such Billing Contract contains (i) any provision which purports to limit, restrict or prohibit the assignment or the creation of a security interest in all or any part of such Billing Contract or Borrower's rights thereunder or in any LEC Receivable or End User Receivable and (ii) any provision which permits, restricts or prohibits the netting of LEC Receivables due to Borrower against amounts due to the LEC. (Z) CARRIERS; CARRIER CONTRACTS. EXHIBIT 6.1(Z) attached hereto is a complete listing of each Carrier with which Borrower does business as of the date hereof, each Carrier Contract for each Approved Carrier executed and delivered to Borrower by such Carrier which is the legal, valid and binding obligation of the parties thereto, enforceable in accordance with its terms and each Class 3 Approved Carrier and its respective credit limit. -35- 6.2. REAFFIRMATION. Each request for a Loan made by Borrower pursuant to this Agreement or any of the other Loan Documents shall constitute (i) an automatic representation and warranty by Borrower and Guarantors to Lender that there does not then exist any Default or Event of Default and (ii) a reaffirmation as of the date of said request of all of the representations and warranties of Borrower and Guarantors contained in this Agreement and the other Loan Documents. 6.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower and Guarantors covenant, warrant and represent to Lender that all representations and warranties of Borrower and Guarantors contained in this Agreement or any of the other Loan Documents shall be true at the time of Borrower's and Guarantors' execution of this Agreement and the other Loan Documents, and shall survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 7. COVENANTS AND CONTINUING AGREEMENTS 7.1. AFFIRMATIVE COVENANTS. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower and Guarantors (where applicable) covenant that, unless otherwise consented to by Lender in writing, they shall: (A) TAXES AND LIENS. Pay and discharge all material taxes, assessments and governmental charges upon it, its income and Properties as and when such taxes, assessments and charges are due and payable, except a;id to the extent only that such taxes, assessments and charges are being actively contested in good faith and by appropriate proceedings, and maintain adequate reserves on its books therefor in accordance with GAAP if the nonpayment of such taxes, assessments and charges shall not result in a Lien upon any Collateral of Borrower or Guarantors other than a Permitted Lien. Borrower and Guarantors shall also pay and discharge any lawful claims which, if unpaid, might become a Lien against any of the Collateral except for Permitted Liens. (B) TAX RETURNS. File all federal, state and local tax returns and other reports Borrower or Guarantors are required by law to file and maintain adequate reserves in accordance with GAAP for the payment of all taxes, assessments, governmental charges, and levies imposed upon them, their income, or their profits, or upon any Property belonging to them. (C) PAYMENT OF BANK CHARGES. Pay to Lender, on demand, any and all reasonable fees, costs or expenses which Lender or any Participating Lender pays to a bank or other similar institution -36- (including, without limitation, any fees paid by the Lender to any Participating Lender) arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender or any Participating Lender, of proceeds of Loans made by Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Lender or any Participating Lender, of any check or item of payment received or delivered to Lender or any Participating Lender on account of the Obligations. (D) BUSINESS AND EXISTENCE. Preserve and maintain their separate corporate existences and all rights, privileges, and franchises in connection therewith, and maintain their qualification and good standing in all states in which the failure to be so qualified might have a material adverse effect on the financial condition, business or Properties of Borrower or Guarantors. (E) MAINTAIN PROPERTIES. Maintain their Properties in good condition and make all necessary renewals, repairs, replacements, additions and improvements thereto. (F) COMPLIANCE WITH LAWS. Comply with all laws, ordinances, governmental rules and regulations to which they are subject, including, without limitation, all Environmental Laws, and obtain and keep in force any and all licenses, permits, franchises, or other governmental authorizations necessary to the ownership of their Properties or to the conduct of their businesses, which failure to comply with, or obtain, or keep in force might materially and adversely affect the businesses, prospects, profits, Properties, or condition (financial or otherwise) of Borrower or Guarantors. (G) ERISA COMPLIANCE. (i) At all times make prompt payment of contributions required to meet the minimum funding standards set forth in ERISA with respect to each Plan; (ii) promptly after the filing thereof, furnish to Lender copies of any annual report required to be filed pursuant to ERISA in connection with each Plan and any other employee benefit plan of it and its Affiliates subject to said Section; (iii) notify Lender as soon as practicable of any Reportable Event and of any additional act or condition arising in connection with any Plan which Borrower believes might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States district court of a trustee to administer the Plan; and (iv) furnish to Lender, promptly upon Lender's request therefor, such additional information concerning any Plan or any other such employee benefit plan as may be reasonably requested. -37- (H) BUSINESS RECORDS. Keep adequate records and books of account with respect to their business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions. (I) VISITS AND INSPECTIONS. Permit representatives of Lender, from time to time as often as may be requested, to visit and inspect the Properties of Borrower, Guarantors or any Carrier, inspect and make extracts from their books and records, and discuss with their officers, their employees and their independent accountants, the business, assets, liabilities, financial condition, business prospects and results of operations. The cost of field examinations of Borrower's and Guarantors' premises shall be paid by Borrower at a rate of Five Hundred Dollars ($500.00) per field examiner per day plus all expenses. The cost of not more than one (1) annual visit to any Carrier's premises shall be paid by Borrower at a rate of Seven Hundred Fifty Dollars ($750.00) per person per day plus all expenses. (J) FINANCIAL STATEMENTS. Cause to be prepared and furnished to Lender the following (all to be kept and prepared in accordance with GAAP applied on a consistent basis, unless Borrower's and/or Guarantors' certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP): (i) as soon as possible, but not later than ninety (90) days after the close of each fiscal year of Borrower, audited financial statements of Borrower and Guarantors, on a consolidated and a consolidating basis as of the end of such year certified, in a manner and with an unqualified report without explanatory paragraphs, by a firm of independent certified public accountants of recognized national standing or otherwise acceptable to Lender. (ii) as soon as possible, but not later than sixty (60) days after the close of each of the first three (3) fiscal quarters of each fiscal year of Borrower, unaudited financial statements of Borrower and Guarantors as of the end of such quarter on a consolidated basis, together with consolidating financial information, all certified by the chief financial officer of Borrower and Guarantors as prepared in accordance with GAAP (with the exception of the omission of footnotes therefrom) and fairly presenting the financial position and the results of operations of Borrower and Guarantors for such month and period; (iii) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower and Guarantors have made -38- available to any Persons and copies of any regular, periodic and special reports which Borrower and Guarantors file with any governmental authority; (iv) no later than the tenth of each month, monthly accounts receivable aging reports prepared (a) by Carrier, (b) by LEC, and (c) by Carrier by LEC; and duplicate copies of all validated federal excise tax deposit receipts; (v) a daily remittance report that breaks out by Approved Carrier and by LEC detailing taxes, billing and collection costs, unapplied cost, the amount of accounts receivable originally transmitted and the application of the amounts received; (vi) as soon as possible but not later than fifteen (15) days after the end of each month, a written report indicating those Billing Contracts which are within forty-five (45) days of expiration; and (vii) such other data and information (financial and otherwise) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral, Borrower's financial condition or results of operations, including, without limitation, weekly ACS reports, weekly accounts receivable file reports, weekly PAR report summaries, monthly flash reports, federal income tax returns of Borrower, accounts payable ledgers, bank statements and any information relating to the payment of excise taxes and payroll taxes. Concurrently with the delivery of the financial statements described in clause (i) of this Section 7.1(J), Borrower and Guarantors shall cause to be prepared and furnish to Lender a certificate of the aforesaid certified public accountants certifying to Lender that, based upon their examination of the financial statements of Borrower and Guarantors performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this Section 7.1(J), Borrower and Guarantors shall cause to be prepared and furnished to Lender a certificate from the chief financial officer of Borrower certifying to Lender that to the best of his knowledge, Borrower and Guarantors have kept, observed, performed and fulfilled each and every covenant, obligation and agreement binding upon Borrower and Guarantors in this Agreement and the other Loan Documents and that no Default or Event of Default has occurred, or, if such Default or Event of Default has occurred, specifying the nature thereof. -39- (K) NOTICES TO LENDER. Notify Lender in writing: (i) promptly after Borrower's or Guarantors' learning thereof, of the commencement of any litigation affecting Borrower or Guarantors or any of their Properties which might lead to a judgment or settlement in excess of One Hundred Thousand Dollars ($100,000.00) and of the institution of any administrative proceeding, which may materially and adversely affect Borrower's or Guarantors' operations, financial condition, Properties or business or Lender's Lien upon any of the Collateral; (ii) at least ten (10) days prior thereto, of Borrower's or Guarantors' opening of any new office or place of business or Borrower's or Guarantors' closing of any existing office or place of business; (iii) promptly after Borrower's or Guarantors' learning thereof, of any material labor dispute to which Borrower or Guarantors may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which either Borrower or Guarantors are a party or by which they are bound; (iv) promptly after Borrower's or Guarantors' learning thereof, of any material default by Borrower or Guarantors under any note, indenture, loan agreement, mortgage, lease, deed, guaranty or other similar agreement relating to any Indebtedness of Borrower or Guarantors; (v) promptly after the occurrence thereof, of any Default or Event of Default; (vi) promptly after the occurrence thereof, of any material default by any obligor under any note or other evidence of Indebtedness payable to Borrower or Guarantors; and (vii) promptly after the rendition thereof, of any judgment rendered against Borrower. (L) SUBORDINATIONS. Provide Lender with a debt subordination agreement executed by Borrower or Guarantors and any Person who is an Affiliate of Borrower or Guarantors to whom Borrower or Guarantors are indebted for Money Borrowed, subordinating in right of payment and claim all of such Indebtedness and any future advances thereon to the full and final payment and performance of the Obligations on terms and conditions acceptable to Lender. (M) NEW BILLING CONTRACTS. With respect to each Billing Contract entered into after the date hereof, provide Lender within thirty (30) days of the date of such new Billing Contract, a copy of such new Billing Contract. (N) FURTHER ASSURANCES. At Lender's request, promptly execute or cause to be executed and deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to perfect or to continue the perfection of Lender's Liens, to facilitate the collection of the Collateral or otherwise to give effect to or carry out the terms or intent of this Agreement or any of the other Loan Documents. -40- 7.2. NEGATIVE COVENANTS. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower and Guarantors covenant that, unless Lender has first consented thereto in writing, neither Borrower nor Guarantors will: (A) MERGERS; CONSOLIDATIONS; ACQUISITIONS. Merge or consolidate with any Person other than National Telephone Exchange, Inc., nor acquire all or any substantial part of the Properties of any Person. (B) LOANS. Make any loans or other advances of money exceeding Five Hundred Thousand Dollars ($500,000.00) in the aggregate (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business) to any Person except for advances by Borrower in connection with the purchase of End User Accounts from Lender Approved Carriers and Borrower Approved Carriers as contemplated by the Carrier Contracts. (C) TOTAL INDEBTEDNESS. Create, incur, assume, or suffer to exist any Indebtedness, except: (i) Obligations owing to Lender; (ii) accounts payable to trade creditors and current operating expenses (other than for Money Borrowed), in each case incurred in the ordinary course of business, (iii) other Permitted Purchase Money Indebtedness, and (iv) that related to the acquisition of National Telephone Exchange, Inc. (D) AFFILIATE TRANSACTIONS. Enter into any transaction with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's or Guarantors' business and upon fair and reasonable terms which are no less favorable to Borrower or Guarantors than Borrower or Guarantors would obtain in a comparable arm's length transaction with a Person not an Affiliate of Borrower or Guarantors. (E) PARTNERSHIPS OR JOINT VENTURES. Become or agree to become a general or limited partner in any general or limited partnership or a joint venturer in any joint venture. (F) ADVERSE TRANSACTIONS. Enter into any transaction which materially and adversely affects or may materially and adversely affect the Collateral or Borrower's or Guarantors' ability to repay the Obligations or permit or agree to any material extension, compromise or settlement or make any material change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, other than discounts, credits and allowances in the ordinary course of business, all of which shall be reflected in the monthly -41- reporting submitted to Lender pursuant to Section 7.1(J) of this Agreement. (G) GUARANTIES. Guarantee, assume, endorse or otherwise, in any way, become directly or contingently liable with respect to the Indebtedness of any Person other than Affiliates (including National Telephone Exchange, Inc. provided that the pending acquisition is consummated) except by endorsement of instruments or items of payment for deposit or collection. (H) LIMITATION ON LIENS. Create or suffer to exist any Lien upon any of the Collateral, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due or being contested as permitted by Section 7.1(A) hereof, but only if such Lien does not materially adversely affect Lender's rights or the priority of Lender's Lien in the Collateral; (iii) Liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons for labor, materials, supplies or rentals incurred in the ordinary course of Borrower's business (but only if the payment thereof is not at the time required); (iv) Liens resulting from deposits made in the ordinary course of business in connection with workmen's compensation, unemployment insurance, social security and other like laws; (v) attachment, judgment and other similar non-tax Liens arising in connection with court proceedings, but only if and for so long as the execution or other enforcement of such Liens is and continues to be effectively stayed and bonded on appeal in a manner satisfactory to Lender for the full amount thereof, the validity and amount of the claims secured thereby are being actively contested in good faith and by appropriate lawful proceedings and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; and (vi) Purchase Money Liens securing Permitted Purchase Money Indebtedness. (I) DISTRIBUTIONS. Declare or make any Distributions. (J) BUSINESS LOCATIONS. Transfer its principal place of business or chief executive office, or maintain records with respect to Accounts, to or at any locations other than those at which the same are presently kept or maintained, as set forth on EXHIBIT 4.4 hereto, except upon at least thirty (30) days prior written notice to Lender and after the delivery to Lender of financing statements, if required by Lender, in form satisfactory to Lender to perfect or continue the perfection of Lender's Lien and security interest hereunder. -42- (K) CHANGE OF BUSINESS. Enter into any new business or make any material change in any of Borrower business objectives, purposes and operations. (L) CHANGE OF COMPUTER SYSTEM. Make any material changes to the computer system which would effect the processing of Accounts, without the prior written consent of Lender. (M) DISPOSITION OF ASSETS. Sell, lease or otherwise dispose of any of the Collateral with a value in excess of Five Thousand Dollars ($5,000.00), including any disposition of the Collateral as part of a sale and leaseback transaction, to or in favor of any Person, or dispositions expressly authorized by this Agreement with respect to sales, assignments, transfers or deliveries of End User Accounts to LEC's pursuant to Billing Contracts. (N) NAME OF BORROWER AND GUARANTORS. Use any name (other than its own) or any fictitious name, tradename, tradestyle or "d/b/a" except for the names disclosed on EXHIBIT 6.1(B) attached hereto and such other names of which Borrower and Guarantors have given Lender fifteen (15) days prior written notice. (O) USE OF LENDER'S NAME. Without the prior written consent of Lender, use the name of Lender or the name of any Affiliates of Lender in connection with any of Borrower's or Guarantors' businesses or activities, except in connection with internal business matters, as required in dealings with governmental agencies and financial institutions and to trade creditors or potential customers of Borrower solely for credit reference purposes. (P) MARGIN SECURITIES. Own, purchase or acquire (or enter into any contract to purchase or acquire) any "margin security" as defined by any regulation of the Federal Reserve Board as now in effect or as the same may hereafter be in effect unless, prior to any such purchase or acquisition or entering into any such contract, Lender shall have received an opinion of counsel satisfactory to Lender to the effect that such purchase or acquisition will not cause this Agreement to violate Regulations G or U or any other regulation of the Federal Reserve Board then in effect. (Q) RESTRICTED INVESTMENT. Make or have any Restricted Investment. (R) FISCAL YEAR. Change its fiscal year or permit any Subsidiary to have a fiscal year different from that of Borrower. -43- (S) STOCK OF SUBSIDIARY, ETC. Sell or otherwise dispose of any shares of capital stock of any Subsidiary. (T) BILLING AND COLLECTION PAYABLES. Permit any amounts owed by Borrower to any LEC for billing and collection Services to remain outstanding for more than thirty (30) days past when such amounts are due. 7.3 LENDER'S COVENANTS. During the term of this Agreement, Lender covenants that it shall: (A) REVIEW OF LOAN REQUESTS. As set forth in Section 2.1(B) hereof and with the understanding that timing is of the essence, use its best efforts to review credit information supplied to Lender by Borrower once such information is complete, in a timely manner in making Lender's determination of the approval of a Carrier or the increase in credit of an Approved Carrier. (B) FUNDING OF LOAN REQUESTS. Fund each Loan Request from Borrower by wire transfer within one (l) Business Day following Lender's receipt of such Loan Request in the amount that Lender deems appropriate, and notify Borrower within such one (l) Business Day of the reasoning for any discrepancy between the amount of the Loan Request and the amount of the wire transfer. (C) REVIEW APPROVED CARRIER LIMITS. Upon request from Borrower, but not more often than on a quarterly basis, review the credit limits, both individually and in the aggregate for Class 1 Approved Carriers. Lender shall review the Borrower's fees and credit limits for Class 2 and Class 3 Approved Carriers upon request by Borrower. Nothing contained in this paragraph 7.3(C) shall obligate Lender to increase the credit limits for any Approved Carriers and the nature, basis, and extent of any review by Lender shall be in Lender's sole determination. SECTION 8. CONDITIONS PRECEDENT Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other Sections of this Agreement, it is understood and agreed that Lender will not make the initial Loan under Section 2 of this Agreement unless and until each of the conditions set forth in Subsection 8.1 below has been and continues to be satisfied, all in form and substance satisfactory to Lender and its counsel and that Lender will not make any subsequent Loans under Section 2 of this Agreement unless and until each of the conditions set forth in Subsection 8.2 has been and continues to be satisfied: -44- 8.1. DOCUMENTATION. Lender shall have received the following documents, each to be in form and substance satisfactory to Lender and its counsel: (A) The Loan Documents duly executed, accepted and acknowledged by or on behalf of Borrower and each of the signatories thereto; (B) Certificate of insurance evidencing Borrower's casualty insurance coverage; (C) Copies of all filing receipts or acknowledgments issued by any governmental authority to evidence any filing or recordation necessary to perfect (i) the Liens of Borrower in the End User Accounts, and (ii) the Liens of Lender in the Collateral, and evidence in a form acceptable to Lender that such Liens constitute valid and perfected security interests and Liens, having the Lien priority specified in Section 4.3(B) hereof; (iii) the assignment of Borrower's Liens in the End User Accounts to Lender; and (iv) the Liens of Lender in the assets of Guarantor. (D) A copy of the Certificate of Incorporation of Borrower and Guarantors, and all amendments thereto, certified by the Secretary of State or other appropriate official of its jurisdiction of formation; (E) Good standing certificates for Borrower and Guarantors, issued by the Secretary of State of Borrower's and Guarantor's jurisdictions of formation; (F) A closing certificate signed by the President and Chief Financial Officer of Borrower and Guarantors dated as of the date hereof, stating that (i) the representations and warranties set forth in Section 8 hereof are true and correct on and as of such date, (ii) Borrower and Guarantors are on such date in compliance with all the terms and provisions set forth in this Agreement and (iii) on such date no Default or Event of Default has occurred or is continuing; (G) The favorable, written opinion of counsel to Borrower and Guarantors, regarding Borrower and Guarantors, the Loan Documents and the transactions contemplated by this Agreement and any of the other Loan Documents, to be in form and content acceptable to Lender and its counsel; (H) Written instructions from Borrower directing the application of proceeds of the initial Loan made pursuant to this Agreement, and an initial Borrowing Base Certificate from Borrower reflecting that Borrower has Eligible LEC Receivables in -45- amounts sufficient in value and amount to support Loans in the amount requested by Borrower on the date of such certificate; (I) Duly executed Escrow and Disbursing Agreement establishing the Dominion Account with a financial institution acceptable to Lender for the collection or servicing of the Accounts; (J) Duly executed copies of each Carrier Contract and the Addendum thereto for each Carrier; (K) Completed OSP Background Forms for each Approved Carrier; (L) Executed Guaranty Agreements from each of the Guarantors for the Revolving Credit Facility and Borrower and U.S. Long Distance Corp. for the Term Loan Facility; (M) Payment of the loan origination fee and term loan facility fee as set forth in Section 3.2; (N) Duly executed Class 1 OSP Certification Forms for each Class 1 Approved Carriers, certifying that all preconditions for borrowing based upon Eligible Accounts from such Class 1 Approved Carrier have been met; (O) Information on the applicable Collateral and Credit Criteria List for each Approved Carrier; and (P) Such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 8.2. OTHER CONDITIONS. The following conditions have been and shall continue to be satisfied, in the sole discretion of Lender: (A) No Default or Event of Default shall exist; (B) Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied; (C) Since March 31, 1991, except for changes which are reflected on the March 31, 1991 financial statements prepared by management and submitted to Lender, there shall not have occurred any material adverse change in the business, financial condition or results of operations of Borrower or Guarantors, or the existence or value of any Collateral, or any event, condition or state of facts which would reasonably be expected materially and -46- adversely to affect the business, financial condition or results of operations of Borrower or Guarantors; and (D) No action, proceeding, criminal investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby or which, in Lender's reasonable judgment, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. SECTION 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 9.1. EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default": (A) PAYMENT OF NOTE. Borrower shall fail to pay any installment of principal owing on the Note due date or shall fail to pay any interest or premium owing on the Note when due. (B) PAYMENT OF OBLIGATIONS. Borrower shall fail to pay any of the Obligations that are not evidenced by the Note within ten (10) days after Borrower's receipt of notice of non-payment thereof from Lender, provided that such Obligation has been presented for payment (whether due at stated maturity, on demand, upon acceleration or otherwise). (C) MISREPRESENTATIONS. Any warranty, representation, or other statement made or furnished to Lender by or on behalf of Borrower or Guarantors or in any instrument, certificate or financial statement furnished in compliance with or in reference to this Agreement or any of the other Loan Documents proves to have been false or misleading in any material respect when made or furnished, unless such warranty, representation or other statement is true or no longer misleading ten (10) days after Lender has provided Borrower with notice thereof. (D) BREACH OF COVENANTS. Borrower or Guarantors shall fail or neglect to perform, keep or observe (i) any covenant contained in Section 5.1 of this Agreement, unless such breach is cured within three (3) days after telephonic notice of such breach from Lender to Borrower, or (ii) any other covenant contained in this Agreement (other than a covenant, a default in the performance or observance of which is dealt with specifically elsewhere in this Section 9.1) and the breach of such other covenant is not cured to Lender's satisfaction within ten (10) days after Borrower's receipt of notice from Lender of a breach of any such covenant in this Agreement. -47- (E) DEFAULT UNDER OTHER AGREEMENTS. Any event of default shall occur under, or Borrower or Guarantors shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the Other Agreements and such default shall continue beyond any applicable period of grace and shall continue ten (10) days after Lender has provided Borrower with notice thereof. (F) DEFAULT UNDER SECURITY DOCUMENTS. Any event of default shall occur under, or Borrower or Guarantors shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the Security Documents and such default shall continue beyond any applicable period of grace and shall continue ten (10) days after Lender has provided Borrower with notice thereof. (G) OTHER DEFAULTS. There shall occur any default or event of default on the part of Borrower or Guarantors which shall continue beyond any applicable period of grace (including specifically, but without limitation, due to non-payment) under any material agreement, document or instrument to which Borrower or Guarantors are a party or by which Borrower or Guarantors or any of their Property is bound, creating or relating to any Indebtedness for Money Borrowed if the payment or maturity of such Indebtedness is accelerated in consequence of such event of default. (H) UNINSURED LOSSES; UNAUTHORIZED DISPOSITIONS. Any material loss, theft, damage or destruction not fully covered by insurance (as required by this Agreement and subject to such deductibles as Lender shall have agreed to in writing), or sale, lease or encumbrance of any of the Collateral, other than the sale of End User Accounts to LEC's pursuant to Billing Contracts, or the making of any levy, seizure, or attachment thereof or thereon except in all cases as may be specifically permitted by other provisions of this Agreement. (I) ADVERSE CHANGES. There shall occur any material adverse change in the financial condition or business prospects of Borrower or Guarantors, which in the reasonable judgment of Lender, threatens Borrower's or Guarantors' ability to perform the Obligations under this Agreement. (J) BANKRUPTCY, ETC. Borrower or Guarantors shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Borrower or Guarantors under the Bankruptcy Code, unless any such involuntary petition is dismissed within thirty (30) days or Borrower or Guarantors shall make any offer of -48- settlement, extension or composition to its unsecured creditors generally. (K) BUSINESS DISRUPTION; CONDEMNATION. There shall occur a cessation of a substantial part of the business of Borrower or Guarantors for a period which significantly affects Borrower's or Guarantors's capacity to continue their businesses, or Borrower or Guarantors shall suffer the loss or revocation of any material license or permit now held or hereafter acquired by Borrower or Guarantors which is necessary to the continued or lawful operation of a substantial part of their businesses; or Borrower or Guarantors shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of their business affairs; or any material lease or agreement pursuant to which Borrower or Guarantors lease, use or occupy any Property material to Borrower's or Guarantors' capacity to continue their businesses shall be canceled or terminated by the other party to such lease or agreement prior to the expiration of its stated term; or any material part of the Collateral shall be taken through condemnation or the value of such Collateral shall be impaired materially through condemnation. (L) ERISA. A Reportable Event shall occur which Lender, in its sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Borrower or Guarantors are in "default" (as defined in Section 4219(c) (5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's or Guarantors' complete or partial withdrawal from such Plan and shall continue ten (10) days after Lender has provided Borrower with notice thereof. (M) LITIGATION. Borrower, Guarantors or any Affiliate shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. 9.2. ACCELERATION OF THE OBLIGATIONS. Without in any way limiting the right of Lender to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.5 hereof, upon and after the occurrence of an Event of Default as above provided, all or any portion of the Obligations due or to become due from Borrower or Guarantors to Lender, whether under this Agreement, or any of the other Loan Documents or otherwise, -49- shall, at the option of Lender and without notice or demand by Lender, become at once due and payable and Borrower and/or Guarantors shall forthwith pay to Lender, in addition to any and all sums and charges due, the entire principal of and interest accrued on the Obligations. 9.3. REMEDIES. Upon and after the occurrence of an Event of Default, Lender shall have and may exercise from time to time the following rights and remedies: (A) All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents. (B) Borrower and Guarantors agree that ten (10) days written notice to Borrower or Guarantors of any public or private sale or other disposition of such Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrower's or Guarantors' premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Lender shall have the right to sell or otherwise dispose of such Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of such Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. (C) Lender is hereby granted a license or other right to use, without charge, Borrower's and Guarantors' labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit. (D) The proceeds realized from the collection or sale of any Collateral may be applied, after allowing two (2) Business Days for collection, first to the reasonable costs, expenses and attorneys' fees and expenses incurred by Lender for collection and for acquisition, completion, protection, removal, storage, sale and delivery of the Collateral; secondly, to interest due upon any of the Obligations; and thirdly, to the principal of the -50- Obligations. If any deficiency shall arise, Borrower and Guarantors shall remain liable to Lender therefor. 9.4. REMEDIES CUMULATIVE; NO WAIVER. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower and Guarantors contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule given to Lender or contained in any other agreement between Lender and Borrower or Lender and Guarantors, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower and Guarantors herein contained. The failure or delay of Lender to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such Liens, rights, powers and remedies, but all such Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower or Guarantors to Lender shall have been fully satisfied, and all Liens, rights, powers, and remedies herein provided for are cumulative and none are exclusive. SECTION 10. MISCELLANEOUS 10.1. POWER OF ATTORNEY. Borrower and Guarantors hereby irrevocably designate, make, constitute and appoint Lender (and all Persons designated by Lender) as such Borrower's and Guarantors' true and lawful attorney (and agent- in-fact) and Lender, or Lender's agent, may, without notice to Borrower or Guarantors and in Borrower's, Guarantors' or Lender's name, but at the cost and expense of Borrower or Guarantors: (A) At such time or times hereafter as Lender or said agent may determine, in its sole discretion, endorse either Borrower's or Guarantors' names on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control; and (B) At such time or times upon or after the occurrence of an Event of Default as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other -51- Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) obtain information pertaining to any portion of the Collateral from a format processing company; (vi) prepare, file and sign Borrower's or Guarantors' name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vii) receive, open and dispose of all mail addressed to Borrower or Guarantors and to notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (viii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (ix) endorse the name of Borrower or Guarantors upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts and any other Collateral; (x) use Borrower's or Guarantors' stationery and sign the name of Borrower or Guarantors' to verifications of the Accounts and notices thereof to Account Debtors; (xi) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts and any other Collateral and to which Borrower or Guarantors have access; (xii) make and adjust claims under policies of insurance; and (xiii) do all other acts and things necessary, in Lender's reasonable determination, to fulfill Borrower's and Guarantors' obligations under this Agreement. 10.2. INDEMNITY. Borrower and Guarantors hereby agree to indemnify Lender and hold Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Lender as the result of Borrower's or Guarantors' failure to observe, perform or discharge Borrower's or Guarantors' duties hereunder except to the extent such failure is the result of Borrower or Guarantors following Lender's instructions or the result of Lender's gross negligence or willful misconduct. Without limiting the generality of the foregoing, this indemnity shall extend to any claims asserted against Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or Guarantors' failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances or the failure of the Property to be in compliance therewith. The obligation of Borrower or Guarantors under this Section 12.2 shall survive the payment in full of the Obligations and the termination of this Agreement. -52- 10.3. MODIFICATION OF AGREEMENT; SALE OF INTEREST. This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower, Guarantors and Lender. Borrower and Guarantors may not sell, assign or transfer any interest in this Agreement or any of the other Loan Documents, or any portion thereof, including, without limitation, Borrower's or Guarantors' rights, title, interests, remedies, powers, and duties hereunder or thereunder; provided, however, that Borrower and Guarantors hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender's rights, title, interests, remedies, powers, and duties hereunder or thereunder. 10.4. REIMBURSEMENT OF EXPENSES. If, at any time or times prior or subsequent to the date hereof, Lender employs outside counsel for advice or other representation, or incurs reasonable legal expenses or other costs or out- of-pocket expenses in connection with: (A) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents; or (B) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (C) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower, Guarantors or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's or Guarantors' affairs; (D) any attempt to enforce any rights of Lender against Borrower or Guarantors or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (E) any attempt to verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then, in any such event, the reasonable attorneys' fees arising from such services and all expenses, costs, charges and other fees of such counsel, or of Lender or relating to any of the events or actions described in this Section 10.4 shall be payable, on demand, by Borrower or Guarantors to Lender and shall be additional Obligations here-under secured by the Collateral. Without limiting the generality of the foregoing, such expenses, costs, charges and fees referred to in this Section 10.4 may include court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such outside legal services. Additionally, if any taxes (excluding taxes imposed upon or measured by the net income of Lender) shall be payable on account -53- of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the Loan Documents, or the creation of any of the Obligations hereunder, by reason of any existing or hereafter enacted federal or state statute, Borrower will pay all such taxes, including, but not limited to, any interest and penalties thereon, and will indemnify and hold Lender harmless from and against liability in connection therewith. 10.5. INDULGENCES NOT WAIVERS. Lender's failure, at any time or times hereafter, to require strict performance by Borrower or Guarantors of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Lender of an Event of Default by Borrower or Guarantors under this Agreement or any of the other Loan Documents shall not suspend, waive or affect any other Event of Default by Borrower or Guarantors under this Agreement or any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower or Guarantors contained in this Agreement or any of the other Loan Documents and no Event of Default by Borrower or Guarantors under this Agreement or any of the other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower or Guarantors. 10.6. SEVERABILITY. Wherever 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 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. 10.7. SUCCESSORS AND ASSIGNS. This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Lender. This provision, however, shall not be deemed to modify Section 10.3 hereof. 10.8. CUMULATIVE EFFECT; CONFLICT OF TERMS. The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.4 of this Agreement and except as otherwise provided in any of the other Loan Documents by specific -54- reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 10.9. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 10.10. NOTICES. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto to be effective shall be in writing (and, if sent by mail, shall be sent by certified or registered mail, return receipt requested) or by telegraph, telex or telecopier and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered when delivered against receipt or three (3) Business Day after deposit in the mail, postage prepaid, or, in the case of telegraphic notice, when delivered to the telegraph company, or, in the case of telex notice, when sent, answerback received, or in the case of telecopied notice, when sent addressed as follows: (A) If to Lender: Bell Atlantic Tricon Leasing Corporation 1060 First Avenue King of Prussia, PA 19406 Attention: CYRUS J. KEEFER, SENIOR VICE PRESIDENT and -55- Bell Atlantic TriCon Leasing Corporation Asset Based Lending Headway Complex Prudential Building I, Suite 105 4500 North State Road 7 Fort Lauderdale, FL 33319 Attention: JEFFREY WEISS With a copy to: Bell Atlantic TriCon Leasing Corporation 95 N. Route 17 South Paramus, NJ 07653 Attention: JOSEPH D'AMORE, ESQUIRE and a copy to: Blank, Rome, Comisky & McCauley 1200 Four Penn Center Philadelphia, PA 19103 Attention: LAWRENCE F. FLICK, II, ESQUIRE (B) If To Borrower or Guarantors: Zero Plus Dialing Inc. 9311 San Pedro, Suite 300 San Antonio, TX 78216 Attention: Kelly Simmons, Vice President and U.S. Long Distance Corp. 9311 San Pedro, Suite 300 San Antonio, TX 78216 Attention: Mark D. Buckner, Vice President, Finance Audie Long, Esquire or to such other address as each party may designate for itself by like notice given in accordance with this Section 10.10; PROVIDED, HOWEVER, that any notice, request or demand to or upon Lender pursuant to Sections 2.2 or 3.5 shall not be effective until received by Lender. 10.11. LENDER'S CONSENT. Whenever Lender's consent is required to be obtained under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any -56- action, inaction, condition or event, Lender shall not unreasonably withhold such consent, provided that Lender shall be authorized to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter to the extent not completely unreasonable. 10.12 REGULATED ACTIVITIES OF LENDER. All of Lender's activities in connection with the Revolving Credit Facility and the Loan Documents executed in connection therewith shall be undertaken in full compliance with the Modification of Final Judgment in U.S. V. AT&T, ET AL, and in compliance with all applicable state and federal regulations to which Lender is bound. Borrower and Guarantors acknowledge that certain affiliates of Lender may from time to time provide services in competition with those provided by Borrower or Guarantors and that such affiliates may from time to time engage in business practices which could have an adverse affect on Borrower or Guarantors and its business operations. 10.13. TIME OF ESSENCE. Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 10.14. ENTIRE AGREEMENT. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. 10.15 CONSENT TO ADVERTISING AND PUBLICITY. Lender may issue and disseminate to the public information describing the credit accommodations entered into pursuant to this Loan and Security Agreement. 10.16. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN PHILADELPHIA, PENNSYLVANIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN PENNSYLVANIA, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF PENNSYLVANIA. AS PART OF THE CONSIDERATION FOR NEW VALUE THIS DAY RECEIVED, BORROWER AND GUARANTORS HEREBY CONSENT -57- TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN PHILADELPHIA COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED IN SECTION 12.10 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH BORROWER JOINTLY AND SEVERALLY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. 10.17. WAIVERS BY BORROWER AND GUARANTORS. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT, BORROWER AND GUARANTORS WAIVE (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER OR GUARANTORS MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES, INCLUDING THE ISSUANCE OF AN IMMEDIATE WRIT OF POSSESSION; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; AND (v) ANY RIGHT BORROWER OR GUARANTORS MAY HAVE UPON PAYMENT IN FULL OF THE OBLIGATIONS TO REQUIRE LENDER TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER PROPERTY OF BORROWER OR GUARANTORS UNTIL TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY PERSON WHOSE LOANS TO BORROWER IS USED IN WHOLE OR IN PART TO SATISFY THE OBLIGATIONS, OF AN AGREEMENT INDEMNIFYING LENDER FROM ANY LOSS OR DAMAGE LENDER MAY INCUR AS THE RESULT OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY LENDER FROM BORROWER OR ANY LEC AND APPLIED TO THE OBLIGATIONS. 10.18 SECTION TITLES. The section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. -58- IN WITNESS WHEREOF, this Agreement has been duly executed in Philadelphia, Pennsylvania, on the day and year specified at the beginning hereof. ZERO PLUS DIALING INC., a Delaware corporation ("Borrower") [CORPORATE SEAL] Attest: MARK D. BUCKNER By: /s/ KELLY SIMMONS --------------------- ---------------------------- Kelly Simmons Vice President U.S. LONG DISTANCE, INC. Attest: By: /s/ MARK D. BUCKNER --------------------- ---------------------------- Mark D. Buckner Vice President, Finance U.S. LONG DISTANCE CORP. Attest: By: /s/ MARK D. BUCKNER --------------------- ---------------------------- Mark D. Buckner Vice President, Finance BELL ATLANTIC TRICON LEASING CORPORATION ("Lender") -59- 12. TERMINATION. This Agreement may be terminated only upon thirty (30) days written notice by either ZPDI or the Carrier. Termination by Carrier does not terminate the Carrier Contract. At ZPDI's discretion, its termination of this Agreement may terminate the Carrier Contract. IN WITNESS THEREOF, Carrier has executed this Addendum as the date and year first above written. ACKNOWLEDGED, ACCEPTED AND APPROVED: CARRIER: BY: DATE: ------------------------ ------------------------- ------------------------ ------------------------- (Printed or Typed Name) TITLE ACKNOWLEDGED, ACCEPTED AND APPROVED: ZERO PLUS DIALING, INC. BY: DATE: ------------------------ ------------------------- Alan W. Saltzman Senior Vice President REVOLVING CREDIT NOTE May __, 1991 FOR VALUE RECEIVED, the undersigned, ZERO PLUS DIALING, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of BELL ATLANTIC-TRICON LEASING CORPORATION, a Delaware corporation ("Lender"), the principal sum of the Credit Line, as such amount is set forth in the Agreement (as hereinafter defined) or such amount as shall equal the aggregate unpaid principal amount thereunder, three (3) years from the date hereof or, if applicable under the Agreement, on the expiration date of any Renewal Term, in lawful money of the United States of America and in immediately available funds, together with interest from the date hereof at a rate per annum equal to one and one eighth percent (1 1/8%) above the Base Rate (the "Contract Rate") In no event shall the amount of interest paid or agreed to be paid to Lender hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. Interest hereunder shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days). Interest may be charged to Borrower's Loan Account as provided in the Agreement. If any installment of interest is not paid in full on the due date thereof (whether by maturity or acceleration), or any other Event of Default occurs under the Agreement, then, apart from Lender's rights of acceleration or other rights set forth in the Agreement, the outstanding principal balance of this Note shall bear additional interest from the due date of such installment, or from and after such Event of Default, at the rate of six percent (6%) per annum above the Base Rate (the "Default Rate") until such late payment or Event of Default is cured, if applicable. To the extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity and notice of protest. This Note is the Revolving Credit Note referred to in the Amended and Restated Loan and Security Agreement dated as of the date hereof (the "Agreement"), between Borrower and Lender, and evidences the Revolving Credit Loans made by Lender under the Credit Line thereunder. All of the terms, covenants and conditions of the Agreement, as such Agreement may from time to time be amended (including all exhibits and schedules thereto) and all other instruments evidencing and/or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. Any capitalized terms not otherwise defined herein shall have the meaning as set forth in the Agreement. BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST BORROWER BY LENDER BEFORE JUDGMENT CAN BE ENTERED HEREBY WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO JUDGMENT BEING ENTERED BY CONFESSION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. LENDER MAY EMPLOY SELF HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY OF THE COLLATERAL GRANTED IN CONNECTION HEREWITH WITHOUT FIRST OBTAINING FINAL JUDGMENT OR WITHOUT FIRST GIVING NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. Borrower hereby authorizes irrevocably, the Prothonotary, Clerk of the Court, or any Attorney of any Court of Record to appear for it in such court, at any time after an Event of Default under the Agreement, and confess judgment against Borrower, with or without declaration in favor of the holder of the within Note, for all amounts as may be unpaid hereon, together with interest, costs, and a reasonable attorneys' collection fee, and waives and releases all errors and consents to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof. The authority herein granted to confess judgment shall not be exhausted by one exercise thereof, but shall continue from time to time and at all times until full payment of all liabilities hereunder. Notwithstanding the acceleration of this Note or the entry of judgment (whether by confession or otherwise), the liabilities of Borrower under this Note shall bear interest at the Contract Rate, or if applicable, at the Default Rate. All terms as used herein, unless otherwise specifically defined herein, shall have the meanings ascribed to them in the Agreement. This Note shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. [CORPORATE SEAL] ZERO PLUS DIALING, INC., a Delaware corporation Attest:_______________________________ By:_______________________________ Title: Title: -2- EXHIBIT 2.2(A) [Form Disbursing Letter) Pursuant to the Amended &nd restated Loan and Security Agreement between Zero Plus Dialing, Inc. ("Borrower"), and Bell Atlantic Tricon Leasing Corporation ("Lender"), dated May __, 1991, Borrower hereby requests $_______________ for the following Approved Carriers: CLASS 3 APPROVED CARRIERS AMOUNT APC American Public Communications $_____________ CTC Call Technology Corporation _____________ [OSP] (Class 3 Approved Carrier] _____________ [OSP) [Class 3 Approved Carrier] _____________ Total Class 3 $_____________ CLASS 2 APPROVED CARRIERS COB Correctional Communications _____________ CPS CPS Operator Services _____________ FOA Fone America Inc. _____________ FOC Pone America Central _____________ IP International Pacific _____________ LDN Long Distance Network _____________ [OSP] [Class 2 Approved Carrier) _____________ [OSP] (Class 2 Approved Carrier) _____________ [OSP] [Class 2 Approved Carrier) _____________ Total Class 2 $_____________ CLASS 1 APPROVED CARRIERS [OSP] (Class 1 Approved Carrier] $_____________ [OSP) [Class 1 Approved Carrier) _____________ [OSP] [Class 1 Approved Carrier) _____________ Total Class 1 $_____________ Total Request for Borrowing $_____________ _____________ ________________________________ Title: [Chief Executive Officer/ Chief Financial Officer/ executive Vice President) of the Borrower EXHIBIT 2.2(B) [Form OSP Wire Confirmation Letter] Reference is made to the Amended and Restated Loan and Security Agreement dated as of May __, 1991 (as modified and supplemented and in effect from time to time, the "Loan and Security Agreement") among Zero Plus Dialing Inc. ("Borrower"); U.S. Long Distance Corp. and U.S. Long Distance Inc. (collectively referred to as "Guarantors") and Bell Atlantic-Tricon Leasing Corporation ("Lender"). Terms defined in the Loan and Security Agreement are used herein as defined therein. Pursuant to Section 2.2(B) of the Loan and Security Agreement, the undersigned, the [Chief Executive Officer/Chief Financial Officer/Executive Vice President/or his designee], of the Borrower hereby certifies that Borrower has caused the wire transfer of funds in the amounts listed below to the Approved Carriers listed below, on the date of the receipt of funds by Borrower pursuant to Borrower's Disbursing Letter of even date, as further evidenced by [bank copy of debit advice, or other documentation as may be acceptable to Lender] attached hereto. 1. [OSP] [APPROVED CARRIER] [AMOUNT] 2. [OSP] [APPROVED CARRIER] [AMOUNT] 3. 4. ________ TOTAL [AMOUNT] ________ ________ Borrower acknowledges that wire transfers to Approved Carriers in the amount of $_________, representing the difference between the Borrower's Disbursing Letter dated ______[the date of the last advance to borrower] and the total amount as stated herein, will be subject to a reserve by Lender. IN WITNESS WHEREOF, the undersigned has caused this letter to be duly executed as of the ____ day of __________, 199_. ________________________________ Title: [Chief Executive Officer/ Chief Financial Officer/ Executive Vice President] of the Borrower EXHIBIT 2.3(A) TERM NOTE $__________ May __, 1991 FOR VALUE RECEIVED, the undersigned, ZERO PLUS DIALING, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of BELL ATLANTIC TRICON LEASING CORPORATION, a Delaware corporation ("Lender"), the principal sum of ____________________ ($____________) in lawful money of the United States of America and in immediately available funds, together with interest from the date hereof at a rate per annum equal to one and three quarters percent (1 3/4%) above the base rate for corporate loans at large United States money center banks as quoted in the Wall Street Journal under the caption "Prime Rate" in the section entitled "Money Rates" as such rate may change from time to time (the "Contract Rate") payable in _______________ (__) consecutive monthly installments of principal in the amount of ____________ ($__________) plus interest, commencing ____________ __, 1991 and on the first day of each subsequent month. The remaining principal balance and all accrued and unpaid interest due thereon shall be paid on __________________. In no event shall the amount of interest paid or agreed to be paid to Lender hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. Interest hereunder shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days) and shall be payable in arrears for the preceding one month period. If any installment of principal or interest is not paid in full on the due date thereof (whether by maturity or acceleration), or any other Event of Default occurs under the Agreement as herein defined, then, apart from Lender's rights of acceleration or other rights set forth in the Agreement, the outstanding principal balance of this Term Note shall bear additional interest from the due date of such installment, or from and after such Event of Default, at the rate of six percent (6.00%) per annum above the Contract Rate (the "Default Rate") until such late payment or Event of Default is cured, if applicable. To the extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, notice of acceleration, notice of interest to accelerate and notice of presentment. This Term Note is the Term Note referred to in the Amended and Restated Loan and Security Agreement dated as of May , 1991 (the "Agreement"), between Borrower and Lender, and evidences a Term Loan made by Lender to Borrower thereunder. All of the terms, covenants and conditions of the Agreement, as such Agreement may from time to time be amended (including all exhibits and schedules thereto) and all other instruments evidencing and/or securing the indebtedness hereunder are hereby made a part of this Term Note and are deemed incorporated herein in full. BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST BORROWER BY LENDER BEFORE JUDGMENT CAN BE ENTERED HEREBY WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO JUDGMENT BEING ENTERED BY CONFESSION. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, LENDER MAY EMPLOY SELF HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY OF THE COLLATERAL GRANTED IN CONNECTION HEREWITH WITHOUT FIRST OBTAINING FINAL JUDGMENT OR WITHOUT FIRST GIVING NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. Borrower hereby authorizes irrevocably, the Prothonotary, Clerk of the Court, or any Attorney of any Court of Record to appear for it in such court, at any time after an Event of Default under the Agreement, and confess judgment against Borrower, with or without declaration in favor of the holder of the within Term Note, for all amounts as may be unpaid hereon, together with interest, costs, and a reasonable attorneys' collection fee, and waives and releases all errors and consents to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof. The authority herein granted to confess judgment shall not be exhausted by one exercise thereof, but shall continue from time to time and at all times until full payment of all liabilities hereunder. Notwithstanding the acceleration of this Term Note or the entry of judgment (whether by confession or otherwise), the liabilities of Borrower under this Term Note shall bear interest at the Contract Rate, or if applicable, at the Default Rate. All terms as used herein, unless otherwise specifically defined herein, shall have the meanings ascribed to them in the Agreement. This Term Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Pennsylvania. -2- Borrower hereby consents to the jurisdiction of the state and federal courts located in Philadelphia County of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. ZERO PLUS DIALING, INC. By:_____________________________ -3- EXHIBIT 2.3(B) ACKNOWLEDGEMENT AND ACCEPTANCE CERTIFICATE Bell Atlantic TriCon Leasing Corporation 1060 First Avenue, Suite 200 King of Prussia, PA 19406 The undersigned hereby certifies that we have, as of the date hereof, received from Zero Plus Dialing, Inc. ("ZPDI") one Xeta XACT telephone call accounting computer (the "Equipment") and have inspected the Equipment and found the same to be in good operating condition and, by execution and delivery of this Certificate, hereby unconditionally accept the Equipment as installed. In consideration of your providing financing to ZPDI for the Equipment, and intending to be legally bound, we acknowledge your security interest in the Equipment and acknowledge that we are holding such Equipment as your bailee. We acknowledge that the 0+ or 0- Services Agreement between us and ZPDI is in full force and effect. We further agree to send you a copy of any written notice to terminate such agreement which we send to ZPDI. If we terminate the agreement either at the end of the first eighteen (18) month period or after an event of default by ZPDI, which is not cured within the ten (10) day grace period provided in the agreement, and elect to retain the Equipment, we agree to assume ZPDI's obligation to make the monthly payments to you. We acknowledge that the Equipment shall at all times remain the property of ZPDI and that we shall have no interest in such property until such time as ZPDI's obligations and liabilities to you have been paid in full. In the event that ZPDI defaults on its agreement with you, we agree to provide you with access to the Equipment upon reasonable notice. ___________________________ By:________________________ EXHIBIT 4.5 BUSINESS/COLLATERAL LOCATIONS (1) Borrower and Guarantors currently have the following business locations, and no others: 9311 San Pedro, Suite 300 San Antonio, Texas 78216 (2) Borrower and Guarantors maintain its books and records relating to LEC Receivables and General Intangibles at: 9311 San Pedro, Suite 300 San Antonio, Texas 78216 (3) During the preceding seven-year period, Borrower and Guarantors have had no office, place of business or agent for process located in any county other than as set forth above, except: None. EXHIBIT 5.4(C) (Form Payment Letter) Date of Payment ____,19__ Prior Day Balance in Dominion Account # 99761-00 $_________ Plus Current Day transfer from Clearing Account $_________ Total Cash Balance $___________ Less: Unreconciled Receipts $(_________) Less: Disputed Amounts $(_________) Total Cash Available to Transfer $___________ Transfer to BATCL: Revolving Loan Payments $__________ Interest $__________ Fees $__________ other $__________ Less: Uncleared Funds (l) $(_________) Total to Bell Atlantic $___________ Transfer to: MELLON BANK WEST PITTSBURGH, PA. ABA # 043000261 Bell Atlantic Financial Service Ref: Tricon Distribution Sales Finance Account # 198-1584 Transfer to Zero Plus Dialing, Inc.: ZPDI Funds $__________ Plus: Prior Day Transfer to BATCL (1) $__________ Total to ZPDI $___________ NCNB TEXAS NATIONAL SAN ANTONIO BANKING CENTER ABA # 111000025 FCT ZPDI ACCoUNT # 7114645438 Total Transfers $___________ Cash Remaining in Dominion Account $___________ ___________ APPROVED: __________________________________ ___________________________________ Bell Atlantic Tricon Leasing Corp. Zero Plus Dialing, Inc. (1) Funds to be transferred to BATCL from ZPDI Operating Account EXHIBIT 6.1(A) JURISDICTIONS QUALIFIED The following are states where Zero Plus Dialing, Inc. is duly qualified to do business and is in good standing as a foreign corporation. Alabama Missouri Arizona Montana Arkansas Nebraska California Nevada Canada New Hampshire Alberta Manitoba New Jersey New Brunswick Newfoundland New Mexico Nova Scotia Ontario New York Saskatchewan Prince Edward Island North Carolina Yukon Territories North Dakota Colorado Ohio Connecticut Oklahoma Florida Oregon Georgia Pennsylvania Idaho Rhode Island Illinois South Carolina Indiana Tennessee Iowa Texas Kansas Utah Kentucky Vermont Louisiana Virginia Maryland Washington Massachusetts Washington, D.C. Michigan West Virginia Minnesota Wyoming Mississippi -57- EXHIBIT 6.1(B) CORPORATE TRADE NAMES; MERGERS (1) Borrower's correct corporate name, as registered with the Secretary of State of the State of DELAWARE is: Zero Plus Dialing, Inc. (2) During the preceding seven-year period, Borrower has used the following names: Zero Plus Dialing, Inc. EXHIBIT 6.1(H) GENERAL INTANGIBLES, PATENTS, TRADEMARKS (1) Borrower and Guarantors have no patents [, except]. None. (2) Borrower and Guarantors have no trademarks [, except]. ZPDI filed a trademark application with the U.S. Patent & Trademark Office, (Serial No. 74/014331), on December 26, 1989 registering the "ZPDI" insignia (3) Borrower and Guarantors have no copyrights [, except]. None. (4) Borrower and Guarantors have no licenses, other than routine business licenses, authorizing them to transact business in local jurisdictions [and the following:]. None. EXHIBIT 6.1(I) CORPORATE STRUCTURE; SUBSIDIARIES; SECURITIES (1) The number of authorized shares of common stock of Borrower and U.S. Long Distance, Inc. is 1,000. The number of issued shares of common stock of Borrower and Guarantors is 1,000. Borrower has no treasury stock. (2) All of the issued shares of Borrower and Guarantors are fully paid and non-assessable and are owned by the following Persons: Mega Plus Dialing, Inc. a wholly owned subsidiary of U.S. Long Distance Corp. (3) Borrower and Guarantors have no Subsidiaries [, except the following:] None. (4) The number of authorized shares of common stock of U.S. Long Distance, Inc. is 50,000. The number of authorized shares of common stock of U.S. Long Distance Corp. is 6,786,771 and has 95,000 treasury stock. EXHIBIT 6.1(J) RESTRICTIVE AGREEMENTS NONE EXHIBIT 6.1 (K) LITIGATION (1) There are no proceedings pending against Borrower or Guarantors in any court, except as follows: Zero Plus Dialing, Inc. is not a party to any suits, actions, proceedings or investigations, pending or threatened other than those regulatory matters arising in the ordinary course of business. (2) The only threatened litigation of which Borrower or Guarantors are aware is as follows: Zero Plus Dialing, Inc. is not a party to any suits, actions, proceedings or investigations, pending or threatened other than those regulatory matters arising in the ordinary course of business. EXHIBIT 6.1(P) TAXES NOT APPLICABLE EXHIBIT 6.1(O) LABOR CONTRACTS Borrower and Guarantors have no agreements with any organization of its employees [, except the following:] NONE EXHIBIT 6.1(S) SURETY OBLIGATIONS NONE EXHIBIT 6.1(T) NO DEFAULTS EXHIBIT 6.1(V) BUSINESS LOCATIONS NONE EXHIBIT 6.1(W) TRADE RELATIONS NONE EXHIBIT 6.1(X) CAPITALIZED AND OPERATING LEASES 1. Borrower and Guarantors have the following capitalized leases: 2. Borrower and Guarantors have the following operating leases: ATTACHED SUMMARY OF LEASES AS OF MAY 15, 1991 CAPITAL LEASE; TOTAL MONTHLY EXPIRATION - - ------------- LEASE PAYMENT DATE ----- ------- ---------- Hewlett-Packard Company: Equipment and software $347,358 11,619 2/92 Equipment 66,238 2,438 4/92 Computer upgrade 267,715 9,019 12/92 Equipment 58,455 1,955 7/92 Hardware 233,617 7,982 9/93 Hardware 71,558 2,393 12/93 OPERATING LEASES - - ----------------- Aloha Leasing - Konica copier 332 Stearns County National - Konica copier 442 Lease America - Copier 216 Beckwith Electronics - Music system 75 Pitney Bowes - Postage scale 285 Pitney Bowes - Postage meter 146 TNL Financial - Toshiba copier 491 Contel Office Comm. - Telcom equipment 81 GMAC - Vehicle 822 Wilson Business Products - Furniture 2,156 Marshall Clegg - Furniture 595 Cort Furniture - Apartment Furniture 239 Cort Furniture - Office Furniture 2,984 Nowlin Building - Office lease 30,760 HBH Properties - Customer service office 4,352 Hewlett Packard Company - Hardware 626 ------- $79,848 ------- ------- EXHIBIT 6.1(Y) BILLING CONTRACTS ATTACHED EXHIBIT "A" BILLING TELEPHONE COMPANIES ( 1) Pacific Bell ( 2) Nevada Bell ( 3) Pacific Northwest Bell Co. ( 4) Mountain Bell Telephone & Telegraph ( 5) Northwestern Bell Telephone Co. ( 6) Illinois Bell Telephone Co. ( 7) Michigan Bell Telephone Co. ( 8) Ohio Bell Telephone ( 9) New York Telephone (10) New Jersey Bell Telephone Co. (11) Diamond State Telephone Co. (12) Bell of Pennsylvania (13) Chesapeake & Potomac Telephone Co. of Washington, D.C. (14) Cincinnati Bell Telephone (15) Southern New England Bell (16) Chesapeake & Potomac Telephone Co. of Maryland (17) Chesapeake & Potomac Telephone Co. of Virginia (18) Chesapeake & Potomac Telephone Co. of West Virginia (19) Malheur Home Telephone Co. (20) New England Telephone (21) Southwestern Bell (22) South Central Bell (23) Southern Bell (24) Indiana Bell Telephone (25) Wisconsin Bell (26) GTE - Florida (27) GTE - Northwest (28) GTE - Southwest (29) GTE - South (30) GTE - North (Formally Midwest) (31) GTE - California (32) GTE - Hawaii (33) Centel (34) U.S. Intelco (35) NECA Services (36) Alltel (37) United Companies (38) Telecom Canada (39) United Telephone System Company of Pennsylvania (40) United Telephone System Company of New Jersey (41) Contel West (42) Contel Central (43) Contel East NOTE: NPA-NXX list of above BTC's will be furnished to Carrier. Format and media, i.e., tape, paper or floppy, to be mutually agreed by both parties. EXHIBIT 6.1(Z) LIST OF CARRIERS AND CREDIT LIMITS CLASS 3 APPROVED CARRIERS CREDIT LIMIT American Public Communications $4,000,000.00 American Telecommunications 3,000,000.00 Conquest Operator Services 700,000.00 Call Technology Corporation 1,000,000.00 Operator Services West 800,000.00 CLASS 2 APPROVED CARRIERS Advanced Communication Technology 400,000.00 Comtel Computer Corp. 750,000.00 Correctional Communications 50,000.00 CPS Operator Services 75,000.00 Equicom Communications 500,000.00 Eastern Telecom Company 400,000.00 Fone America Inc. / Fone America Central 2,500,000.00 Gateway Technologies 200,000.00 Hedges & Associates, Inc. 100,000.00 International Pacific 500,000.00 Long Distance Network 1,000,000.00 Long Distance Operators 75,000.00 L. D. Communications 300,000.00 Mid-Atlantic Telecom 500,000.00 National Technical Associates 1,800,000.00 National Tele-Sav Inc. 500,000.00 Operator Services Company 800,000.00 Phonetel Technologies 400,000.00 Telescan, Inc. 200,000.00 Quest Communications 700,000.00 Southnet Corporation 500,000.00 U.S. Long Distance Inc. 3,000,000.00 EXHIBIT 8.1(I) ESCROW AND DISBURSING AGREEMENT This Agreement is made this the day of May, 1991 by and between Zero Plus Dialing, Inc., a Delaware corporation ("ZPDI"), Bell Atlantic-Tricon Leasing Corporation, a Delaware corporation ("BATCL") and Texas Commerce Bank National Association's Custody Group ("Escrow Agent"). WHEREAS, ZPDI has entered into various Billing and Collection Agreements with certain Billing Telephone Companies (the "BTCs"), as set forth on Exhibit A attached hereto, whereby the BTCs provide interstate and intrastate billing and collection services for ZPDI and its customers; and WHEREAS, ZPDI has previously entered into Billing and Collection Services Agreements with certain customers of ZPDI who provide telephone operator services to various end-users (the "Carriers"), pursuant to which ZPDI has agreed, among other things, to prepare and submit to the BTCs certain System Billed Telephone Traffic which the BTCs have agreed to purchase (the "Accounts Receivable"); and WHEREAS, ZPDI and the Carriers have entered into a certain Addendum to the Billing and Collection Services Agreement (as amended, (the "Carrier Contracts") Exhibit B attached hereto, pursuant to which ZPDI will purchase the Accounts Receivable from the Carriers on the terms and conditions set forth therein; and WHEREAS, BATCL is in the business of providing financing, including the financing of accounts receivable; and WHEREAS, ZPDI has requested BATCL to continue to finance its acquisition of the Accounts Receivable pursuant to the terms of a certain Amended and Restated Loan and Security Agreement dated the date hereof between ZPDI and BATCL (the "Loan Agreement") Exhibit C attached hereto; and WHEREAS, pursuant to the terms of the Loan Agreement, BATCL has required that ZPDI establish a Dominion Account (as defined in the Loan Agreement) into which all collections and proceeds of the sale of the Accounts Receivable to the BTCs (the "ZPDI Accounts") shall be deposited; and WHEREAS, ZPDI has an existing lock box with Escrow Agent, Account Number 200809, wherein the BTCs forwarded the Accounts Receivable made payable to ZPDI c/o the Lock Box Account, which Accounts Receivable are subsequently deposited to an account (the "Clearing Account"), Account Number 00101752013, where Escrow Agent is the sole authorized signatory on such account which reads: Bell Atlantic TriCon Leasing Corporation for the benefit of Zero Plus Dialing, Inc., Clearing Account, which account is located at Escrow Agent's branch office at 600 Travis Street in Houston, Texas; and -2- WHEREAS, BATCL and ZPDI have agreed that all amounts in the Clearing Account shall continue to be deposited, on a daily basis into the Dominion Account. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to induce BATCL to continue finance the ZPDI Accounts and Escrow Agent to perform its functions hereunder, ZPDI, BATCL and Escrow Agent, each intending to be legally bound, agree as follows: 1. The Escrow Agent shall continue to deposit proceeds from the Lock Box Account directly into the Clearing Account. 2. Pursuant to the automatic standing transfer form already in affect, the Cash Management Department of Escrow Agent shall continue to transfer the collected balance in the Clearing Account, at the start of each Business Day, to Escrow Agent's Custody Group ("EACG") for deposit directly into the Dominion Account. The Cash Management Department of Escrow Agent will provide ZPDI with deposit information through its TEXCOM system which will allow ZPDI to reconcile the account daily. The charges for the services of the Escrow Agent are detailed in Exhibit D attached hereto and will be paid by ZPDI. -3- 3. Upon receipt by EACG of a disbursement form, in the form of Exhibit E, attached hereto (the "Disbursement Authorization") which Disbursement Authorization is fully executed by an authorized representative of BATCL and ZPDI, EACG agrees to immediately disburse the collected funds in the Dominion Account, in accordance with the instructions therein. The Disbursement Authorization(s) will be transmitted by telefax to EACG no later than 12:00 p.m. on any business day, for wire transfer that same day. 4. Upon written notice from Lender to the EACG certifying that at least five (5) days have passed since Lender has given Borrower notice that Lender believes that a portion of the proceeds in the Dominion Account represent the proceeds of Lender's Collateral in excess of that previously shown on any Disbursement Authorization (the "Disputed Amount"), the EACG shall immediately make disbursements from the Dominion Account to Lender, in the amount represented by Lender to be the Disputed Amount, in accordance with a Disbursement Authorization executed solely by Lender. In addition, upon written notice from Lender to EACG that an Event of Default has occurred under the Loan Agreement, the EACG shall make all disbursements from the Dominion Account in accordance with a Disbursement Authorization executed solely by Lender, until further notice by Lender that such default has been cured. -4- 5. A. ZPDI represents, warrants, covenants and agrees that: (1) It is a corporation presently in good standing in the state of Delaware and has proper authority to transact business and is registered as a foreign corporation in the state of Texas; (2) It has Billing and Collection Agreements with the BTCs listed on Exhibit A, attached hereto and made a part hereof; (3) ZPDI is the sole and absolute owner of each ZPDI Account, subject only to BATCL's security interest therein; (4) There is no defense, offset or counterclaim against any of the Accounts Receivable or the ZPDI Accounts, and no agreement has been made under which ZPDI or any Carrier may claim any deductions or discounts, except for ZPDI's collection and service fees and charges pursuant to the terms of the Carriers' Contracts, and the BTCs' charges. (5) No BTC will dispute or refuse to pay more than ten percent (10%) of the aggregate Accounts Receivable presented for collection. -5- 6. ZPDI hereby agrees to indemnify Escrow Agent for any losses that Escrow Agent may suffer as a result of ZPDI's breach of any of its warranties or covenants, representations or agreements hereunder. 7. AGENTS DUTIES A. All parties understand and agree that Escrow Agent is not a principal, participant, or beneficiary of the financing transaction underlying this Agreement. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in acting or refraining from acting on any instrument believed by it to be genuine and to have been signed or presented by the proper party or parties, their officers, representatives or agents. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized hereby, nor for action taken or omitted by it in accordance with the advice of its counsel. Escrow Agent shall be responsible for holding and disbursing the funds on deposit in the Dominion Account (the "Escrowed Assets") pursuant to the Agreement. Escrow Agent has no knowledge of or responsibility for the terms, obligations or provisions of any related agreements hereto, nor the representations or warranties of the other parties contained herein. -6- B. Subject to the terms of paragraph four (4) above, should any controversy arise between the undersigned with respect to this Escrow Agreement, Escrow Agent shall have the right to consult and/or to institute a bill of interpleader in any court of competent jurisdiction to determine the rights of the parties. Should such actions be necessary, or should Escrow Agent become involved in litigation in any manner whatsoever on account of or in connection with this Escrow Agreement or the Escrowed Assets, the undersigned hereby bind and obligate themselves, their legal representatives, successors and assigns to pay Escrow Agent reasonable attorneys' fees incurred by Escrow Agent, and any other disbursements, expenses, losses, costs and damages in connection with or resulting from such actions. C. The Escrow Agent shall have no liability under, or duty to inquire beyond the terms and provisions of the Agreement, and it is agreed that its duties are purely ministerial in nature, and that the Escrow Agent shall incur no liability whatsoever so long as it has acted in good faith, except for liability occasioned by Escrow Agent's willful misconduct or gross negligence. The Escrow Agent shall not be bound by any modification, amendment, termination, cancellation, recision or supercision of this Escrow Agreement, unless the same shall be in writing and signed by all of the other parties hereto and, if its -7- duties as Escrow Agent hereunder are affected thereby, unless it shall have given its prior written consent thereto. D. The Escrow Agent may at any time resign hereunder by giving written notice of its resignation to the other parties hereto, at their addresses set forth herein, at least thirty (30) days prior to the date specified for such resignation to take effect. Upon the effective date of such resignation, the Escrowed Assets hereunder shall be delivered to such person as may be designated in writing by the appropriate parties executing this Escrow Agreement, whereupon all the Escrow Agents' obligations hereunder shall cease and terminate. The escrow Agents' sole responsibility until such termination shall be to keep safely all Escrowed Assets and to deliver the same to a person designated by appropriate parties executing this Escrow Agreement or in accordance with the directions of a final order or judgment of a court of competent jurisdiction. E. The parties agrees to be severally liable only for their own acts and not jointly liable, agree to indemnify, defend and hold Escrow Agent harmless for the tax, liability and expenses that may be incurred by Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including the legal costs and expenses of defending itself against any claim or liability in connection with its -8- performance hereunder. This provision shall survive the term of the Agreement. Notwithstanding the foregoing, the parties agree to be jointly and severally liable with respect to any costs incurred by the Escrow Agent, which costs are incurred in the ordinary course of the Escrow Agent's duties and not costs arising from any claim or liability incurred by Escrow Agent. F. ZPDI agrees to pay to the Escrow Agent its fees for the services rendered pursuant to the provisions of this Escrow Agreement and will reimburse the Escrow Agent for reasonable expenses, including reasonable attorneys's fees, incurred in connection with the negotiations, drafting and performance of such services. Except as otherwise noted, this fee covers set-up and termination expenses, plus usual and customary related administrative services such as safekeeping, investment and payment of funds specified herein or in the exhibits attached. Activities requiring excessive administrator time or out-of-pocket expenses such as optional substitution of collateral or securities shall be deemed extraordinary expenses for which related costs, transaction charges, and additional fees will be billed at Escrow Agent's standard charges for such items. G. ZPDI agrees to indemnify the Escrow Agent fully for any tax liability, penalty or interest incurred by the Escrow Agent arising hereunder and agrees to pay in full any such tax -9- liability together with penalty and interest if any is ultimately assessed against the Escrow Agent for any reason as a result of its action hereunder (except for the Escrow Agent's individual income tax liability). H. The Escrow Agent shall have no liability for loss arising from any cause beyond its control, including, but not limited to, the following: a) the act, failure or neglect of any agent or correspondent selected by the Escrow Agent or the parties hereto; (b) any delay, error, omission or default connected with the remittance of funds; c) any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator; d) the acts of edicts of any government or governmental agency or other group or entity exercising governmental powers. I. This Escrow Agreement shall be governed by and construed in accordance with the laws of the state of Texas, except that the portions of the Texas Trust Code Sec. 111.001, et seq. of the Property Code, V.A.T.S. concerning fiduciary duties and liability of Trustees shall not apply to this Agreement. The parties hereto expressly waive such duties and liabilities, it being their intent to create solely an agency relationship and hold the Escrow Agent liable only in the event of its gross -10- negligence or willful misconduct in order to obtain the lower fee schedule rates as specifically negotiated with the Escrow Agent. J. It is understood by all parties to this agreement that Escrow Agent will not have investment responsibilities for the funds in the Dominion Account unless otherwise authorized in writing by BATCL or ZPDI, nor shall Escrow Agent be responsible for the collection of funds or checks or other deposits. Escrow Agent or its Commercial Department shall be reimbursed by ZPDI, U.S. Long Distance and/or any of its subsidiaries for any item returned and may deduct any overdraft amounts or charges or losses incurred thereby from ZPDI's or U.S. Long Distance's demand deposit or trust accounts at Escrow Agent's Houston or San Antonio branch offices. K. Escrow Agent is hereby given a lien on all Escrowed Assets to be distributed to ZPDI for all fees, expenses, taxes, indebtedness, and other financial obligations that may become owing to Escrow Agent arising hereunder, including any indemnities prescribed herein, which lien may be enforced by Escrow Agent without notice or presentment by setoff or appropriate foreclosure proceedings. In all cases, any unpaid fees may be deducted by Escrow Agent without prior written notice before final disbursement of Escrowed Assets. -11- 8. This Agreement shall continue in force and effect until Escrow Agent receives written notice of cancellation from BATCL. Upon receipt of written notice, the Escrow Agent will perform the following: A. Advise parties to this Agreement of receipt of cancellation notice; and B. Request of BATCL a statement of outstanding loans attributable to any Carrier; and C. Continue to perform Escrow Agent duties as outlined in Paragraph 6 above until such time as the obligations identified in Paragraph 8B above have been satisfied or until Escrow Agent shall resign pursuant to the terms hereof. 9. The terms and conditions of this Agreement shall prevail if in conflict with the terms and conditions of any other attached or related agreement. BELL ATLANTIC-TRICON LEASING CORPORATION BY: --------------------------- - - ------------------------------ (Printed or Typed Name) (Additional Signatures On Next Page) TITLE: ------------------------ -12- ZERO PLUS DIALING, INC. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: --------------------------- - - ------------------------------ (Printed or Typed Name) TITLE: ------------------------ TEXAS COMMERCE BANK NATIONAL ASSOCIATION Attn: Rodney Crowl and Steve Scott Custody Group 600 Travis Street, Suite 1150 Houston, TX 77002 BY: --------------------------- - - ------------------------------ (Printed or Typed Name) TITLE: ------------------------ U.S. Long Distance Corp. and U.S. Long Distance, Inc. hereby jointly and severally unconditionally guarantee the prompt performance of any and all of ZPDI's representations, warranties, covenants and agreements hereunder. U.S. LONG DISTANCE CORP. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: --------------------------- - - ------------------------------ (Printed or Typed Name) TITLE: ------------------------ U.S. LONG DISTANCE, INC. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: --------------------------- - - ------------------------------ (Printed or Typed Name) TITLE: ------------------------ -13- EXHIBIT 8.1(K) TELECOMMUNICATIONS RECEIVABLE FINANCING PROGRAM BACKGROUND INFORMATION OSP: ------------------------- CORPORATE OVERVIEW: 1) CORPORATE STRUCTURE: C CORP SUB-S CORP PARTNERSHIP ----- ---- ---- 2) OWNERSHIP: (DESCRIBE SHAREHOLDERS OR PARENT COMPANY) - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ 3) ARE YOUR RECEIVABLES CURRENTLY PLEDGED TO ANYONE? (IF YES, PLEASE GIVE ALL DETAILS) - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ MANAGEMENT: CHAIRMAN OF THE BOARD: AGE: ----------------------------------------- ---- TENURE WITH COMPANY: ----------------------------------------------------- PREVIOUS EMPLOYER: ------------------------------------------------------ POSITION & TENURE: ------------------------------------------------------ DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: -------------- - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ -2- TELECOMMUNICATIONS RECEIVABLE FINANCING PROGRAM BACKGROUND INFORMATION OSP ------------------------ PRESIDENT: AGE: ---------------------------------------------- ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: ------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: -------------------------------------------------- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- V.P MARKETING: AGE: ------------------------------------------- ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: -------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: ----- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- V.P. OPERATIONS: AGE: ------------------------------------------ ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: -------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: ----- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- -3- TELECOMMUNICATIONS RECEIVABLE FINANCING PROGRAM BACKGROUND INFORMATION OSP ------------------------ V.P. LEGAL/REGULATORY: AGE: ------------------------------------ ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: -------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: ----- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- TREASURER: AGE: ------------------------------------------------ ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: -------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: ----- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- CONTROLLER: AGE: ----------------------------------------------- ----- TENURE WITH COMPANY: ------------------------------------------------ PREVIOUS EMPLOYER: -------------------------------------------------- POSITION & TENURE: -------------------------------------------------- DESCRIPTION OF PREVIOUS EMPLOYER & SIGNIFICANT ACCOMPLISHMENTS: ----- - - -------------------------------------------------------------------- - - -------------------------------------------------------------------- -4- TELECOMMUNICATIONS RECEIVABLE FINANCING PROGRAM BACKGROUND INFORMATION OSP: __________________________ RECEIVABLE ANALYSIS LAST MONTHS PERCENT OF BILLINGS ($) TOTAL LOCAL EXCHANGE CARRIERS - - ------------ ---------- ----------------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- - - ---------------- ---------------- REMAINDER LESS THAN 1% EACH - - ---------------- ---------------- $--------------- ----------------- -5- OSP: -------------------------------------
JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC 0+/- CALL VOLUME ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ 0+/- CALL MINUTES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ 0+/- REVENUES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ ALL OTHER REVENUE ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ TOTAL REVENUE ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ 0+/-CASH COLLECTIONS JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC - - -------------------- BILLINGS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ DILUTIONS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ REJECTS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ LEC ALLOWANCE ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ UNBILLABLES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ AMOUNT REMITTED ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ % OF AMOUNT REMITTED TO GROSS BILLINGS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ 0+/0-RECEIVABLES AGINGS: (FROM DATE THE TAPE IS SENT FOR COLLECTION) - - ----------------------------------------------------------------------------------------------------------------------- JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC 0-90 DAYS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ 91-120 DAYS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ OVER 120 DAYS ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ TOTAL 0+/0 ACCTS REC ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------
6 OSP: ------------------------------------- OPERATIONS: FISCAL DATE ------------------------
JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC REVENUES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ CASH EXPENSES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ NON CASH EXPENSES ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ PRE TAX PROFIT ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------ NET PROFIT ------ ------ ------- ------ ------ ------- ------ ------ ------ ------ ------- ------
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BANK: ACCOUNT NO: ADDRESS: ------------------------- ------------------ -------------------------------------------- (IF MORE THAN ONE, FILL (STREET, CITY, STATE, ZIP) OUT SEPARATE SHEET) FED/ABA #: BANK OFFICER CONTACT: PHONE NO. ------------------- ------------------- ----------------------------------- CREDIT LINE AMOUNT: OUTSTANDING: ------------ ----------------------------
- - ------------------------------------------------------------------------------- A T T A C H M E N T S: - - ---------------------- 2 YEARS FISCAL FINANCIAL STATEMENTS CURRENT YEAR QUARTERLY STATEMENTS AND PRIOR YEAR'S COMPARABLE STATEMENTS 7 EXHIBIT 8.1(N) [Form Class 1 OSP Certification] CLASS 1 APPROVED OSP CERTIFICATION FORM Reference is made to the Amended and Restated Loan and Security Agreement dated as of May ____, 1991 (as modified and supplemented and in effect from time to time, the "Loan and Security Agreement") among Zero Plus Dialing Inc. ("Borrower"); U.S. Long Distance Corp. and U.S. Long Distance Inc. (collectively referred to as "Guarantors") and Bell Atlantic-Tricon Leasing Corporation ("Lender"). Terms defined in the Loan and Security Agreement are used herein as defined therein. Pursuant to Section 8.1(O) of the Loan and Security Agreement, the undersigned, the [Chief Executive Officer/Chief Financial Officer/Executive Vice President/or his designee] , of the Borrower hereby certifies that for [Class 1 Approved Carrier]: (i) he has reviewed the UCC lien searches and determined that within two (2) Business Days following the first purchase of Accounts Receivable pursuant to Addendum A, he will cause BATCL will have a first priority security interest in the assets of [Class 1 Approved Carrier] more fully described in Section 6 of Addendum A; (ii) he has reviewed the Dilution Factor and the advance requested by Borrower is within the parameters of the Borrowing Base (iii) [Class 1 Approver Carrier] has not filed for protection under the U.S. Bankruptcy Code, as amended; (iv) [Class 1 Approve Carrier] meets all the terms and conditions set forth in the Class 1 Collateral and Credit Criteria List; (v) he has reviewed and analyzed the OSP Background Form prepared by [Class 1 Approved Carrier] and certifies that to the best of his knowledge, the information provided therein is true and accurate. The undersigned, further warrants and represents that no default or event of default exists as set forth in the Loan and Security Agreement and hereby confirms that there have been no breaches to any of the representations, warranties and covenants described therein which continue in full force and effect. IN WITNESS WHEREOF, the undersigned has caused this letter to be duly executed as of the ____ day of ______________________, 199__. ------------------------------------ Title: [Chief Executive Officer/ Chief Financial Officer/ Executive Vice President] of the Borrower EXHIBIT 8.1(O) (a) CLASS 1 OSP COLLATERAL AND CREDIT CRITERIA 1. In business and operating as an OSP. 2. Borrower has provided to BATCCS, the following: A.) Class 1 OSP Certification Form B.) A current completed Application and Background Form, prepared by Carrier. C.) UCC, tax lien, and judgement searches together with copies of recorded filings. D.) Executed copy of form UCC 1 indicating BATCCS as Assignee of the collateral pursuant to Addendum A. E.) Fully executed copies of Billing and Collection Services Agreement, and Addendum A. EXHIBIT 8.1(O) (b) CLASS 2 OSP COLLATERAL AND CREDIT CRITERIA 1. In business and operating as an OSP for the previous one (1) year period. 2. Senior management has experience in the telecommunications industry and has a record satisfactory to BATCCS. 3. Validation method, vendor, and the percentage of calls validated are acceptable to BATCCS. 4. Dilution Factor for the prior three (3) months is acceptable to BATCCS. In the absence of an analysis of the Dilution Factor, BATCCS may apply an advance at BATCCS sole discretion. 5. Borrower has provided to BATCCS, the following: A.) A current completed Application and Background Form, prepared by Carrier. B.) An analysis of call traffic by origination type, showing the dollar amount and percent, for a recent month. In instances of recent rapid growth trends, three (3) month to six (6) month analysis may be required. C.) Financial Statements for the two (2) prior fiscal year ends, or since inception if less than two (2) years, prepared in accordance with GAAP, prepared by, and opined, in a manner acceptable to BATCCS. D.) Current interim financial statements not greater than 90 days old. E.) UCC, tax lien, and judgement searches together with copies of recorded filings. F.) Executed copy of form UCC l indicating BATCCS as Assignee of the collateral pursuant to Addendum A. G.) Fully executed copies of Billing and Collection Services Agreement, and Addendum A. EXHIBIT 8.1(O) (c) CLASS 3 OSP COLLATERAL AND CREDIT CRITERIA 1. In business and operating as an OSP for the previous one (l) year including six (6) months minimum satisfactory experience with BATCCS; or in business and operating as an OSP for the previous two (2) years. 2. Senior management has broad experience and depth in the telecommunications and has a record satisfactory to BATCCS. 3. Validation method, vendor, and the percentage of calls validated is acceptable to BATCCS. 4. Dilution factor for the prior twelve (12) months is acceptable to BATCCS. 5. Borrower has provided to BATCCS, the following: A.) A current completed Application and Background Form, prepared by Carrier. B.) An analysis of call traffic by origination type, showing the dollar amount and percent, for a recent month. In instances of recent rapid growth trends, three (3) months to six (6) months may be required. C.) Financial Statements for the two (2) prior fiscal year ends, or since inception if less than two (2) years, prepared in accordance with GAAP, prepared by, and opined, in a manner acceptable to BATCCS. D.) Current interim financial statements not greater than 90 days old. E.) UCC, tax lien, and judgement searches together with copies of recorded filings. F.) Executed copy of form UCC l indicating BATCCS as Assignee of the collateral pursuant to Addendum A. G.) Fully executed copies of Billing and Collection Services Agreement, and Addendum A. REVOLVING CREDIT NOTE May 24, 1991 FOR VALUE RECEIVED, the undersigned, ZERO PLUS DIALING, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of BELL ATLANTIC- TRICON LEASING CORPORATION, a Delaware corporation ("Lender"), the principal sum of the Credit Line, as such amount is set forth in the Agreement (as hereinafter defined) or such amount as shall equal the aggregate unpaid principal amount thereunder, three (3) years from the date hereof or, if applicable under the Agreement, on the expiration date of any Renewal Term, in lawful money of the United States of America and in immediately available funds, together with interest from the date hereof at a rate per annum equal to one and one eighth percent (1 1/8%) above the Base Rate (the "Contract Rate"). In no event shall the amount of interest paid or agreed to be paid to Lender hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. Interest hereunder shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days). Interest may be charged to Borrower's Loan Account as provided in the Agreement. If any installment of interest is not paid in full on the due date thereof (whether by maturity or acceleration), or any other Event of Default occurs under the Agreement, then, apart from Lender's rights of acceleration or other rights set forth in the Agreement, the outstanding principal balance of this Note shall bear additional interest from the due date of such installment, or from and after such Event of Default, at the rate of six percent (6%) per annum above the Base Rate (the "Default Rate") until such late payment or Event of Default is cured, if applicable. To the extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity and notice of protest. This Note is the Revolving Credit Note referred to in the Amended and Restated Loan and Security Agreement dated as of the date hereof (the "Agreement"), between Borrower and Lender, and evidences the Revolving Credit Loans made by Lender under the Credit Line thereunder. All of the terms, covenants and conditions of the Agreement, as such Agreement may from time to time be amended (including all exhibits and schedules thereto) and all other instruments evidencing and/or securing the indebtedness hereunder are hereby made a part of this Note and are deemed incorporated herein in full. Any capitalized terms not otherwise defined herein shall have the meaning as set forth in the Agreement. BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST BORROWER BY LENDER BEFORE JUDGMENT CAN BE ENTERED HEREBY WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO JUDGMENT BEING ENTERED BY CONFESSION UPON THE OCCURRENCE OF AN EVENT OF DEFAULT. LENDER MAY EMPLOY SELF HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY OF THE COLLATERAL GRANTED IN CONNECTION HEREWITH WITHOUT FIRST OBTAINING FINAL JUDGMENT OR WITHOUT FIRST GIVING NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. Borrower hereby authorizes irrevocably, the Prothonotary, Clerk of the Court, or any Attorney of any Court of Record to appear for it in such court, at any time after an Event of Default under the Agreement, and confess judgment against Borrower, with or without declaration in favor of the holder of the within Note, for all amounts as may be unpaid hereon, together with interest, costs, and a reasonable attorneys' collection fee, and waives and releases all errors and consents to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof. The authority herein granted to confess judgment shall not be exhausted by one exercise thereof, but shall continue from time to time and at all times until full payment of all liabilities hereunder. Notwithstanding the acceleration of this Note or the entry of judgment (whether by confession or otherwise), the liabilities of Borrower under this Note shall bear interest at the Contract Rate, or if applicable, at the Default Rate. All terms as used herein, unless otherwise specifically defined herein, shall have the meanings ascribed to them in the Agreement. This Note shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. [CORPORATE SEAL] ZERO PLUS DIALING, INC., a Delaware corporation Attest: /s/ Mark D. Buckner By: /s/ [Illegible sig] ------------------------------ ---------------------------- Title: Corporate Secretary Title: Vice President -2- REPLACEMENT TERM NOTE $200,162.31 May 24, 1991 FOR VALUE RECEIVED, the undersigned, U. S. LONG DISTANCE, INC., a Delaware corporation ("Borrower"), hereby promises to pay to the order of BELL ATLANTIC TRICON LEASING CORPORATION, a Delaware corporation ("Lender"), the principal sum of Two Hundred Thousand One Hundred Sixty-two and 31/100 Dollars ($200,162.31) in lawful money of the United States of America and in immediately available funds, together with interest from the date hereof at a rate per annum equal to one and three quarters percent (1-3/4%) above the base rate for corporate loans at large United States money center banks as quoted in the Wall Street Journal under the caption "Prime Rate" in the section entitled "Money Rates" as such rate may change from time to time (the "Contract Rate") payable in Fifteen (15) consecutive monthly installments of principal in the amount of Thirteen Thousand Three Hundred Forty-four and 15/100 Dollars ($13,344.15) plus interest, commencing June 1, 1991 and on the first day of each subsequent month. The remaining principal balance and all accrued and unpaid interest due thereon shall be paid an September 1, 1992. This Note evidences the obligation of Borrower as successor to Hobic Plus, Inc. due to Lender as assignee of Source, Inc. under and replaces that certain Term Note between Hobic Plus, Inc. as maker and Source, Inc. as payee dated July 12, 1990, in the original principaL amount of $320,000. In no event shall the amount of interest paid or agreed to be paid to Lender hereunder exceed the highest lawful rate permissible under any law which a court of competent jurisdiction may deem applicable hereto. Interest hereunder shall be calculated on a daily basis (computed on the actual number of days elapsed over a year of 360 days) and shall be payable in arrears for the preceding one month period. If any installment of principal or interest is not paid in full on the due date thereof (whether by maturity or acceleration), or any other Event of Default occurs under the Agreement as herein defined, then, apart from Lender's rights of acceleration or other rights set forth in the Agreement, the outstanding principal balance of this Term Note shall bear additional interest from the due date of such installment, or from and after such Event of Default, at the rate of six percent (6.00%) per annum above the contract Rate (the "Default Rate") until such late payment or Event of Default is cured, if applicable. To the extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, notices of acceleration, notice of interest to accelerate and notice of presentment. This Term Note is the Term Note referred to in the Amended and Restated Loan and Security Agreement dated as of May __, 1991 (the "Agreement"), between Borrower and Lender, and evidences a Term Loan made by Lender to Borrower thereunder. All of the terms, covenants and conditions of the Agreement, as such Agreement may from time to time be amended (including all exhibits and schedules thereto) and all other instruments evidencing and/or securing the indebtedness hereunder are hereby made a part of this Term Note and are deemed incorporated herein in full. BORROWER, BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST BORROWER BY LENDER BEFORE JUDGMENT CAN BE ENTERED HEREBY WAIVES THESE RIGHTS AND AGREES AND CONSENTS TO JUDGMENT BEING ENTERED BY CONFESSION. UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, LENDER MAY EMPLOY SELF HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY OF THE COLLATERAL GRANTED IN CONNECTION HEREWITH WITHOUT FIRST OBTAINING FINAL JUDGMENT OR WITHOUT FIRST GIVING NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. Borrower hereby authorizes irrevocably, the Prothonotary, Clerk of the Court, or any Attorney of any Court of Record to appear for it in such court, at any time after an Event of Default under the Agreement, and confess judgment against Borrower, with or without declaration in favor of the holder of the within term Note, for all amounts as may be unpaid hereon, together with interest, costs, and a reasonable attorneys' collection fee, and waives and releases all errors and consents to immediate execution upon such judgment, hereby ratifying and confirming all that said attorney may do by virtue hereof. The authority herein granted to confess judgment shall not be exhausted by one exercise thereof, but shall continue from time to time and at all times until full payment of all liabilities hereunder. Notwithstanding the acceleration of this Term Note or the entry of judgment (whether by confession or otherwise), the liabilities of Borrower under this Term Note shall bear interest at the Contract Rate, or if applicable, at the Default Rate. All terms as used herein, unless otherwise specifically defined herein, shall have the meanings ascribed to them in the Agreement. This Term Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Pennsylvania. Borrower hereby consents to the jurisdiction of the state and federal courts located in Philadelphia County of the Commonwealth of Pennsylvania. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. U. S. LONG DISTANCE, INC. By: /s/ MARK D. BUCKNER ------------------------------ FIRST AMENDMENT AND JOINDER TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This First Amendment to Amended and Restated Loan and Security Agreement ("First Amendment") is made this 26th day of December, 1992 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, and Bell Atlantic Tricon Leasing corporation ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. The Loan Agreement, the related agreements and instruments executed in connection therewith, and the Letter Agreement are hereinafter collectively referred to as the "Existing Loan Documents." D. USBI desires to become an additional party to the Existing Loan Documents as amended hereby, and Borrower, USLDC, USLDI, and Lender desire to amend certain terms and conditions of the Existing Loan Documents. NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. a. USBI hereby joins in, assumes, adopts and agrees to be subject to the terms and conditions of the Existing Loan Documents, as amended hereby, and the Obligations evidenced thereby. Without limiting the generality of the foregoing, USBI shall be liable, as surety, for all Obligations now existing or hereafter incurred, including without limitation the Revolving Credit Note and the Term Notes, and USBI grants to Lender a continuing first lien on and security interest in all of its assets of the type described as Collateral in Section 4 of the Loan Agreement, including without limitation all now owned or hereafter acquired Accounts, General Intangibles, and Equipment, and including all proceeds of all of the foregoing. -2- b. The Loan Agreement is hereby amended to provide that in each instance where the term "Guarantors" or "Guarantor" appears, such term or terms shall jointly and severally include a reference to USBI. 2. The definition of the term "Credit Line" in Section 1.1 of the Loan Agreement is hereby deleted and replaced by the following new definition of Credit Line: CREDIT LINE - as at any date of determination thereof, the total amount available to Borrower under the Revolving Credit Facility, which is the sum of (A) Twenty Million ($20,000,000.00) Dollars, and (B) the aggregate amount of the credit limit as requested by Borrower and approved in writing by Lender for all Class 3 Approved Carriers. The credit limits for each Class 3 Approved Carriers as of the date hereof are listed on Exhibit 6.1(Z). 3. The term "Tangible Capital Funds" is added to Section 1.1 of the Loan Agreement and is defined as follows: TANGIBLE CAPITAL FUNDS - shall mean, as of any date of determination thereof, the sum (without duplication) of the following: (i) Net Worth, MINUS (ii) assets other than cash, trade receivables, and property, plant and equipment (net of leasehold improvements), MINUS (iii) allowances, in excess of those shown in financial statements, on Accounts as Lender may reasonably determine in good faith, PLUS (iv) Indebtedness subordinated to Lender evidenced by duly executed subordination agreement(s) in form and substance acceptable to Lender. 4. Subsections (ii), (iii), and (v) of the definition of the term "Borrowing Base" in Section 1.1 of the Loan Agreement are hereby deleted and replaced by the following new subsections (ii), (iii), and (v): -3- (ii) advances against Eligible Accounts for any Class 1 Approved Carrier shall not exceed Two Hundred and Fifty Thousand ($250,000.00) Dollars for each Class 1 Approved Carrier and the aggregate advances for all Class 1 Approved Carriers shall not exceed the lesser of (a) Eight Million ($8,000,000.00) Dollars and (b) fifty (50%) percent of USLDC's Tangible Capital Funds (adjusted quarterly as set forth in USLDC's 10Q and 10K reports); (iii) advances against Eligible Accounts for all Class 1 and Class 2 Approved Carriers shall not exceed at any one time in the aggregate for all Class 1 and Class 2 Approved carriers (a) Twenty Million ($20,000,000.00) Dollars on the date of the First Amendment and at all times thereafter; (v) advances against Eligible Accounts of U.S. Long Distance, Inc. (which shall be treated as a Class 2 Approved Carrier) shall not exceed Three Million ($3,000,000.00) Dollars at any time in the aggregate; provided, however that U.S. Long Distance, Inc. shall be reclassified as a Class 3 Approved Carrier and the sublimit shall be increased to Five Million ($5,000,000.00) Dollars, at any time in the aggregate, upon the earlier of (a) Borrower's request for such reclassification and increase, and (b) May 1, 1993. 5. Borrower has informed Lender of its intention to hire a new credit officer to perform due diligence for Class 1 OSP's and to prepare credit packages and approvals for such Class 1 OSP's. In the event that Lender is satisfied with the form and substance of the first three (3) of Borrower's Class 1 OSP credit packages submitted to Lender for review after the date hereof, Lender will increase the amount of the Borrowing Base advances against Eligible Accounts for Class 1 Approved Carriers from Two Hundred -4- and Fifty Thousand ($250,000.00) Dollars to Five Hundred Thousand ($500,000.00) Dollars for each Class 1 Approved Carrier. 6. Section 2.1(B) of the Loan Agreement is hereby deleted and replaced by the following new Section 2.1(B): 2.1 (B) The Revolving Credit Loans shall be used by Borrower to purchase certain End User Accounts of Approved Carriers to the extent not inconsistent with the provisions of this Agreement. For approval requests involving Carriers for credit up to Two Million ($2,000,000.00) Dollars, and increases for Approved Carriers with credit limits up to Two Million ($2,000,000.00) Dollars, Lender shall have a maximum of twenty (20) days from the point at which all relevant credit information is received in order to consider requests and advise Borrower of its determination for approval of a Carrier or an increase of credit for an Approved Carrier. Lender shall use its best efforts to promptly inform Borrower of any additional information it deems necessary to consider such a request. Upon approval of a Carrier or an increase of credit for an Approved Carrier, Lender shall provide Borrower with written notification thereof within five (5) Business Days. 7. The following Section 2.6 is hereby added to the Loan Agreement: 2.6. INVESTMENT ACCOUNT - Lender shall establish an investment account ("Investment Account") on the books of Lender, in which Lender shall record, in increments of no less than $250,000.00, funds received by Lender from Borrower. That portion of the amounts received by Lender and recorded in the Investment Account equal to the difference between (i) the outstanding Revolving Credit Loans, and (ii) fifty percent (50%) of the Credit Line, shall earn interest at an annual rate equal to the Base Rate, in effect from time to time, which shall be calculated in a manner consistent with that set forth in Section 3.1(A) hereof. For the purpose of computing interest on amounts in the Investment Account, amounts shall be deemed to have been transferred into the Investment Account on the first Business Day after receipt by Lender of such amounts. Disbursements made in connection with amounts in the Investment Account shall be made by Lender in increments of $250,000.00 and shall be made in the manner as set forth in Section 7.3(B) of the Loan Agreement. All disbursements -5- from the Investment Account shall be subject to a wire transfer fee of $20.00 per wire transfer. 8. Section 3.1(A) of the Loan Agreement is hereby amended such that interest shall accrue on the principal amount of the Revolving Credit Loans outstanding at the end of each day at a fluctuating rate per annum equal to one and three eighths percent (1 3/8%) above the Base Rate in effect on such day. All other provisions of Section 3.1(A) remain unchanged and in full force and effect. 9. Section 3.2(e) of the Loan Agreement is hereby deleted upon the condition that, on the date hereof, Borrower pays to Lender the unused facility fee at the rate set forth and calculated in accordance with Section 3.2(e), which fee shall cover the period through and including the date hereof. 10. Section 3.3 of the Loan Agreement is hereby deleted and replaced by the following new Section 3.3: 3.3 TERM OF AGREEMENT. Subject to Lender's right to cease making loans to Borrower at any time upon or after the occurrence of any Default or Event of Default, and such Event of Default has not been cured within the required time limits, if any, the provisions of this Agreement shall be in effect through and including two (2) years from the date of the First Amendment, (the "Original Term"), unless terminated as provided in Section 3.4 hereof, and may be extended by the written consent of Lender and Borrower (the "Renewal Term"). 11. Paragraph 3.4(A) of the Loan Agreement is hereby deleted and replaced by the following new paragraph 3.4(A): 3.4(A) Borrower may at any time prior to the end of the Original Term or any Renewal Term and on not less than ninety (90) days prior written notice to Lender, terminate -6- this Agreement; provided, however, that on the termination date Borrower shall pay all the outstanding Obligations and Borrower shall deposit such amount of cash collateral as Lender determines is necessary to secure Lender from loss, cost, damage or expenses, including reasonable attorney fees, in connection with any remittance items or other payments provisionally credited towards the repayment of the Obligations and/or to which Lender has not yet received final and indefeasible payment. Borrower shall also pay to Lender on such termination date a prepayment fee ("Prepayment Fee") equal to one percent (1%) of the Credit Line. 12. The following paragraph (u) is added to Section 7.2 of the Loan Agreement: (u) PURCHASE OF END USER ACCOUNTS FROM APPROVED CARRIERS. Purchase End User Accounts from Approved Carriers other than with advances received directly from Lender pursuant to the Revolving Credit Loans. 13. Exhibit 8.1(N)-Class 1 OSP Certification form is hereby deleted and replaced by a new Exhibit 8.1(N)-Class 1 OSP Certification form attached to this First Amendment. 14. Section 10.10 of the Loan Agreement is hereby amended such that notices to Bell Atlantic TriCon Leasing Corporation in King of Prussia, PA should be sent to the attention of Larry Jadlocki. All other notice provisions of Section 10.10 remain unchanged and in full force and effect. 15. Borrower shall pay to Lender a loan origination fee equal to three quarters of one percent (.75%) of the increase in the sublimit for advances against Eligible Accounts for Class 1 and Class 2 Approved Carriers, which fee is fully earned on the date hereof and shall be payable to Lender on the date of such increases. Borrower shall also pay to Lender a loan origination -7- fee in connection with the reclassification of U.S. Long Distance, Inc., equal to one half of one percent (.50%) per annum of $5,000,000.00, in accordance with Section 3.2(c) of the Loan Agreement, which fee is fully earned on the date hereof and shall be payable to Lender upon the earlier of (i) Borrower's request for such reclassification and increase, and (ii) May 1, 1993. 16. Borrower shall deliver or cause Guarantors to deliver the following to Lender prior to Closing (all documents to be in form and substance satisfactory to Lender): a. This fully executed First Amendment and any other documents required by any provision hereof; b. A Corporate Guaranty executed by USBI, guaranteeing, as surety, all Obligations (as defined in the Loan Agreement); a. UCC-1 financing statements covering the Collateral of USBI which is pledged to Lender hereunder; b. UCC, federal and state tax lien and judgment searches for USBI indicating that upon filing of the UCC-1 financing statements described in (c) above, Lender shall have first liens on the Collateral pledged by USBI to Lender; c. Certified copies of resolutions of Borrower's and Guarantors' (including USBI) board of directors authorizing the execution of this First Amendment, and all agreements and documents referred to herein; and -8- d. Payment of the loan origination fee due on the date hereof ($37,500.00) in accordance with Section 3.2(a) of the Loan Agreement, based upon the increase in the credit Line as of the date hereof. 17. Guarantors hereby accept and approve the terms and conditions of this First Amendment and covenant and agree that all Obligations, as modified by this First Amendment, are covered by the Corporate Guarantees, and such corporate Guarantees remain in full force and effect. 18. The parties acknowledge and agree that this First Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this First Amendment is or may be deemed expressly inconsistent with any term or provision in the Existing Loan Documents, the terms and provisions hereof shall control. 19. a. All capitalized terms not otherwise defined herein shall have the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; -9- c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. ZERO PLUS DIALING, INC. By: [Illegible sig] --------------------------------- Attest: ?????? U.S. LONG DISTANCE, INC. By: [Illegible sig] --------------------------------- Attest: ?????? U.S. LONG DISTANCE CORP. By: [Illegible sig] --------------------------------- Attest: ?????? U.S. BILLING, INC By: [Illegible sig] --------------------------------- Attest: ?????? BELL ATLANTIC TRICON LEASING CORPORATION By: [Illegible sig] --------------------------------- -10- SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Second Amendment to Amended and Restated Loan and Security Agreement ("Second Amendment") is made this 2nd day of April 1993 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, and Bell Atlantic TriCon Leasing Corporation ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lender executed a certain First Amendment and Joinder to Amended and Restated Loan and Security Agreement ("First Amendment"). D. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Letter Agreement and the First Amendment are hereinafter collectively referred to as the "Existing Loan Documents." NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. Paragraph 7.2(u) of the Loan Agreement is hereby deleted and replaced with the following new Paragraph 7.2(u): (u) PURCHASE OF END-USER ACCOUNTS FROM APPROVED CARRIERS. Purchase End-User Accounts from Approved Carriers other than with advances received directly from Lender pursuant to the Revolving Credit Loans; provided, however, that at any time after Borrower has requested that Lender increase the Credit Line for any Approved Carrier, then while such request is pending and at any time total advances to such Approved Carrier are equal to the Credit Line and Borrowing Base for such Approved Carrier, then Borrower may purchase End-User Accounts from such Approved Carrier with other funds. 2. Guarantors hereby accept and approve the terms and conditions of this Second Amendment and covenant and agree that all Obligations, as modified by this Second Amendment, are -2- covered by the Corporate Guarantees, and such Corporate Guarantees remain in full force and effect. 3. The parties acknowledge and agree that this Second Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Second Amendment is or may be deemed expressly inconsistent with any term or provision in the Existing Loan Documents, the terms and provisions hereof shall control. 4. a. All capitalized terms not otherwise defined herein shall have the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. -3- IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day and year first above written. ZERO PLUS DIALING, INC. By: /s/ Mark D. Buckner -------------------------------- Attest: ---------------------------- U.S. LONG DISTANCE, INC. By: /s/ Mark D. Buckner -------------------------------- Attest: ---------------------------- U.S. LONG DISTANCE CORP. By: /s/ Mark D. Buckner -------------------------------- Attest: ---------------------------- U.S. BILLING, INC. By: /s/ Mark D. Buckner -------------------------------- Attest: ---------------------------- BELL ATLANTIC TRICON LEASING CORPORATION By: [Illegible sig] -------------------------------- -4- THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Third Amendment to Amended and Restated Loan and Security Agreement ("Third Amendment") is made this 1st day of October, 1993 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, and Bell Atlantic Tricon Leasing corporation ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lender executed a certain First Amendment and Joinder to Amended and Restated Loan and Security Agreement ("First Amendment"). D. On April 2, 1993, Borrower, USLDC, USLDI and USBI and Lender executed a certain Second Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Second Amendment"). E. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Letter Agreement, First Amendment and the Second Amendment are hereinafter collectively referred to as the "Existing Loan Documents." NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. The amount provided for in Subparagraph (A) of the definition of Credit Line shall at all times from the date hereof through October 31, 1993 be increased from Twenty Million Dollars ($20,000,000) to Twenty-two Million Dollars ($22,000,000) and on November 1, 1993 and at all times thereafter shall be Twenty Million Dollars ($20,000,000). At no time shall the amount of -2- the Revolving Credit Loans exceed the amount of the Credit Line as amended hereby. 2. Guarantors hereby accept and approve the terms and conditions of this Third Amendment and covenant and agree that all Obligations, as modified by this Third Amendment, are covered by the Corporate Guarantees, and such Corporate Guarantees remain in full force and effect. 3. The parties acknowledge and agree that this Third Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Third Amendment is or may be deemed expressly inconsistent with any term or provision in the Existing Loan Documents, the terms and provisions hereof shall control. 4. a. All capitalized terms not otherwise defined herein shall have the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. -3- IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the day and year first above written. ZERO PLUS DIALING, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. LONG DISTANCE, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. LONG DISTANCE CORP. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. BILLING, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- BELL ATLANTIC TRICON LEASING CORPORATION By: [ILLEGIBLE NAMES] ------------------------------- -4- FOURTH AMENDMENT AND JOINDER TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Fourth Amendment to Amended and Restated Loan and Security Agreement ("Fourth Amendment") is made this 1ST day of October, 1993 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, and USLD Acquisition Corp. d/b/a Telecom West, Inc., an Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, and Bell Atlantic Tricon Leasing Corporation ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lender executed a certain First Amendment and Joinder to Amended and Restated Loan and Security Agreement ("First Amendment"). D. On April 2, 1993, Borrower, USLDC, USLDI and USBI and Lender executed a certain Second Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Second Amendment"). E. On October 1, 1993, Borrower, USLDC, USLDI, USBI and Lender executed a certain Third Amendment to Amended and Restated Loan and Security Agreement ("Third Amendment"). F. USLDC's wholly owned subsidiary, USLD Acquisition Corp. ("USLDA"), is merging with Telecom West, Inc. The name of the successor corporation to this merger shall be USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"). G. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Letter Agreement, the First Amendment, the Second Amendment and the Third Amendment are hereinafter collectively referred to as the "Existing Loan Documents." NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 2 1. a. Telecom hereby joins in, assumes, adopts and agrees to be subject to the terms and conditions of the Existing Loan Documents, as amended hereby, and the Obligations evidenced thereby. Without limiting the generality of the foregoing, Telecom shall be liable, as surety, for all Obligations now existing or hereafter incurred, including without limitation the Revolving Credit Note and the Term Notes, and Telecom grants to Lender a continuing first lien on and security interest in all of its assets of the type described as Collateral in Section 4 of the Loan Agreement, including without limitation all now owned or hereafter acquired Accounts, General Intangibles, and Equipment, and including all cash and non-cash proceeds of all of the foregoing. b. The Loan Agreement is hereby amended to provide that in each instance where the term "Guarantors" or "Guarantor" appears, such term or terms shall jointly and severally include a reference to Telecom. 2. Borrower shall deliver or cause Guarantors to deliver the following to Lender prior to Closing (all documents to be in form and substance satisfactory to Lender): a. This fully executed Fourth Amendment and any other documents required by any provision hereof; b. A Corporate Guaranty executed by Telecom guaranteeing, as surety, all Obligations (as defined in the Loan Agreement); 3 c. UCC-1 financing statements covering the Collateral of Telecom which is pledged to Lender hereunder; d. UCC, federal and state tax lien and judgment searches for Telecom indicating that upon filing of the UCC-l financing statements described in (c) above, Lender shall have a first priority security interest in the Collateral pledged by Telecom to Lender; and e. Certified copies of resolutions of Borrower's and Guarantors' (including Telecom) board of directors authorizing the execution of this Fourth Amendment, and all agreements and documents referred to herein. 3. Guarantors hereby accept and approve the terms and conditions of this Fourth Amendment and covenant and agree that all Obligations, as modified by this Fourth Amendment, are covered by the Corporate Guarantees, and such Corporate Guarantees remain in full force and effect. 4. The parties acknowledge and agree that this Fourth Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Fourth Amendment is or may be deemed expressly inconsistent with any term or provision of the Existing Loan Documents, the terms and provisions hereof shall control. 4 5. a. All capitalized terms not otherwise defined herein shall the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. 6. REPRESENTATIONS AND WARRANTIES. Telecom represents and 5 warrants that Telecom is qualified to do business in the State of Oregon. INTENDING TO BE LEGALLY BOUND, the undersigned parties have executed this Fourth Amendment and Joinder to the Amended and Restated Loan Agreement the date and year first written above. ZERO PLUS DIALING, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. LONG DISTANCE, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. LONG DISTANCE CORP. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- U.S. BILLING, INC. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- USLD ACQUISITION CORP. By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- BELL ATLANTIC TRICON LEASING CORPORATION By: [ILLEGIBLE NAMES] ------------------------------- Attest: [ILLEGIBLE NAMES] --------------------------- 6 FIFTH AMENDMENT AND JOINDER TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Fifth Amendment to Amended and Restated Loan and Security Agreement ("Fifth Amendment") is made this 16th day of November, 1993 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, STS Telecommunications, Inc. ("STS"), a Texas corporation with its chief executive officer and principal place of business at 1049 North 3rd Street, Abilene, Texas 79604 and Bell Atlantic Capital Corp. (formerly known as Bell Atlantic Tricon Leasing Corporation) ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lender executed a certain First Amendment and Joinder to Amended and Restated Loan and Security Agreement ("First Amendment"). D. On April 2, 1993, Borrower, USLDC, USLDI and USBI and Lender executed a certain Second Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Second Amendment"). E. On October 1, 1993, Borrower, USLDC, USLDI, USBI and Lender executed a certain Third Amendment to Amended and Restated Loan and Security Agreement ("Third Amendment"). F. On October 1, 1993, USLDC's wholly owned subsidiary, USLD Acquisition Corp. ("USLDA"), merged with Telecom West, Inc. The name of the successor corporation to this merger shall be USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"). G. On October 1, 1993, Borrower, USLDC, USLDI, USBI, USLDA, Telecom and Lender executed a certain Fourth Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Fourth Amendment") H. STS, J.T. Poorman, Lou Poorman, Brad Poorman, Tony Poorman (J.T. Poorman, Lou Poorman, Brad Poorman and Tony Poorman 2 are collectively referred to herein as the "Individual Owners") NTS Communications, Inc. ("NTS") and USLDC entered into that certain Stock Purchase Agreement dated as of November 2, 1993 (the "STS Stock Purchase Agreement"). Pursuant to the STS Stock Purchase Agreement, USLDC agreed to purchase all of the issued and outstanding shares of STS from the Individual Owners and NTS, by no later than December 31, 1993. I. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Letter Agreement, the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment are hereinafter collectively referred to as the "Existing Loan Documents." NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof; the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. a. STS hereby joins in, assumes, adopts and agrees to be subject to the terms and conditions of the Existing Loan Documents, as amended hereby, and the Obligations evidenced thereby. Without limiting the generality of the foregoing, STS shall be liable, as surety, for all Obligations now existing or hereafter incurred, including without limitation the Revolving Credit Note and the Term Notes, and STS grants to Lender a continuing first lien on and security interest in all of its assets of the type described as Collateral in Section 4 of the Loan Agreement, including without limitation all now owned or 3 hereafter acquired Accounts, General Intangibles, and Equipment, and including all cash and non-cash proceeds of all of the foregoing. b. The Loan Agreement is hereby amended to provide that in each instance where the term "Guarantors" or "Guarantor" appears, such term or terms shall jointly and severally include a reference to STS. 2. Borrower shall deliver or cause Guarantors to deliver the following to Lender prior to Closing (all documents to be in form and substance satisfactory to Lender): a. This fully executed Fifth Amendment and any other documents required by any provision hereof; b. A Corporate Guaranty executed by STS guaranteeing, as surety, all Obligations (as defined in the Loan Agreement); c. UCC-1 financing statements covering the Collateral of STS which is pledged to Lender hereunder; d. UCC, federal and state tax lien and judgment searches for STS indicating that upon filing of the UCC-1 financing statements described in (c) above, Lender shall have a first priority security interest in the Collateral pledged by STS to Lender; and e. Certified copies of resolutions of Borrower's and Guarantors' (including STS) board of directors authorizing the execution of this Fifth Amendment, and all agreements and documents referred to herein. 4 3. Guarantors hereby accept and approve the terms and conditions of this Fifth Amendment and covenant and agree that all Obligations, as modified by this Fifth Amendment, are covered by the Corporate Guarantees, and such Corporate Guarantees remain in full force and effect. 4. The parties acknowledge and agree that this Fifth Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Fifth Amendment is or may be deemed expressly inconsistent with any term or provision of the Existing Loan Documents, the terms and provisions hereof shall control. 5. a. All capitalized terms not otherwise defined herein shall the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. 6. REPRESENTATIONS AND WARRANTIES. STS represents and warrants that STS is qualified to do business in the State of Oregon. 5 INTENDING TO BE LEGALLY BOUND, the undersigned parties have executed this Fifth Amendment and Joinder to the Amended and Restated Loan Agreement the date and year first written above. ZERO PLUS DIALING INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President U.S. LONG DISTANCE, INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President U.S. LONG DISTANCE CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President U.S. BILLING, INC Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President USLD ACQUISITION CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President [SIGNATURES CONTINUED ON NEXT PAGE] 6 STS TELECOMMUNICATIONS, INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: President BELL ATLANTIC CAPITAL CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ----------------------------- ---------------------------- Title: Staff Vice President 7 SIXTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This sixth Amendment to Amended and Restated Loan and Security Agreement ("Sixth Amendment") is made as of December 7, 1993 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 Ban Pedro, Suite 300, San Antonio, Texas, 78216, U.S. Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, STS Telecommunications, Inc. ("STS"), a Texas corporation with its chief executive officer and principal place of business at 1049 North 3rd Street, Abilene, Texas 79604 and Bell Atlantic Capital Corp. (formerly known as Bell Atlantic TriCon Leasing corporation) ("Lender"). BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Ban and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lab executed a certain First Amendment and Joinder to Amended and Related Loan and Security Agreement ("First Amendment"). D. On April 2, 1993, Borrower, USLDC, USLDI and USBI and Lender executed a certain Second Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Second Amendment"). E. On October 1, 1993, Borrower, USLDC, USLDI, USBI and Lender executed a certain Third Amendment to Amended and Restated Loan and Security Agreement ("Third Amendment"). F. On October 1, 1993, USLDC's wholly owned subsidiary, USLD Acquisition Corp. ("USLDA"), merged with Telecom West, Inc. The name of the successor corporation to this merger is USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"). G. On October 1, 1993, Borrower, USLDC, USLDI, USBI, USLDA, Telecom and Lender executed a certain Fourth Amendment and Joinder to Amended and restated loan and Security Agreement ("Fourth Amendment"). H. On November 16, 1993, Borrower, USLDC, USLDI, USBI, Telecom, STS and Lender executed a certain Fifth Amendment to 2 Amended and restated Loan and Security Agreement ("Fifth Amendment'). I. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Later Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment are hereinafter collectively referred to as the "Existing Loan Documents." NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. The definition of Approved Carrier in the Loan Agreement shall be deleted and replaced in its entirety to read as follows: APPROVED CARRIER - any operator service provider or interexchange carrier (collectively, an "OSP") which beets each of the following requirements to Lender's satisfaction in the exercise of its sole discretion: (i) such OSP shall have executed and delivered the Carrier Contract and the Addendum thereto, and UCC-1 financing statements to perfect Borrower's interests in the Accounts being purchased, which financing statements shall also indicate that Lender is the assignee thereof; and (ii) Borrower shall have received copies of a Uniform Commercial Code searches and judgment, state and federal tax lien searches against such OSP where such OSP's principal place of business is located, indicating that there are no liens against any of the Accounts of Such OSP. 2. The definition of Borrowing Bale in the Loan Agreement shall be deleted and replaced in its entirety to read as follows: BORROWING BASE - as at any date of determination thereof, an amount up to the lesser of (A) the Credit Line, or (B) eighty percent (80%) of the gross amount of Eligible Account: outstanding at such date (the "Advance Rate"), provided, however, 3 that Lender may, in its sole discretion, adjust the Advance Rate as follows; (i) if the Dilution Factor exceeds eight percent (8.0%), the Advance Rate may be reduced by Lender to seventy-five percent (75.0%), (ii) if the Dilution Fact or exceeds eleven percent (11.0%), the Advance Rate may be reduced by Lender to seventy percent (70.0%), or (iii) it the Dilution Factor exceeds fifteen percent (15.0%), the Advance rate may be reduced by Lender two (2) percentage points for each one (1) percentage point increase in the Dilution Factor over fifteen percent (15.0%) and if the Dilution Factor exceeds fifty percent (50.0%), the Advance Rate may be reduced by Lender to zero percent (0.0%). All changes to the Advance Rate may result from the review of the Dilution Factors on a quarterly basis or whenever a field examination is performed. For purposes hereof, the gross amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts without deducting any discounts, credits, unbillability or uncollectability, whether or not due to fraud and allowances of any nature at any time, but not including any excise taxes owing in connection with such Accounts. 3. The definition of Credit Line in the Loan Agreement shall be deleted and replaced in its entirety to read as follows: CREDIT LINE - as at any date of determination thereof, the total amount available to Borrower under the Revolving Credit Facility shall be Forty-Five Million Dollars ($45,000,000) during the original Term, unless, Borrower, at its sole option as lang as no Event of Default exists or would exist with the passage of time or notice or both, has notified wider in writing ninety (90) days prior to the third year of the original Tea that Borrower requests that the total amount to be available under the Revolving Credit Facility be increased, in which case the total amount available to Borrower under the Revolving Credit Facility shall be increased to sixty Million Dollars ($60,000,000) during the third year of the Original Term and during any Renewal Tar: thereafter. 4. The definition of Eligible Account in the Loan Agreement shall be deleted and replaced in its entirety to read as follows: ELIGIBLE ACCOUNT - A LEC Receivable or USLD Receivable arising in the ordinary course of business which Lender, in its reasonable judgment, deems to be an Eligible Account. 4 No LEC Receivable shall be an Eligible LEC Receivable if: (i) such Account arises out of a sale made by an Approved Carrier to a Subsidiary or an Affiliate of such Approved Carrier or of Borrower (other than sales by U.S. Long Distance, Inc.) or to a Person controlled by an Affiliate of such Approved Carrier or of Borrower, or (ii) such Account is unpaid more than ninety (90) days after the date of the applicable billing tape or transmission date; or (iii) fifty percent (50%) or more of the LEC Receivables from a LEC are not deemed Eligible Accounts hereunder; or (iv) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; or (v) the LEC has disputed liability with respect to a LEC Receivable, or has made any claim with respect to any other LEC Receivable due from the LEC to Borrower, to the extent of any dispute or claim; or (vi) the LEC has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a Court having jurisdiction over the LEC in an involuntary case under the federal bankruptcy law, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the LEC, or if the LEC has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (vii) Lender believes, in its reasonable judgment, that collection of such LEC Receivable is insecure or that payment thereof is doubtful or will be delayed by reason of the LEC's financial condition; or (viii) the LEC Receivable is subject to a Lien; or (ix) more than thirty-five percent (35%) of Borrower's total Accounts consist of LEC Receivables from the LEC; or (x) the LEC Receivable is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xi) Borrower has made any agreement with a LEC for any deduction therefrom, except for post-billing adjustments which are made in the ordinary course of business and except as provided in the applicable Billing Contract; or (xii) Borrower has made an agreement with the LEC to extend the time of payment thereof, unless notwithstanding such agreement payment is made within ninety (90) days of the billing tape date or transmission date, or (xiii) such LEC Receivable does not arise from the purchase by Borrower from the Approved Carrier originating the End User Account which has been sold, assigned or transferred to a LEC to create such LEC Receivable pursuant to the terms set forth in the Carrier Contract in the form attached to the Loan Agreement as EXHIBIT 1.1; or (xiv) more than twenty-five percent (25%) of Borrower's total accounts consist of or arise from End User Accounts purchased from any single OSP; or (xv) call records for such Account have not been subjected to validation acceptable to Lender or have dilution rates which are unacceptable to Lender. 5 No USLD Receivable shall be an Eligible USLD Receivable if: (i) such Account arises out of a sale made by an Approved Carrier to a Subsidiary or an Affiliate of such Approved Carrier or of Account Debtor or to a Person controlled by an Affiliate of such Approved Carrier or of Account Debtor; or (ii) such Account is unpaid more than ninety (90) day. after the date of the applicable billing tape or transmission date; or (iii) fifty percent (50%) or more of the USLD Receivables from an Account Debtor are not deemed Eligible Accounts hereunder; or (iv) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; or (v) the Account Debtor has disputed liability with respect to a USLD Receivable, or has made any claim with respect to any other USLD Receivable due from the Account Debtor to USLD, Inc., to the extent of any dispute or claim; or (vi) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction over the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against any Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (vii) Lender believes, in its reasonable judgment, that collection of such USLD Receivable is insecure or that payment thereof is doubtful or will be delayed by reason of the Account Debtor's financial condition; or (viii) the USLD Receivable is subject to a Lien; or (ix) loft than thirty-five percent (35%) of USLD, Inc.'s total Accounts consist of USLD Receivables from a single Account Debtor; or (x) the USLD Receivable is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xi) USLD, Inc. has made any agreement with an Account Debtor for any deduction therefrom, except for post-billing adjustments which are made in the ordinary course of business and except as provided in the applicable Billing Contract; or (xii) USLD, Inc. has made an agreement with the Account Debtor to extend the time of payment thereof, unless notwithstanding such agreement payment is made within ninety (90) days of the billing tape date or transmission date. Lender has financed, and may continue in the future to finance Persons in the same or similar business as Borrower which loans are, and shall be, secured by LEC Receivables of various Persons (the LEC Loan Program"). Borrower acknowledges that Lender's LEC Loan Program (which shall include Lender's loans under this Agreement to Borrower) limits Lender's aggregate loans to all borrowers thereunder which are secured by LEC Receivables as follows: (i) the aggregate Accounts due from any single Bell 6 Operating Telephone Company (each, a "BOC") which secure loans under the LEC Loan Program shall not exceed at any one time in the aggregate for all Persons Twenty Five Million Dollars ($25,000,000.00), (ii) the aggregate Accounts due from any single telephone company unit of GTE, United Telephone, and Centel which secure loans under the LEC Loan Program shall not exceed at any one time in the aggregate for all Persons Fifteen Million Dollars ($15,000,000.00), and (iii) the aggregate Accounts due from any other single LEC which is not a BOC which secure loans under the LEC loan Program shall not exceed such lesser ceilings as may be established by Lender from time to time on a case by case basis. USLD, Inc. acknowledges that Lender may from time to time in its sole discretion increase or decrease the above per BOC and per LEC ceilings. Due to the above stated restrictions on the LEC Loan Program, Lender may from time to time exclude certain Eligible Accounts from the respective Borrowing Bases of borrowers under the LEC Loan Program exceed the ceilings set forth above, as such ceilings may from time to time be increased or decreased by Lender. Lender shall provide Borrower with prompt notice of Lender's becoming aware that Lender has reached ninety percent (90%) of its limit for a specific LEC. 5. The definition of USLD Receivable in the Loan Agreement shall be deleted and replaced in its entirety to read as follows: USLD RECEIVABLE - shall mean all accounts receivable of U.S. Long Distance, Inc. arising out of 0+ or 1+ services provided by (7.5. Long Distance, Inc. to an Account Debtor. 6. The following definitions in the Loan Agreement are hereby deleted: (i) Class 1 OSP Certification; (ii) Collateral and Credit Criteria List; and (iii) OSP Certification Form. 7. Section 2.1(B) of the Loan Bent shall be deleted and shall be replaced in its entirety to read: (B) The Revolving Credit Loans shall be used by Borrower for its working capital needs, including without limitation, for the purchase of certain End User Accounts from OSPs and for acquisitions permitted hereunder, to the extent not otherwise inconsistent with the terms of this Agreement. 8. A new Section 2.1(C) shall be added to Loan Agreement and shall read in its entirety as follows: 7 (C) The outstanding balance under the Revolving Credit Facility may fluctuate from time to time, to be reduced by repayments made by Borrower, to be increased by future advances and extensions of credit which may be made by Lender to or for the benefit of Borrower. For the purposes of this Agreement, any determination as to whether there is availability within the Borrowing Base for advances or extensions of credit shall be determined by Lender, in its sole discretion, in accordance with the provisions this Agreement and such determination shall be final and binding upon Borrower. Subject to availability under the Borrowing Base, the fulfillment of any other conditions to borrowing contained in this Agreement and the absence of an Event of Default or any event which with the giving of notice or passage of time or both would become an Event of Default, Borrower may borrow, repay and reborrow under the Revolving Credit Facility from time to time during the Original Term. 9. Section 2.6 of the Loan Agreement which was added in the First Amendment and Joinder to Amended and Restated Loan and Security Agreement dated December 26, 1992 shall be deleted in its entirety. 10. Section 3.1(A) of the Loan Agreement shall be deleted and replaced in its entirety to read as follows: (A) Interest shall accrue on the principal amount of the Revolving Credit Loans outstanding at the end of each day at a fluctuating rate per annum equal to one-half of one percent (0.5%) above the Base Rate in effect on such day. Interest shall accrue on the principal amount of the Term Loans outstanding at the end of each day at a fluctuating rate per annum equal to one-half of one percent (0.5%) above the Base Rate in effect on such day. After the date hereof, the foregoing rate of interest shall be increased or decreased, as the case may be, by an amount equal to any increase or decrease in the Base Rate, with such adjustments to be effective as of the opening of business on the day that any such change in the Base Rate becomes effective. The Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the date hereof, but if this Agreement is executed on a day that is not a Business Day, the Base Rate in effect on the date hereof shall be the Base Rate effective as of the opening of business on the last Business Day immediately preceding the date hereof. Interest shall be calculated on a daily basis (computed on the actual number of bays elapsed over a year of 360 days), commencing on the date hereof, and shall be payable monthly, in arrears, on the first Business Day of each month. 11. Section 2.2 or the Loan Agreement shall be deleted and shall be replaced in its entirety to read: 8 3.2 FEES. (A) Borrower shall pay to Lender on the date of this Sixth Amendment, a commitment fee equal to one-half of one percent (0.5%) of the credit Line as of the date hereof which fee shall be deemed to have been fully earned as of the date hereof and shall be paid as follows: $112,500 on the date hereof, $56,250 on December 14, 1994 and $56,250 on December 14, 1995. (B) Borrower shall pay to Lender a revolving loan facility fee equal to one half of one percent (0.5%) of Fifteen Million Dollars ($15,000,000) if the Credit Line increases from Forty-Five Million Dollars ($45,000,000) to Sixty million Dollars ($60,000,000), payable on the date of such increase. (C) Borrower shall pay to lender monthly, in arrears, an unused facility fee equal to one quarter of one percent (0.25%) per annum multiplied by the difference between the average outstanding daily loan balance of the Revolving Line of Credit and the Credit Line for the month, which fee shall be payable on the first Business Day after the end of any month. 12. Section 3.3 of the Wan Agreement shall be deleted and shall be replaced in its entirety to read: 3.3 TERM OF AGREEMENT. Subject to Lender's right to cease making Loans to Borrower at any time upon or after the occurrence of any Default or Event of Default, the provisions of this Agreement shall be in effect from the date hereof through December 21, 1996 (the "Original Term"), unless terminated as provided in Section 3.4 hereof and may be extended by the written consent of Lender and Borrower (the "Renewal Term"). 13. Section 4.1(E) of the Loan Agreement shall be deleted and shall be replaced in its entirety to read: (E) Equipment (excluding, however, all Equipment hereafter acquired by Borrower). 14. Section 7.1(I) of the Loan Agreement shall be deleted and shall be replaced in its entirety to read: (I) VISITS AND INSPECTIONS. Permit representatives of Lender, from time to time as often as way be requested, to visit and inspect the Properties of borrower or any Guarantor, to inspect and make extracts from their books, records, and corporate minutes and to discuss with their officers, their employees and their independent accountants, the business, 9 assets, liabilities, financial condition, business prospects and results of operations of Borrower or any Guarantor. Borrower shall pay all of Lender's out-of-pocket expenses incurred under this section. 15. The following sections of the Loan Agreement shall be deleted: (i) 7.3(A); and (ii) 7.3(C). Section 7.3(B) is hereby renamed as Section 7.3(A). 16. In addition to the reporting requirements set forth in Section 7.1(J) of the Loan Agreement, Borrower shall cause to be prepared and furnished to lender the following (all to be kept and prepared in accordance with GAAP applied on a consistent basis unless Borrower's and/or Guarantor's certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with (i) as soon as possible, but not later than forty (40) days after the close of each month, unaudited monthly and year to date financial statements of Borrower and Guarantors, together with consolidating financial information, and all supporting schedules, all certified by the Vice President and Treasurer, chief financial officer or President of Borrower and Guarantors; (ii) as soon as possible but not later than fifteen (15) days after the close of each month, Borrower shall deliver a list of all OSPs participating in Borrower's advance funding program; (iii) as soon as possible but not later than fifteen (15) days after the close of each month, a report in form and substance acceptable to Lender, which sets forth the monthly dilution rates by OSP; and (iv) as soon as possible but not later than thirty (30) days prior to the end of any fiscal year, Borrower and 10 Guarantors shall deliver annual projections, on a month by month basis, for the coming fiscal year. 17. Lender and Borrower agree that Lender shall service Borrower's account from its King of Prussia, Pennsylvania office and Borrower agrees to address all Notices required under Section 10.10 of the Loan Agreement to be addressed as follows: Bell Atlantic Capital Corp. 1060 First Avenue, Suite 100 King of Prussia, PA 19406 Attention; Frank Monzo with copies to: Bell Atlantic Capital Corp. 95 N. Route 17 South Paramus, NJ 07653 Attention: Fred Bauman, Esquire Blank, Rome, Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 Attention: Lawrence F. Flick, II, Esquire 18. Borrower shall cause to be delivered to Lender on the date hereof, the favorable, written opinion of counsel to Borrower: and Guarantor:, regarding Borrowers and Guarantors, the loan Agreement, the Sixth Amendment and the transactions contemplated thereby, in form and substance acceptable to Lender and its counsel. 19. Any Disbursing latter provided by Borrower to Lender under Section 2. 2 (A) of the Loan Agreement shall contain such reporting information and borrowing base documentation as required by Lender in its sole discretion. 11 20. The parties acknowledge and agree that this sixth Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Sixth Amendment is or may be deemed expressly inconsistent with any term or provision of the Existing Loan Documents, the terms and provisions hereof shall control. 21. All capitalized terms not otherwise defined herein shall the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. INTENDING TO BE LEGALLY BOUND, the undersigned parties have executed this Sixth Amendment to Amended and Restated Loan Agreement the date and year first written above. ZERO PLUS DIALING, INC. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: Vice President and Treasurer ---------------------------- [SIGNATURES CONTINUED ON NEXT PAGE] 12 [SIGNATURES CONTINUED FROM PREVIOUS PAGE] U.S. LONG DISTANCE, INC. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: President ---------------------------- U.S. LONG DISTANCE CORP. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: President ---------------------------- U.S.BILLING, INC. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: President ---------------------------- USLD ACQUISITION CORP. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: President ---------------------------- STS TELECOMMUNICATIONS, INC. Attest: [ILLEGIBLE] By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: President ---------------------------- BELL ATLANTIC CAPITAL CORP. Attest: By: [ILLEGIBLE] ---------------------------- ---------------------------- Title: Vice President ---------------------------- 13 SEVENTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Seventh Amendment to Amended and Restated Loan and Security Agreement ("Seventh Amendment") is made as of March 17, 1994 among Zero Plus Dialing, Inc. ("Borrower"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Long Distance Corp. ("USLDC"), a Delaware corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S Long Distance, Inc. ("USLDI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, U.S. Billing, Inc. ("USBI"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"), a Texas corporation with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216, STS Telecommunications, Inc. ("STS"), a Texas corporation with its chief executive officer and principal place of business at 1049 North 3rd Street, Abilene, Texas 79604, Enhanced Services Billing, Inc., a Delaware corporation and wholly owned subsidiary of USLDC with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216 ("Enhanced"), California Acquisition Corp., a Texas corporation and wholly owned subsidiary of USLDC with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216 ("CAC"), a Texas corporation and wholly owned subsidiary of USLDC with its chief executive office and principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216 ("TAC"), and Bell Atlantic Capital Corp. ("Lender") BACKGROUND A. On May 24, 1991, Borrower, USLDC, USLDI, and Lender entered into a certain Amended and Restated Loan and Security Agreement ("Loan Agreement") and certain related agreements and instruments, to reflect certain loan arrangements among the parties. B. On or about May 24, 1991, Borrower and Lender executed a certain letter agreement ("Letter Agreement") clarifying certain terms of the Loan Agreement. C. On December 28, 1992, Borrower, USLDC, USLDI and USBI and Lender executed a certain First Amendment and Joinder to Amended and Restated Loan and Security Agreement ("First Amendment"). D. On April 2, 1993, Borrower, USLDC, USLDI and USBI and Lender executed a certain Second Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Second Amendment"). E. On October 1, 1993, Borrower, USLDC, USLDI, USBI and Lender executed a certain Third Amendment to Amended and Restated Loan and Security Agreement ("Third Amendment"). 2 F. On October 1, 1993, USLDC's wholly owned subsidiary, USLD Acquisition Corp. ("USLDA"), merged with Telecom West, Inc. The name of the successor corporation to this merger is USLD Acquisition Corp. d/b/a Telecom West, Inc. ("Telecom"). G. On October l, 1993, Borrower, USLDC, USLDI, USBI, USLDA, Telecom and Lender executed a certain Fourth Amendment and Joinder to Amended and Restated Loan and Security Agreement ("Fourth Amendment"). H. On November 16, 1993, Borrower, USLDC, USLDI, USBI, Telecom, STS and Lender executed a certain Fifth Amendment to Amended and Restated Loan and Security Agreement ("Fifth Amendment"). I. On December 7, 1993, Borrower, USLDC, USLDI, USBI, Telecom, STS and Lender executed a certain Sixth Amendment to Amended and Restated Loan and Security Agreement ("Sixth Amendment"). J. The Loan Agreement, the related agreements and instruments executed in connection therewith, the Letter Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, and the Sixth Amendment are hereinafter collectively referred to as the "Existing Loan Documents." K. On March 17, 1994, USLDC formed Enhanced as its wholly owned subsidiary for the purposes of billing and collecting "900" calls. 3 L. Pursuant to an Agreement and Plan of Merger dated as of March 1, 1994 by and among USLDC, TAC and Inland Call America, Inc. ("Inland") and the sole individual shareholders of Inland, Inland was merged into TAC. M. Pursuant to an Agreement and Plan of Merger dated as of March 14, 1994 and effective as of March 15, 1994, by and among USLDC, CAC and Donyda, Inc. d/b/a Call America of Palm Desert and Call America of San Diego ("Donyda") and Donald C. Clem, Nancy C. Clem and David M. Clem (the sole individual shareholders of Donyda), Donyda was merged into CAC. NOW THEREFORE, with the foregoing Background hereinafter deemed incorporated by reference herein and made a part hereof, the parties hereto, intending to be legally bound, hereby promise and agree as follows: 1. a. Enhanced, TAC and CAC each hereby joins in, assumes, adopts and agrees to be subject to the terms and conditions of the Existing Loan Documents, as amended hereby, and the Obligations evidenced thereby. Without limiting' the generality of the foregoing, Enhanced, TAC and CAC shall each be liable, as surety, for all Obligations now existing or hereafter incurred, including, without limitation, the Revolving Credit Note and the Term Notes, and Enhanced, TAC and CAC each grants to Lender a continuing first lien on and security interest in all of its assets of the type described as Collateral in Section 4 of the Loan Agreement, including, without limitation, all now owned or hereafter acquired Accounts, General Intangibles, and 4 Equipment, and including all cash and non-cash proceeds of all of the foregoing. b. The Loan Agreement is hereby amended to provide that in each instance where the term "Guarantors" or "Guarantor" appears, such term or terms shall jointly and severally include a reference to Enhanced, TAC and CAC. 2. Borrower shall deliver or cause Guarantors to deliver the following to Lender prior to Closing (all documents to be in form and substance satisfactory to Lender): a. This fully executed Seventh Amendment and any other documents required by any provision hereof; b. A Corporate Guaranty executed by Enhanced, TAC and CAC each guaranteeing, as suretys, all Obligations (as defined in the Loan Agreement); c. UCC-1 financing statements covering the Collateral of Enhanced, TAC and CAC which are pledged to Lender hereunder; d. UCC, federal and state tax lien and judgment searches for Enhanced, TAC and CAC indicating that upon filing of the UCC-1 financing statements described in (c) above, Lender shall have a first priority security interest in the Collateral pledged by Enhanced, TAC and CAC to Lender; and e. Certified copies of resolutions of each of Enhanced, TAC and CAC's board of directors authorizing the execution of this Seventh Amendment, and all agreements and documents referred to herein. 5 3. Guarantors hereby accept and approve the terms and conditions of this Seventh Amendment and covenant and agree that all Obligations, as modified by this Seventh Amendment, are covered by the Corporate Guarantees, and such Corporate Guarantees remain in full force and effect. 4. The parties acknowledge and agree that this Seventh Amendment is incorporated into and made part of the Existing Loan Documents, the terms and provisions of which, unless expressly modified herein, or unless no longer applicable by their terms, continue unchanged and in full force and effect. To the extent that any term or provision of this Seventh Amendment is or may be deemed expressly inconsistent with any term or provision of the Existing Loan Documents, the terms and provisions hereof shall control. 5. a. All capitalized terms not otherwise defined herein shall the meanings as set forth in the Existing Loan Documents; b. No modification hereof or any agreement referred to herein shall be binding or enforceable unless in writing and signed on behalf of the party against who enforcement is sought; c. No rights are intended to be created hereunder for the benefit of any third party donee, creditor, or incidental beneficiary. 6. REPRESENTATIONS AND WARRANTIES. Enhanced, TAC and CAC each represents and warrants that Enhanced, TAC and CAC are qualified to do business in their respective states of incorporation and in any other state or commonwealth where 6 Enhanced, TAC and CAC conduct business unless not being qualified will not affect their ability to conduct business in such state or commonwealth. INTENDING TO BE LEGALLY BOUND, the undersigned parties have executed this Seventh Amendment and Joinder to the Amended and Restated Loan Agreement the date and year first written above. ZERO PLUS DIALING INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT U.S. LONG DISTANCE, INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT U.S. LONG DISTANCE CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT U.S. BILLING, INC Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT 7 USLD ACQUISITION CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT CALIFORNIA ACQUISITION CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT TELECOM ACQUISITION CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT STS TELECOMMUNICATIONS, INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: President ENHANCED BILLING SERVICES, INC. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: PRESIDENT BELL ATLANTIC CAPITAL CORP. Attest: [ILLEGIBLE NAME] By: [ILLEGIBLE NAME] ---------------------------- ---------------------------- Title: Staff Vice President 8 CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. (herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this 24th day of May, 1991 U.S. LONG DISTANCE CORP. -------------------------------------- (Corporate Name) a Delaware Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, ------------------------------ San Antonio, TX 78216 ------------------------------ By: /s/ MARK D. BUCKNER --------------------------------- Mark D. Buckner Title: Vice President, Finance ------------------------------- Attest: /s/ KELLY SIMMONS ------------------------------ (Corporate Seal) CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with ZERO PLUS DIALING INC. (herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this 24th day of May, 1991 U.S. LONG DISTANCE INC. -------------------------------------- (Corporate Name) a Texas Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, ----------------------------- San Antonio, TX 78216 ----------------------------- By: /s/ MARK D. BUCKNER --------------------------------- Title: ------------------------------- Attest: /s/ KELLY SIMMONS ------------------------------ (Corporate Seal) CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with ZERO PLUS DIALING INC. (herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this 24th day of May, 1991 U.S. LONG DISTANCE CORP. -------------------------------------- (Corporate Name) a Delaware Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, ----------------------------- San Antonio, TX 78216 ----------------------------- By: /s/ MARK D. BUCKNER --------------------------------- Title: ------------------------------- Attest: /s/ KELLY SIMMONS ------------------------------ (Corporate Seal) CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. (herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this 24th day of May, 1991 ZERO PLUS DIALING, INC. -------------------------------------- (Corporate Name) a Delaware Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, ----------------------------- San Antonio, TX 78216 ----------------------------- By: /s/ KELLY SIMMONS --------------------------------- Kelly Simmons Title: Vice President ------------------------------- Attest: /s/ MARK D. BUCKNER ------------------------------ (Corporate Seal) CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. Identification. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. AND ZERO PLUS DIALING, INC. (collectively herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this ____ day of October, 1993. USLD ACQUISITION CORP. -------------------------------------- (Corporate Name) a Texas Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, ----------------------------- San Antonio, TX 78216 ----------------------------- By: /s/ LARRY M. JAMES -------------------------------------- Title: Larry M. James, President -------------------------------------- Attest: /s/ KELLY E. SIMMONS -------------------------------------- Kelly E. Simmons, Treasurer/Asst. Secy (Corporate Seal) CORPORATE GUARANTY TO: Bell Atlantic-TriCon Leasing Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with ZERO PLUS DIALING, INC. & U.S. LONG DISTANCE, INC. (collectively herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this ____ day of NOVEMBER, 1993. STS TELECOMMUNICATIONS, INC. -------------------------------------- (Corporate Name) a TEXAS Corporation -------------------------------------- Address: -------------------------------------- By: /s/ LARRY M. JAMES -------------------------------------- Title: President -------------------------------------- Attest: [ILLEGIBLE] -------------------------------------- (Corporate Seal) CORPORATE GUARANTY TO: TriCon Capital Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. & ZERO PLUS DIALING, INC. (collectively herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this ____ day of ____________, ____. TELECOM ACQUISITION CORP. -------------------------------------- (Corporate Name) a Texas Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, San Antonio, TX 78216 -------------------------------------- By: /s/ LARRY M. JAMES -------------------------------------- Title: President -------------------------------------- Attest: [ILLEGIBLE] -------------------------------------- (Corporate Seal) CORPORATE GUARANTY TO: TriCon Capital Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. and ZERO PLUS DIALING, INC. (collectively herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this ____ day of ____________, ____. ENHANCED SERVICES BILLING, INC. -------------------------------------- (Corporate Name) a Delaware Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, San Antonio, TX 78216 -------------------------------------- By: /s/ LARRY M. JAMES -------------------------------------- Title: President -------------------------------------- Attest: [ILLEGIBLE] -------------------------------------- (Corporate Seal) CORPORATE GUARANTY TO: TriCon Capital Corporation 1060 First Avenue Suite 200 King of Prussia, PA 19406 1. IDENTIFICATION. This Guaranty is made by each of the undersigned, jointly and severally if more than one, in your favor, in order to induce you to enter into one or more notes, loan agreements and/or security agreements (herein, the "Agreements"), with U.S. LONG DISTANCE, INC. & ZERO PLUS DIALING, INC. (collectively herein, the "Debtor"), or to otherwise extend or continue financial accommodations in favor of the Debtor or to acquire obligations or indebtedness owing by the Debtor. 2. GUARANTY OBLIGATION. (a) We unconditionally guarantee to you and undertake the obligations of a surety with respect to the following described obligations and liabilities of the Debtor (herein, the "Debtor's Liabilities"): (i) the prompt payment in full of any and all now existing or hereafter arising indebtedness or obligations of the Debtor to you of every kind or nature, whether acquired by you by negotiation, assignment or otherwise, and whether direct or indirect, absolute or contingent, matured or unmatured, or otherwise, and including without limitation all advances and other loans now or at any time hereafter made by you to the Debtor under or secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FROM TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and (ii) the prompt, full and faithful performance and discharge by the Debtor of each and every term, condition, agreement, representation, warranty and provision on the part of the Debtor contained in any of the Agreements or in any modification, amendment or substitution thereof or in any other document or instrument evidencing or securing any obligation or indebtedness of the Debtor to you. (b) We shall, on your demand, reimburse you for all expenses, collection charges, court costs and attorneys' fees incurred by you in endeavoring to collect Debtor's Liabilities, and to enforce, protect or defend any of your rights and remedies against us and/or the Debtor or against any other person or entity primarily or secondarily liable for the obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or against or with respect to any property, real or personal, now or hereafter granted to or obtained by you as security for Debtor's Liabilities or for our liabilities and obligations to you hereunder or for those of any Obligor (herein, "Secured Property"), together with interest thereon until reimbursed at a rate equal to five (5) percent above the rate of interest payable on the Debtor's Liabilities guaranteed hereby (or the highest rate permitted by law) of the amount due by us to you. 3. LIABILITY ABSOLUTE; WAIVERS. (a) We shall pay all of the foregoing amounts and perform all of the foregoing terms, covenants and conditions notwithstanding that any part or all of the Agreements or other documents or instruments evidencing the Debtor's Liabilities, or any financial accommodation for or transaction with the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in whole or in part, as against the Debtor, any property of the Debtor, or any of Debtor's creditors, including a trustee in bankruptcy of Debtor or Debtor as a debtor-in- possession, including without limitation by reason of any theory or provision of law or equity, statutory or otherwise, relating to consideration, or the lack thereof, or to any alleged fraudulent, preferential or other improper transfer or conveyance, and including further, without limitation, by reason of failure by any person, including yourself, to file any document or take any other action to make any of your rights against the Debtor, any other Obligor or any property, pursuant to the Agreements or otherwise, enforceable in accordance with their respective terms. (b) You shall have the right from time to time, and at any time, without notice to or consent from us, and without affecting, impairing or discharging, in whole or in part, our obligations to you hereunder, to enter into agreements with the Debtor or any other Obligor to modify, change or supplement, in any respect whatsoever, any evidence of indebtedness, or any agreement or transaction between you and the Debtor or between you and any other Obligor, or any portion or provision of any thereof; to grant extensions of time and other indulgences of any kind to the Debtor or other Obligor; to compromise, release, substitute, exercise, enforce, or fail or refuse to exercise or enforce any claims, rights or remedies of any kind which you may have, at any time, against the Debtor or any other Obligor, or any portion thereof, or with respect to any Secured Property; and to release, substitute or surrender and to enforce, collect or liquidate any security of any kind held by you at any time, and all of the foregoing whether done negligently, willfully or otherwise. (c) Our obligations to you shall not be affected, impaired or discharged, in whole or in part, by reason of your failure to obtain, in the first instance, rights against any person or entity, including without limitation, the Debtor, or in or with respect to any property, or to protect, perfect, continue or maintain any such rights. (d) We waive notice of acceptance hereof and all notices and demands of any kind to which we may otherwise be entitled including, without limitation, all demands of payment and notice of nonpayment, protest and dishonor, to us or to the Debtor, or to the makers or endorsers of any notes or other instruments for which we are or may be liable hereunder, and further waive notice of any adverse change in the Debtor's financial condition, the value of any Secured Property, or any other fact which might materially increase our risk to you hereunder. (e) We waive any right to require you to, prior to proceeding against us hereunder: (i) proceed against Debtor and/or any other Obligor; (ii) proceed against or exhaust any Secured Property; or (iii) pursue any other remedy which you may have. 4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF. Our liability to you hereunder is primary, absolute, unconditional, continuing, direct and independent of the obligations of the Debtor. Nothing shall discharge or satisfy our liability hereunder except the full performance and payment of all of the Debtor's Liabilities. In the event that all of Debtor's Liabilities shall have at any time been paid and performed in full, this Guaranty and our obligations hereunder shall nevertheless remain in full force and effect and be operative with respect to Debtor's Liabilities incurred or arising at any time or times thereafter. We shall have no right of subrogation, reimbursement or indemnity whatsoever and no right of recourse to or with respect to the Debtor and/or any property of the Debtor, unless and untIl all of Debtor's Liabilities have been paid and performed in full. Our liability to you hereunder shall not be subject to set-off, counterclaim, crossclaim or defense arising out of or by virtue of any claim or right which we may at any time have against the Debtor or other Obligor, or which we may at any time have against you in connection with this or any other transaction with or acquired by you. 5. CONTINUING NATURE OF GUARANTY. Our obligations under this Guaranty shall be continuing. This instrument shall continue in full force and effect until our obligations to you are terminated by the actual receipt by you of written notice from us of such termination. Such termination shall be applicable only to such of Debtor's Liabilities as have their inception thereafter. Specifically, without limitation, we shall, after and notwithstanding such termination, remain obligated to you under the terms hereof for: (i) all of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, including interest or other finance charges at any time theretofore accrued or thereafter accruing or payable thereon, (ii) all of your costs and expenses, including attorney's fees, at any time incurred in connection with your enforcement and collection of Debtor's Liabilities incurred prior to your actual receipt of such notice of termination, (iii) Debtor's Liabilities incurred subsequent to your actual receipt of such notice of termination pursuant to any perceived or actual commitment made on your part prior to such notice of termination, arising out of any course of dealing or other perceived or actual legal or other requirement obligating or committing you to make advances, loans or other financial accommodations giving rise to such Debtor's Liabilities, and (iv) advances at any time made by you to protect your interests under or in connection with Debtor's Liabilities incurred prior to your actual receipt of such notice of termination. We acknowledge that, upon such termination, you will have absolutely no further obligation to consider any further requests for loans or other extensions of credit or financial accommodations for the Debtor. 6. SECURITY FOR GUARANTY. All sums at any time to our credit and any of our present and future property at any time in your possession shall be deemed held by you as security for any and all of our obligations to you hereunder. 7. SUBORDINATION. Any and all present and future indebtedness and obligations of the Debtor to us are hereby agreed to be postponed in your favor. Upon written notice given by you to us, which you may give at any time whether or not the Debtor is in default to you, we will refrain from accepting any payments on account of such indebtedness tendered by the Debtor or any other Obligor thereon, or realized from any security therefor, and any amounts received by us in violation of the foregoing shall be held by us upon an express trust for your benefit and turned over to you upon demand. Until such notice, we will accept only such payments which are in the nature of regularly scheduled payments made pursuant to periodic reductions required by the terms of the documents evidencing such indebtedness, and shall not accept any prepayment thereof, whether on default, on demand under any demand instrument, or otherwise. We represent to you that all such indebtedness owing to us is, and agree that it shall remain, and any future indebtedness shall be unsecured 8. NO WAIVER. No failure, omission or delay on your part in exercising any rights hereunder or under the Agreements or with respect to Debtor's Liabilities, either against the Debtor or any other Obligor, or any Secured Property, shall operate as a waiver of any such rights or shall, in any manner, prejudice your rights against us hereunder or otherwise. 9. CUMULATIVE REMEDIES. All of your rights and remedies under the Agreements, this Guaranty and under any other document or instrument evidencing or securing Debtor's Liabilities are separate and cumulative and may be pursued separately, successively or concurrently, are non-exclusive and the exercise of any one or more of them shall in no way limit or prejudice any other legal or equitable right, remedy or recourse to which you may be entitled. This Guaranty shall be deemed to be in addition to, and not in lieu of, any prior suretyship or guaranty delivered by us to you, and any suretyship or guaranty at any time hereafter delivered by us to you shall be deemed to be in addition to, and not in lieu of, this Guaranty. 10. APPLICATION OF FUNDS. Any payment made by us hereunder, or by the Debtor or any other Obligor, and any proceeds realized by you from any Secured Property, may be applied by you to any of Debtor's Liabilities in any order which you may determine, notwithstanding any designation by us, the Debtor or other Obligor to the contrary. To the extent that the Debtor has at any time any liabilities or obligations to you for which we are not obligated to you under the terms of this Guaranty, any payments received by you from the Debtor or any other Obligor, or proceeds realized by you from any security, and regardless of any designation by any person or entity to the contrary, may be applied by you to such other liabilities and obligations prior to your applying any amounts to Debtor's Liabilities for which we are obligated to you hereunder. 11. MODIFICATIONS. No provision hereof shall be modified or limited, except by a written agreement expressly referring hereto and to the provision so modified or limited, and signed by us and you. 12. MERGER. This writing is intended as a final, complete and exclusive expression of our agreement with you relative to the subject matter hereof. No course of prior dealing between you and us, no usage of the trade, and no parole or extrinsic evidence of any nature, shall be used or be relevant to supplement or explain or modify any term used in this Guaranty. 13. SEVERABILITY. In case any one or more of the provisions contained in this Guaranty shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions hereof, and this Guaranty shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14. NOTICES. We agree that any notice or demand upon us shall be deemed to be sufficiently given or served if it is in writing and is personally served, or in lieu of personal service is mailed by first class certified mail, postage prepaid, addressed to us at the address set forth below. Any notice or demand so mailed shall be deemed received on the date of actual receipt or the first business day following mailing, whichever first occurs. 15. JUDGMENT INTEREST. Any judgment entered against us hereunder shall, to the extent permitted by applicable law, bear interest at the highest rate applicable to the Debtor's Liabilities guaranteed hereby. 16. GOVERNING LAW. THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED HEREIN IS INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT HAVING JURISDICTION THEREOF. 17. WAIVER OF JURY TRIAL. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE. 18. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of your successors and assigns and shall be binding on our successors and assigns. 19. GENDER; JOINT AND SEVERAL LIABILITY. If there be more than one person or entity signing this Guaranty, each of us will be jointly and severally obligated to you hereunder, and the terms "we", "us" or "our" as used herein shall refer to each of us jointly and severally. If less than all persons or entities who were intended to sign this Guaranty do so, the same shall nevertheless be binding upon those who do sign. IN WITNESS WHEREOF, the undersigned has duly executed this Guaranty this ____ day of ____________, ____. CALIFORNIA ACQUISITION CORP. -------------------------------------- (Corporate Name) a Texas Corporation -------------------------------------- Address: 9311 San Pedro, Suite 300, San Antonio, TX 78216 -------------------------------------- By: /s/ LARRY M. JAMES -------------------------------------- Title: President -------------------------------------- Attest: [ILLEGIBLE] -------------------------------------- (Corporate Seal) ESCROW AND DISBURSING AGREEMENT This Agreement is made this the 24th day of May, 1991 by and between Zero Plus Dialing, Inc., a Delaware corporation ("ZPDI"), Bell Atlantic-Tricon Leasing Corporation, a Delaware corporation ("BATCL") and Texas Commerce Bank National Association's Custody Group ("Escrow Agent"). WHEREAS, ZPDI has entered into various Billing and Collection Agreements with certain Billing Telephone Companies (the "BTCs"), as set forth on Exhibit A attached hereto, whereby the BTCs provide interstate and intrastate billing and collection services for ZPDI and its customers; and WHEREAS, ZPDI has previously entered into Billing and Collection Services Agreements with certain customers of ZPDI who provide telephone operator services to various end-users (the "Carriers"), pursuant to which ZPDI has agreed, among other things, to prepare and submit to the BTCs certain System Billed Telephone Traffic which the BTCs have agreed to purchase (the "Accounts Receivable"); and WHEREAS, ZPDI and the Carriers have entered into a certain Addendum to the Billing and Collection Services Agreement (as amended, (the "Carrier Contracts") Exhibit B attached hereto, pursuant to which ZPDI will purchase the Accounts Receivable from the Carriers on the terms and conditions set forth therein; and WHEREAS, BATCL is in the business of providing financing, including the financing of accounts receivable; and WHEREAS, ZPDI has requested BATCL to continue to finance its acquisition of the Accounts Receivable pursuant to the terms of a certain Amended and Restated Loan and Security Agreement dated the date hereof between ZPDI and BATCL (the "Loan Agreement") Exhibit C attached hereto; and WHEREAS, pursuant to the terms of the Loan Agreement, BATCL has required that ZPDI establish a Dominion Account (as defined in the Loan Agreement) into which all collections and proceeds of the sale of the Accounts Receivable to the BTCs (the "ZPDI Accounts") shall be deposited; and WHEREAS, ZPDI has an existing lock box with Escrow Agent, Account Number 200809, wherein the BTCs forwarded the Accounts Receivable made payable to ZPDI c/o the Lock Box Account, which Accounts Receivable are subsequently deposited to an account (the "Clearing Account"), Account Number 00101752013, where Escrow Agent is the sole authorized signatory on such account which reads: Bell Atlantic TriCon Leasing Corporation for the benefit of Zero Plus Dialing, Inc., Clearing Account, which account is located at Escrow Agent's branch office at 600 Travis Street in Houston, Texas; and -2- WHEREAS, BATCL and ZPDI have agreed that all amounts in the Clearing Account shall continue to be deposited, on a daily basis into the Dominion Account. NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and to induce BATCL to continue finance the ZPDI Accounts and Escrow Agent to perform its functions hereunder, ZPDI, BATCL and Escrow Agent, each intending to be legally bound, agree as follows: 1. The Escrow Agent shall continue to deposit proceeds from the Lock Box Account directly into the Clearing Account. 2. Pursuant to the automatic standing transfer form already in affect, the Cash Management Department of Escrow Agent shall continue to transfer the collected balance in the Clearing Account, at the start of each Business Day, to Escrow Agent's Custody Group ("EACG") for deposit directly into the Dominion Account. The Cash Management Department of Escrow Agent will provide ZPDI with deposit information through its TEXCOM system which will allow ZPDI to reconcile the account daily. The charges for the services of the Escrow Agent are detailed in Exhibit D attached hereto and will be paid by ZPDI. -3- 3. Upon receipt by EACG of a disbursement form, in the form of Exhibit E, attached hereto (the "Disbursement Authorization") which Disbursement Authorization is fully executed by an authorized representative of BATCL and ZPDI, EACG agrees to immediately disburse the collected funds in the Dominion Account, in accordance with the instructions therein. The Disbursement Authorization(s) will be transmitted by telefax to EACG no later than 12:00 p.m. on any business day, for wire transfer that same day. 4. Upon written notice from Lender to the EACG certifying that at least five (5) days have passed since Lender has given Borrower notice that Lender believes that a portion of the proceeds in the Dominion Account represent the proceeds of Lender's Collateral in excess of that previously shown on any Disbursement Authorization (the "Disputed Amount"), the EACG shall immediately make disbursements from the Dominion Account to Lender, in the amount represented by Lender to be the Disputed Amount, in accordance with a Disbursement Authorization executed solely by Lender. In addition, upon written notice from Lender to EACG that an Event of Default has occurred under the Loan Agreement, the EACG shall make all disbursements from the Dominion Account in accordance with a Disbursement Authorization executed solely by Lender, until further notice by Lender that such default has been cured. -4- 5. A. ZPDI represents, warrants, covenants and agrees that: (1) It is a corporation presently in good standing in the state of Delaware and has proper authority to transact business and is registered as a foreign corporation in the state of Texas; (2) It has Billing and Collection Agreements with the BTCs listed on Exhibit A, attached hereto and made a part hereof; (3) ZPDI is the sole and absolute owner of each ZPDI Account, subject only to BATCL's security interest therein; (4) There is no defense, offset or counterclaim against any of the Accounts Receivable or the ZPDI Accounts, and no agreement has been made under which ZPDI or any Carrier may claim any deductions or discounts, except for ZPDI's collection and service fees and charges pursuant to the terms of the Carriers' Contracts, and the BTCs' charges. (5) No BTC will dispute or refuse to pay more than ten percent (10%) of the aggregate Accounts Receivable presented for collection. -5- 6. ZPDI hereby agrees to indemnify Escrow Agent for any losses that Escrow Agent may suffer as a result of ZPDI's breach of any of its warranties or covenants, representations or agreements hereunder. 7. AGENTS DUTIES A. All parties understand and agree that Escrow Agent is not a principal, participant, or beneficiary of the financing transaction underlying this Agreement. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in acting or refraining from acting on any instrument believed by it to be genuine and to have been signed or presented by the proper party or parties, their officers, representatives or agents. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized hereby, nor for action taken or omitted by it in accordance with the advice of its counsel. Escrow Agent shall be responsible for holding and disbursing the funds on deposit in the Dominion Account (the "Escrowed Assets") pursuant to the Agreement. Escrow Agent has no knowledge of or responsibility for the terms, obligations or provisions of any related agreements hereto, nor the representations or warranties of the other parties contained herein. -6- B. Subject to the terms of paragraph four (4) above, should any controversy arise between the undersigned with respect to this Escrow Agreement, Escrow Agent shall have the right to consult and/or to institute a bill of interpleader in any court of competent jurisdiction to determine the rights of the parties. Should such actions be necessary, or should Escrow Agent become involved in litigation in any manner whatsoever on account of or in connection with this Escrow Agreement or the Escrowed Assets, the undersigned hereby bind and obligate themselves, their legal representatives, successors and assigns to pay Escrow Agent reasonable attorneys' fees incurred by Escrow Agent, and any other disbursements, expenses, losses, costs and damages in connection with or resulting from such actions. C. The Escrow Agent shall have no liability under, or duty to inquire beyond the terms and provisions of the Agreement, and it is agreed that its duties are purely ministerial in nature, and that the Escrow Agent shall incur no liability whatsoever so long as it has acted in good faith, except for liability occasioned by Escrow Agent's willful misconduct or gross negligence. The Escrow Agent shall not be bound by any modification, amendment, termination, cancellation, recision or supercision of this Escrow Agreement, unless the same shall be in writing and signed by all of the other parties hereto and, if its -7- duties as Escrow Agent hereunder are affected thereby, unless it shall have given its prior written consent thereto. D. The Escrow Agent may at any time resign hereunder by giving written notice of its resignation to the other parties hereto, at their addresses set forth herein, at least thirty (30) days prior to the date specified for such resignation to take effect. Upon the effective date of such resignation, the Escrowed Assets hereunder shall be delivered to-such person as may be designated in writing by the appropriate parties executing this Escrow Agreement, whereupon all the Escrow Agents' obligations hereunder shall cease and terminate. The escrow Agents' sole responsibility until such termination shall be to keep safely all Escrowed Assets and to deliver the same to a person designated by appropriate parties executing this Escrow Agreement or in accordance with the directions of a final order or judgment of a court of competent jurisdiction. E. The parties agrees to be severally liable only for their own acts and not jointly liable, agree to indemnify, defend and hold Escrow Agent harmless for the tax, liability and expenses that may be incurred by Escrow Agent arising out of or in connection with its acceptance or appointment as Escrow Agent hereunder, including the legal costs and expenses of defending itself against any claim or liability in connection with its -8- performance hereunder. This provision shall survive the term of the Agreement. Notwithstanding the foregoing, the parties agree to be jointly and severally liable with respect to any costs incurred by the Escrow Agent, which costs are incurred in the ordinary course of the Escrow Agent's duties and not costs arising from any claim or liability incurred by Escrow Agent. F. ZPDI agrees to pay to the Escrow Agent its fees for the services rendered pursuant to the provisions of this Escrow Agreement and will reimburse the Escrow Agent for reasonable expenses, including reasonable attorneys's fees, incurred in connection with the negotiations, drafting and performance of such services. Except as otherwise noted, this fee covers set-up and termination expenses, plus usual and customary related administrative services such as safekeeping, investment and payment of funds specified herein or in the exhibits attached. Activities requiring excessive administrator time or out-of-pocket expenses such as optional substitution of collateral or securities shall be deemed extraordinary expenses for which related costs, transaction charges, and additional fees will be billed at Escrow Agent's standard charges for such items. G. ZPDI agrees to indemnify the Escrow Agent fully for any tax liability, penalty or interest incurred by the Escrow Agent arising hereunder and agrees to pay in full any such tax -9- liability together with penalty and interest if any is ultimately assessed against the Escrow Agent for any reason as a result of its action hereunder (except for the Escrow Agent's individual income tax liability). H. The Escrow Agent shall have no liability for loss arising from any cause beyond its control, including, but not limited to, the following: a) the act, failure or neglect of any agent or correspondent selected by the Escrow Agent or the parties hereto; (b) any delay, error, omission or default connected with the remittance of funds; c) any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator; d) the acts of edicts of any government or governmental agency or other group or entity exercising governmental powers. I. This Escrow Agreement shall be governed by and construed in accordance with the laws of the state of Texas, except that the portions of the Texas Trust Code Sec. 111.001, et seq. of the Property Code, V.A.T.S. concerning fiduciary duties and liability of Trustees shall not apply to this Agreement. The parties hereto expressly waive such duties and liabilities, it being their intent to create solely an agency relationship and hold the Escrow Agent liable only in the event of its gross -10- negligence or willful misconduct in order to obtain the lower fee schedule rates as specifically negotiated with the Escrow Agent. J. It is understood by all parties to this agreement that Escrow Agent will not have investment responsibilities for the funds in the Dominion Account unless otherwise authorized in writing by BATCL or ZPDI, nor shall Escrow Agent be responsible for the collection of funds or checks or other deposits. Escrow Agent or its Commercial Department shall be reimbursed by ZPDI, U.S. Long Distance and/or any of its subsidiaries for any item returned and may deduct any overdraft amounts or charges or losses incurred thereby from ZPDI's or U.S. Long Distance's demand deposit or trust accounts at Escrow Agent's Houston or San Antonio branch offices. K. Escrow Agent is hereby given a lien on all Escrowed Assets to be distributed to ZPDI for all fees, expenses, taxes, indebtedness, and other financial obligations that may become owing to Escrow Agent arising hereunder, including any indemnities prescribed herein, which lien may be enforced by Escrow Agent without notice or presentment by set-off or appropriate foreclosure proceedings. In all cases, any unpaid fees may be deducted by Escrow Agent without prior written notice before final disbursement of Escrowed Assets. -11- 8. This Agreement shall continue in force and effect until Escrow Agent receives written notice of cancellation from BATCL. Upon receipt of written notice, the Escrow Agent will perform the following: A. Advise parties to this Agreement of receipt of cancellation notice; and B. Request of BATCL a statement of outstanding loans attributable to any Carrier; and C. Continue to perform Escrow Agent duties as outlined in Paragraph 6 above until such time as the obligations identified in Paragraph 8B above have been satisfied or until Escrow Agent shall resign pursuant to the terms hereof. 9. The terms and conditions of this Agreement shall prevail if in conflict with the terms and conditions of any other attached or related agreement. BELL ATLANTIC-TRICON LEASING CORPORATION BY: /s/ G. ALEXANDER COLE ------------------------------------ G. Alexander Cole - - --------------------------------------- (Printed or Typed Name) (Additional Signatures On Next Page) TITLE: Vice President --------------------------------- -12- ZERO PLUS DIALING, INC. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: /s/ KELLY E. SIMMONS ------------------------------- Kelly E. Simmons - - ---------------------------------- (Printed or Typed Name) TITLE: Vice President ---------------------------- TEXAS COMMERCE BANK NATIONAL ASSOCIATION Attn: Rodney Crowl and Steve Scott Custody Group 600 Travis Street, Suite 1150 Houston, TX 77002 BY: ------------------------------- - - ---------------------------------- (Printed or Typed Name) TITLE: ---------------------------- U.S. Long Distance Corp. and U.S. Long Distance, Inc. hereby jointly and severally unconditionally guarantee the prompt performance of any and all of ZPDI's representations, warranties, covenants and agreements hereunder. U.S. LONG DISTANCE CORP. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: /s/ Mark D. Buckner ------------------------------- - - ---------------------------------- (Printed or Typed Name) TITLE: ---------------------------- U.S. LONG DISTANCE, INC. 9311 San Pedro, Suite 300 San Antonio, TX 78216 BY: /s/ Mark D. Buckner ------------------------------- - - ---------------------------------- (Printed or Typed Name) TITLE: ---------------------------- -13- EX-21.1 17 EXHIBIT 21.1 EXHIBIT 21.1 LIST OF SUBSIDIARIES The following is a list of all subsidiaries of the Company, jurisdiction of incorporation or organization and the percentage of shares owned, directly or indirectly, by the Company assuming the consummation of the Preliminary Transactions. STATE OR OTHER JURISDICTION OF PERCENTAGE OF NAME INCORPORATION SHARES OWNED ---- -------------- ------------ Billing Information Concepts, Inc. Delaware 100% Enhanced Billing Services, Inc. Texas 100% EX-27 18 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR BILLING INFORMATION CONCEPTS CORP. AS OF AND FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1996 OCT-01-1995 MAR-31-1996 32,582 0 20,368 0 0 116,062 8,687 3,239 122,295 85,978 1,805 0 100 1 34,355 122,295 0 50,301 0 32,145 0 0 154 14,466 5,497 8,969 0 0 0 8,969 0 0 DOES NOT INCLUDE INTEREST EXPENSE OF $598 RELATED TO THE COMPANY'S ADVANCE FUNDING PROGRAM
EX-99.1 19 EXHIBIT 99.1 ANNEX 1 SCHEDULE 14C INFORMATION Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 (Amendment No. ) Check the appropriate box: /X/ Preliminary Information Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) / / Definitive Information Statement U.S. LONG DISTANCE CORP. - - -------------------------------------------------------------------------------- (Name of Registrant As Specified In Charter) U.S. LONG DISTANCE CORP.* - - -------------------------------------------------------------------------------- (Name of Person(s) Filing the Information Statement) Payment of Filing Fee (Check the appropriate box): / / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g). /X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. 1) Title of each class of securities to which transaction applies: Common Stock ------------------------------------------------------------------------ 2) Aggregate number of securities to which transaction applies: 14,839,486 ------------------------------------------------------------------------ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11** Pro forma book value per share of the Common Stock to be distributed was $2.32 as of March 31, 1996 ------------------------------------------------------------------------ 4) Proposed maximum aggregate value of transaction: $34,427,607 ------------------------------------------------------------------------ 5) Total fee paid: $6,885.52 ------------------------------------------------------------------------ / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ------------------------------------------------------------------------ 2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------ 3) Filing Party: ------------------------------------------------------------------------ 4) Date Filed: ------------------------------------------------------------------------ - - ------------------------ * On behalf of Billing Information Concepts Corp. ** Set forth the amount on which the filing fee is calculated and state how it was determined. [LETTERHEAD OF U.S. LONG DISTANCE CORP.] , 1996 To the Stockholders of U.S. Long Distance Corp.: The Board of Directors of U.S. Long Distance Corp. ("USLD") has approved the distribution of the outstanding shares of common stock of its wholly owned subsidiary, Billing Information Concepts Corp. ("Billing"), to holders of USLD Common Stock. Billing will operate the third party billing clearinghouse and information management services business formerly operated by USLD through certain of its subsidiaries and will be a major third-party billing clearinghouse for records resulting from telephone calls and other transactions carried by its customers. These customers consist primarily of direct dial long distance telephone companies and operator services and information services providers. The enclosed Information Statement contains information about the distribution and related transactions and other important financial and other information about Billing, its organization, business, management and other matters. If you are a holder of USLD Common Stock of record at the close of business on , 1996, you will receive as a dividend one share of Billing Common Stock for each share of USLD Common Stock you hold. No fractional shares will be issued. We expect to mail the Billing Common Stock certificates on or about , 1996. The Board of Directors believes that the spinoff will enhance value to USLD's stockholders. The spinoff will provide Billing with more efficient access to capital markets to finance the anticipated growth of its business. The spinoff will separate two distinct companies with different missions and different financial, investment and operating characteristics so that each can pursue business strategies and objectives appropriate to its specific business. The direct dial long distance and operator services provided by USLD through its telecommunications group and the third party billing clearinghouse and information management services provided by Billing are operated by distinct management teams, and separation of the businesses should result in greater focus of the management teams on the core strengths that make each business successful and allow for more effective incentives for key employees of each group. In addition, the spinoff will eliminate the perceived concern of Billing's customers and potential customers who compete with USLD's telecommunications group that Billing's affiliation with USLD could compromise customer proprietary information. Moreover, as a result of the spinoff, USLD will be able to compete with customers of Billing for the provision of telecommunications services without concern for the impact on Billing. The separation will permit investors, customers, lenders and other constituencies to evaluate the respective businesses of USLD and Billing. USLD will continue its telecommunications services business, offering direct dial long distance services primarily to small and medium sized commercial customers and operator services for the hospitality and private pay telephone industries. The Information Statement is being sent to stockholders of record of USLD as of the date hereof. Stockholders of record on the record date for the Distribution automatically participate in the Distribution. We are not asking you for a proxy, and stockholder approval of the Distribution is neither required nor sought. Because USLD will continue as a separate entity, your share certificate of USLD must be retained. You will receive new Billing share certificates. We are excited about this restructuring and the growth opportunities it will create for each company and their respective stockholders. Sincerely, Parris H. Holmes, Jr. CHAIRMAN [LETTERHEAD OF BILLING INFORMATION CONCEPTS CORP.] , 1996 To the Stockholders of U.S. Long Distance Corp.: The enclosed Information Statement contains important financial and other information about Billing Information Concepts Corp. (the "Company"), the corporation of which you will become a stockholder if you own shares of U.S. Long Distance Corp. as of the record date for the distribution. We want to welcome you as a stockholder and invite you to learn more about our company. The Company believes it is the largest third-party billing clearinghouse and information management services provider to the telecommunications industry. Through our contractual billing arrangements with over 1,200 local telephone companies, we process telephone call records and other transactions and collect the related end-user charges from these local telephone companies on behalf of our customers. Our customers primarily consist of direct dial long distance telephone companies, who use the Company as a billing clearinghouse for processing and collecting call records generated by their end-users, and operator services providers, who provide operator services largely to the hospitality, penal and private and public pay telephone industries. In 1994, the Company began providing enhanced billing services for processing transactions related to providers of premium services or products that also can be billed through the local telephone companies, such as charges for 900 access pay-per-call transactions, cellular long distance services, paging services, voice mail services, caller ID and other telecommunications equipment charges. In addition to its billing clearinghouse services, the Company also offers billing management services to customers who have their own arrangements with the local telephone companies. These management services may include data processing, accounting, end-user customer service, telecommunication tax processing and reporting. We at Billing are excited about the future of our Company and the impact our services can have in the growing telecommunications industry and elsewhere. Sincerely, Alan W. Saltzman PRESIDENT INFORMATION STATEMENT BILLING INFORMATION CONCEPTS CORP. COMMON STOCK (PAR VALUE $.01 PER SHARE) This Information Statement is being furnished in connection with the distribution (the "Distribution") by U.S. Long Distance Corp. ("USLD") to holders of record of USLD common stock ("USLD Common Stock") as of the close of business on , 1996 (the "Record Date"), of one share of common stock, par value $.01 per share (together with the associated rights issued pursuant to a stockholder rights plan, collectively the "Billing Common Stock"), of Billing Information Concepts Corp. ("Billing" or the "Company"), for each share of USLD Common Stock owned as of the close of business on the Record Date, pursuant to the terms of a Distribution Agreement between Billing and USLD dated , 1996. Billing is a wholly owned subsidiary of USLD that will, upon the effectiveness of the Distribution, own the business and assets of, and will be responsible for the liabilities associated with, the third party billing clearinghouse and information management services business currently owned by USLD. See "Special Factors" and "Business." The Distribution will result in 100% of the outstanding shares of Billing Common Stock being distributed to holders of USLD Common Stock on a pro rata basis. No consideration will be paid by USLD's stockholders for shares of Billing Common Stock. The Distribution is scheduled to occur on , 1996 (the "Distribution Date"). See "The Distribution." There is no current public market for the Billing Common Stock, although it is expected that a "when-issued" trading market will develop prior to the Distribution Date. Billing Common Stock has made application to list and believes that the Billing Common Stock will be approved for listing on the Nasdaq National Market subject to official notice of issuance. See "The Distribution -- Listing and Trading of the Billing Common Stock." ------------------------ NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION, NO PROXIES ARE BEING SOLICITED, AND YOU ARE REQUESTED NOT TO SEND US A PROXY. ------------------------ 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 INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ------------------------ Stockholders of USLD with inquiries related to the Distribution should contact Investor Relations, USLD, 9311 San Pedro, Suite 100, San Antonio, Texas 78216, Telephone: (210) 525-6228; or the Billing Common Stock Transfer Agent, Montreal Trust Company of Canada, Montreal Trust Centre, 510 Burrard Street, Vancouver, British Columbia V6C 3B9, Telephone: (604) 661-0275. Montreal Trust is also acting as Distribution Agent for the Distribution. ------------------------ The date of this Information Statement is , 1996. TABLE OF CONTENTS
PAGE ----- SUMMARY.................................................................................................... 4 SPECIAL FACTORS............................................................................................ 11 Lack of Operating History as a Separate Entity; Limited Relevance of Historical Financial Information.... 11 Absence of USLD Financial Support........................................................................ 11 Dependence upon Key Personnel; Management of Growth...................................................... 11 Dependence on Proprietary Technology..................................................................... 11 Absence of Trading Market for the Billing Common Stock................................................... 11 Changes in Trading Prices of USLD Common Stock........................................................... 12 Certain Anti-Takeover Features........................................................................... 12 Uncertainty of Tax Consequences.......................................................................... 12 Certain Consent Requirements............................................................................. 13 Dividend Policy.......................................................................................... 13 The Relationship Between USLD and Billing................................................................ 13 Fraudulent Transfer Considerations; Legal Dividend Requirements.......................................... 13 Dependence upon Contracts with Local Telephone Companies................................................. 14 Anticipated Billing System Expenditures.................................................................. 14 Competition.............................................................................................. 14 Forward-Looking Information May Prove Inaccurate......................................................... 15 THE DISTRIBUTION........................................................................................... 15 Reasons for the Distribution............................................................................. 15 Opinions of Financial Advisor............................................................................ 16 Distribution Agent....................................................................................... 18 Manner of Effecting the Distribution..................................................................... 18 Results of Distribution.................................................................................. 18 Listing and Trading of the Billing Common Stock.......................................................... 19 Certain Federal Income Tax Consequences of the Distribution.............................................. 20 Conditions; Termination.................................................................................. 22 Reasons for Furnishing the Information Statement......................................................... 23 RELATIONSHIP BETWEEN BILLING AND USLD AFTER THE DISTRIBUTION............................................... 23 Distribution Agreement................................................................................... 23 Benefit Plans and Employment Matters Allocation Agreement................................................ 24 Tax Sharing Agreement.................................................................................... 29 Transitional Services and Sublease Agreement............................................................. 30 Billing Agreement........................................................................................ 30 Telecommunications Agreement............................................................................. 30 Policies and Procedures for Addressing Conflicts......................................................... 30 PRELIMINARY TRANSACTIONS................................................................................... 31 ACCOUNTING TREATMENT....................................................................................... 31 DIVIDEND POLICY............................................................................................ 31 CAPITALIZATION............................................................................................. 32 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET............................................................. 33 SELECTED HISTORICAL FINANCIAL DATA......................................................................... 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 37 Results of Operations.................................................................................... 37 Liquidity and Capital Resources.......................................................................... 40 Advance Funding Program and Receivable Financing Facility................................................ 41 Seasonality.............................................................................................. 42 Effect of Inflation...................................................................................... 42
2
PAGE ----- New Accounting Standards................................................................................. 42 BUSINESS................................................................................................... 43 General.................................................................................................. 43 Industry Background...................................................................................... 43 Development of Business.................................................................................. 44 Billing Clearinghouse and Information Management Services................................................ 45 Billing Process.......................................................................................... 45 Operations............................................................................................... 46 Customers................................................................................................ 47 Competition.............................................................................................. 47 Business Strategy........................................................................................ 48 Employees................................................................................................ 49 Properties............................................................................................... 49 Litigation............................................................................................... 49 MANAGEMENT................................................................................................. 51 Board of Directors and Committees of the Board........................................................... 51 Compensation of Directors................................................................................ 51 Board of Directors and Executive Officers................................................................ 53 EXECUTIVE COMPENSATION..................................................................................... 54 Stock Option Grants in Fiscal 1995....................................................................... 55 Aggregated Option Exercises in Fiscal 1995 and Fiscal Year-End Option Values............................. 55 Employee Benefit Plans................................................................................... 56 Employment Agreements and Change-of-Control Arrangements................................................. 64 Compensation Committee Interlocks and Insider Participation.............................................. 66 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 66 DESCRIPTION OF CAPITAL STOCK............................................................................... 67 General.................................................................................................. 67 Common Stock............................................................................................. 67 Billing Stockholder Rights Plan and Junior Preferred Stock............................................... 68 Preferred Stock.......................................................................................... 68 No Preemptive Rights..................................................................................... 68 Transfer Agent and Registrar............................................................................. 68 PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF BILLING'S CERTIFICATE AND BYLAWS AND DELAWARE LAW....................................................................................................... 68 Billing's Certificate and Bylaws......................................................................... 68 Stockholder Rights Plan.................................................................................. 72 Business Combinations with Interested Stockholders....................................................... 74 LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.................................................... 74 INDEPENDENT ACCOUNTANTS.................................................................................... 76 ADDITIONAL INFORMATION..................................................................................... 76 INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1 Annex A - Opinion of The Chicago Corporation Annex B - Opinion of Houlihan Lokey Howard & Zukin Annex C - Amended and Restated Certificate of Incorporation of Billing Information Concepts Corp. Annex D - Bylaws of Billing Information Concepts Corp. Annex E - Billing Information Concepts Corp. 1996 Employee Comprehensive Stock Plan Annex F - Billing Information Concepts Corp. 1996 Non-Employee Director Plan Annex G - Billing Information Concepts Corp. 1996 Employee Stock Purchase Plan
3 SUMMARY THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS INFORMATION STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED BY, THE MORE DETAILED INFORMATION SET FORTH IN THIS INFORMATION STATEMENT AND THE ANNEXES HERETO, WHICH SHOULD BE READ IN ITS ENTIRETY. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS INFORMATION STATEMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS INFORMATION STATEMENT TO BILLING PRIOR TO THE CONSUMMATION OF THE DISTRIBUTION INCLUDE USLD'S BILLING CLEARINGHOUSE AND INFORMATION MANAGEMENT SERVICES BUSINESS CONDUCTED THROUGH CERTAIN OF ITS SUBSIDIARIES, AND REFERENCES TO BILLING AFTER CONSUMMATION OF THE DISTRIBUTION INCLUDE BILLING, ITS PREDECESSORS AND ITS SUBSIDIARIES. THE DISTRIBUTION Distributing Company.............. U.S. Long Distance Corp., a Delaware corporation ("USLD"). References herein to USLD include its consolidated subsidiaries except where the context otherwise requires. Distributed Company............... Billing Information Concepts Corp. ("Billing" or the "Company"), a Delaware corporation that currently is a wholly owned subsidiary of USLD, and that, as of the Distribution Date, will own the third party billing clearinghouse and information management services business which is currently owned by USLD and conducted through certain of its subsidiaries (the "Billing Group"). Distribution Ratio................ Each USLD stockholder will receive one share of the Billing Common Stock for each share of USLD Common Stock held on the Record Date. Shares to be Distributed.......... Approximately 14,839,486 million shares of Billing Common Stock (based on 14,839,486 million shares of USLD Common Stock outstanding on May 10, 1996). The shares to be distributed will constitute all of the outstanding shares of Billing Common Stock immediately after the Distribution. Record Date....................... Close of business on , 1996. Distribution Date................. , 1996. Mailing Date...................... Certificates representing the shares of Billing Common Stock to be distributed pursuant to the Distribution will be delivered to the Distribution Agent on the Distribution Date. The Distribution Agent will mail certificates representing the shares of Billing Common Stock to holders of USLD Common Stock as soon as practicable thereafter. Holders of USLD Common Stock should not send stock certificates to USLD, Billing or the Distribution Agent. See "The Distribution -- Manner of Effecting the Distribution." Distribution Agent and Transfer Agent............................ Montreal Trust Company of Canada. Conditions to the Distribution.... The Distribution is conditioned upon, among other things, declaration of the special dividend by the Board of Directors of USLD (the "USLD Board"). The USLD Board has reserved the right to waive any conditions to the Distribution or, even if all of the conditions to the Distribution are satisfied, to
4 abandon, defer or modify the Distribution at any time prior to the Distribution Date. See "The Distribution -- Conditions; Termination." Principal Businesses to be Retained by USLD................. USLD will retain the direct dial long distance telecommunication services and operator services businesses, including its internal billing functions (the "Telecommunications Group"). Reasons for the Distribution...... The USLD Board believes that the spinoff will enhance value to USLD's stockholders. The separation will provide Billing with more efficient access to capital markets to finance the anticipated growth of its business. The spinoff also will eliminate the perceived concern of those customers or potential customers of the Billing Group who compete with the Telecommunications Group that doing business with the Billing Group assists a competitor and could compromise customer proprietary information. In addition, the spinoff will permit the Telecommunications Group to compete for the provision of telecommunications services with customers of the Billing Group without any concern as to affecting that customer's relationship with Billing. The Distribution is designed to separate two distinct companies with different missions and different financial, investment and operating characteristics so that each can pursue business strategies and objectives appropriate to its specific business. The Telecommunications Group and the Billing Group are operated by separate management teams, and separation of the businesses should result in greater focus of the management teams on the core strengths that make each business successful. Further, separation of the two businesses will enable the respective management teams of the Telecommunications Group and the Billing Group to concentrate their attention and financial resources on their own core business without regard to the corporate objectives, policies and capital requirements of the other and allow for more effective incentives for key employees of each group, including stock-based and other incentive programs that will more directly reward employees of each business based on the success of that business. The separation will permit investors, customers, lenders and other constituencies to evaluate the respective businesses of USLD and Billing. See "The Distribution -- Reasons for the Distribution." Certain Federal Tax Consequences.. As a condition to the Distribution, USLD will receive a tax opinion from Arter & Hadden, special tax counsel, to the effect, among other things, that receipt of shares of Billing Common Stock will be tax free for federal income tax purposes to the stockholders of USLD and that USLD will not recognize income, gain or loss as a result of the Distribution. The tax opinion will be based upon certain representations made by USLD and Billing, the accuracy of which are critical
5 to the Distribution qualifying as a tax-free distribution. Further, the opinion of counsel is only the best judgment of counsel and is not binding on the Internal Revenue Service (the "Service"). No ruling will be sought from the Service. See "The Distribution - Certain Federal Income Tax Consequences of the Distribution" and "Special Factors -- Uncertainty of Tax Consequences." Trading Market.................... There is currently no public market for Billing's Common Stock. The Company has made application to list the shares of Billing Common Stock on the Nasdaq National Market subject to official notice of issuance. See "The Distribution -- Listing and Trading of the Billing Common Stock" and "Special Factors -- Absence of Trading Market for the Billing Common Stock." Ticker Symbol..................... Dividends......................... The Company anticipates that it will retain any earnings and will not pay dividends to its stockholders in the foreseeable future. See "Dividend Policy." Preliminary Transactions.......... Prior to the Distribution, USLD intends to transfer to Billing the stock of certain subsidiaries conducting the third party billing clearinghouse and information management services business, as well as certain other assets associated with this business. See "Preliminary Transactions." Anti-Takeover Provisions.......... The Delaware General Corporation Law and Billing's Restated Certificate of Incorporation and Bylaws contain provisions that may have the effect of discouraging unsolicited takeover bids from third parties. Such provisions could further have the effect of making it more difficult for third parties to cause the replacement of the current management of Billing with- out the concurrence of Billing's Board of Directors ("Billing Board"). See "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law." Relationship Between USLD and Billing after the Distribution... USLD will have no stock ownership in the Company upon consummation of the Distribution. For purposes of governing certain ongoing relationships between the Company and USLD after the Distribution and to provide for an orderly transition, Billing and USLD have entered into or will enter into certain agreements. Such proposed agreements include: (i) the Distribution Agreement, providing for, among other things, the Distribution and the division between the Company and USLD of certain assets and liabilities and material indemnification provisions; (ii) the Benefit 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 USLD will agree to allocate tax liabilities that relate to periods prior to and after the Distribution Date;
6 (iv) the Transitional Services and Sublease Agreement pursuant to which USLD will provide certain services on a temporary basis and sublease certain office space to the Company and Billing will provide certain services to USLD on a temporary basis; (v) the Zero Plus -- Zero Minus Billing and Information Management Services Agreement pursuant to which the Company will provide billing clearinghouse and information management services to USLD for an initial period of three years; (vi) the Telecommunications Agreement pursuant to which USLD will provide long distance telecommunications services to the Company for an initial period of three years; and (vii) the Expense Sharing Agreement, whereby USLD and Billing agree to pay certain usage charges and share certain expenses relating to the operation of an airplane. It is the intention of USLD and Billing that the Transitional Services and Sublease Agreement, the Zero Plus -- Zero Minus Billing and Information Management Services Agreement, the Telecommunications Agreement and the Expense Sharing Agreement reflect terms and conditions similar to those that would have been arrived at by independent parties bargaining at arm's length. There can be no assurance that such agreements have been or will be effected on terms at least as favorable to USLD or Billing as could have been obtained from unaffiliated third parties. See "Relationship Between Billing and USLD After the Distribution." Policies and Procedures for Ad- dressing Conflicts............... Billing and USLD will share one common director. (Parris H. Holmes, Jr. will serve as Chairman of the Board of Directors of USLD and Chairman of the Board of Directors and Chief Executive Officer of Billing.) The Company and USLD will adopt policies and procedures to be followed by the Board of Directors of each company to limit the involvement of Parris H. Holmes, Jr. in conflict situations, including requiring him to abstain from voting as a director of either Billing or USLD on certain matters that present a conflict of interest between the two companies and providing for the outside directors of each company to control the decision making process in certain situations. The Company and USLD believe that such conflict situations will be minimal. See "Relationship Between Billing and USLD After the Distribution -- Policies and Procedures for Addressing Conflicts." Special Factors................... See "Special Factors" for a discussion of certain factors that should be considered in connection with the Billing Common Stock received in the Distribution.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA The following table presents summary historical financial and other data and summary pro forma financial data for the Company after giving effect to the Distribution and related transactions. The financial data presented for the fiscal years ended September 30, 1993, 1994 and 1995 should be read in conjunction with the Consolidated Financial Statements, the notes thereto and the other financial information included in this Information Statement. The Statements of Income and Statements of 7 Cash Flows for the years ended September 30, 1993, 1994 and 1995 and the Balance Sheets at September 30, 1994 and 1995 have been audited by Arthur Andersen LLP, the Company's independent public accountants. All historical financial data shown below for these periods have been derived from the audited financial statements. The Income Statement data for the six months ended March 31, 1996 and March 31, 1995 and for the fiscal years ended September 30, 1992 and 1991, the balance sheet data at March 31, 1996, and all Operating Data are unaudited. In the opinion of management of Billing, the information presented reflects all adjustments considered necessary for a fair presentation of the results for such periods. Summary historical per share amounts are not included as they may not be indicative of future performance. The following data should be read in conjunction with Billing's Consolidated Financial Statements and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere herein. SUMMARY HISTORICAL FINANCIAL INFORMATION (IN THOUSANDS)
SIX MONTHS ENDED FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- (UNAUDITED) (UNAUDITED) CONSOLIDATED INCOME STATEMENT DATA: Operating revenues............. $ 16,327 $ 33,162 $ 46,451 $ 57,746 $ 80,847 $ 34,942 $ 50,301 Income from operations......... * * 10,416 13,392 22,055 9,402 14,230 Net income..................... * * 6,441 8,565 14,118 6,013 8,969
SEPTEMBER 30, ---------------------- 1994 1995 --------- ----------- MARCH 31, 1996 ----------- (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Working capital............................................................. $ 11,132 $ 17,300 $ 30,084 Total assets................................................................ 89,710 106,895 122,295 Long-term obligations, less current portion................................. 853 2,216 1,805 U.S. Long Distance Corp.'s investment in and advances to Billing............ 13,001 21,122 34,355
SEPTEMBER 30, MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS) (UNAUDITED) OPERATING DATA: EBITDA (1)....................... * * $ 11,293 $ 14,346 $ 23,271 $ 9,921 $ 15,170 Billing call records processed per month (2)(3)................ 6,500 10,800 16,900 25,920 40,410 28,530 45,340 Billing services customers (4)... 71 115 143 168 272 * 305
8 SUMMARY PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS) (UNAUDITED)
MARCH 31, (5) 1996 ------------- BALANCE SHEET DATA: Working capital.................................................................................... $ 16,523 Total assets....................................................................................... 108,734 Long-term obligations, less current portion........................................................ 1,805 U.S. Long Distance Corp.'s investment in and advances to Billing................................... 0 Paid-in capital.................................................................................... 20,745
- - ------------------------ * Information is not available. (1) "EBITDA" represents earnings before interest, taxes, depreciation and amortization. EBITDA is a commonly used profitability/cash flow measurement. (2) Calculated based upon a monthly average over the fiscal quarter ended on the date indicated. (3) Does not include call records that the Company processed for billing management customers. (4) At end of the period. (5) The pro forma financial data are derived from the unaudited financial information and notes thereto included elsewhere in this Information Statement. The pro forma financial data gives effect to the Distribution, the Preliminary Transactions and certain other adjustments including a cash transfer from Billing to USLD of $13,561,000 as if the Distribution, Preliminary Transactions and adjustments were consummated on March 31, 1996. The pro forma financial data does not include direct costs associated with the Distribution estimated to range from approximately $8,500,000 to approximately $10,500,000. See "Pro Forma Condensed Consolidated Balance Sheet." 9 THE COMPANY The Company believes it is the largest third-party billing clearinghouse and information management services provider to the telecommunications industry. The Company maintains contractual billing arrangements with over 1,200 local telephone companies which provide access lines to and collect for services from end-users of telecommunication services. The Company processes telephone call records and other transactions and collects the related end-user charges from these local telephone companies on behalf of its customers. See "Business." Billing's direct dial long distance customers, including local and regional long distance carriers, use the Company as a billing clearinghouse for processing and collecting call records generated by their end-users. Although such carriers can bill end-users directly, Billing provides these carriers with a very cost-effective means of billing and collecting residential and small commercial accounts through the local telephone companies. The Company processes telephone call records for customers providing operator services largely to the hospitality, penal, and private and public pay telephone industries. In addition, Billing processes records for telephone calls that require operator assistance and/or alternative billing options such as collect and person-to-person calls, third-party billing and calling card billing. Because operator services providers have only the billing number and not the name or address of the billed party, they must have access to the services of the local telephone companies to collect their charges. The Company provides this access to its customers through its contractual billing arrangements with the local telephone companies that bill and collect on behalf of these operator services providers. Because Billing acts as an aggregator of telephone call records and other transactions from various sources, it can negotiate discounted billing costs with the local telephone companies due to its large volume and can pass on these discounts to its customers. Additionally, Billing can provide its services to those long distance carriers and operator services providers who would otherwise not be able to make the investments in billing and collection agreements with the local telephone companies, fees, systems, infrastructure and volume commitments required to establish and maintain the necessary relationships with the local telephone companies. In 1994, Billing began providing enhanced billing services for processing transactions related to providers of premium services or products that can be billed through the local telephone companies, such as charges for 900 access pay-per-call transactions, cellular long distance services, paging services, voice mail services, caller ID and other telecommunications equipment charges. In addition to its billing clearinghouse services, Billing also offers billing management services to customers who have their own billing arrangements with the local telephone companies. These management services may include data processing, accounting, end-user customer service, telecommunication tax processing and reporting. Billing is a newly formed corporation which, upon completion of the Distribution, will be an independent, publicly held company that will own and operate substantially all of the assets of, and will assume substantially all of the liabilities associated with, the third party billing clearinghouse and information management services business now operated by USLD. This business is currently conducted primarily through USLD's subsidiaries Zero Plus Dialing, Inc. ("ZPDI") and Enhanced Services Billing, Inc. ("ESBI"). Prior to the Distribution, USLD will contribute the capital stock of U.S. Billing Management Corp. ("USBMC") and U.S. Billing, Inc. ("USBI"), also wholly owned subsidiaries of USLD, to Billing in exchange for the capital stock of Billing. ZPDI and ESBI will then merge with USBMC and USBI, respectively. ZPDI and ESBI will be the surviving corporation in the mergers and will become wholly owned subsidiaries of Billing. ZPDI will also change its name to Billing Information Concepts, Inc. ("BICI"). The description of Billing that follows assumes completion of the Preliminary Transactions (as defined herein) and the Distribution. Billing is a Delaware corporation with its principal executive offices located at 9311 San Pedro, Suite 400, San Antonio, Texas 78216. 10 SPECIAL FACTORS In addition to the other information contained in this Information Statement, holders of Billing Common Stock should carefully consider the following information. LACK OF OPERATING HISTORY AS A SEPARATE ENTITY; LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION The Company was organized in 1996 for the purpose of effecting the Distribution. Billing does not have an operating history as an independent public company, but will own and conduct the billing clearinghouse and information management services business previously conducted by USLD. Management of the Company has historically relied upon USLD for certain administrative services such as personnel management and financial administration. After the Distribution Date, Billing will be responsible for maintaining its own administrative functions except for certain services to be provided by USLD during a transitional period pursuant to certain agreements between Billing and USLD. See "Relationship between Billing and USLD after the Distribution." The financial information included herein may not necessarily reflect the results of operations, financial position and cash flows of the Company in the future or what the results of operations, financial position and cash flows would have been had the Company been a separate, stand-alone entity during the periods presented. See "Pro Forma Condensed Consolidated Balance Sheet." ABSENCE OF USLD FINANCIAL SUPPORT USLD has no obligation or intent to support Billing financially after the Distribution. Billing has a revolving line of credit with FINOVA Capital Corporation, secured by its accounts receivable and other unencumbered assets, in order to offer an advance funding program to its billing customers. The Company believes that internally generated funds and this line of credit will continue to be sufficient to meet its other cash needs for the immediate future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Advance Funding Program and Receivable Financing Facility." DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH The Company's future success depends to a significant degree upon the continued services of its President and Chief Operating Officer, Alan W. Saltzman, and other key senior management personnel, none of whom is covered by an insurance policy under which Billing is the beneficiary. The Company does, however, have a two year employment agreement with Mr. Saltzman that contains noncompete and confidentiality provisions. Billing's future success also depends on its continuing ability to attract and retain highly qualified managerial personnel. Competition for such personnel is intense, and there can be no assurance that Billing will be able to retain its key managerial employees or attract, assimilate or retain other highly qualified managerial personnel in the future. The Company's ability to manage growth successfully will require that it continue to improve its operational, management and financial systems and controls. Failure to do so could have a material adverse effect upon the Company's business and results of operations. DEPENDENCE ON PROPRIETARY TECHNOLOGY The Company's future success is heavily dependent upon its proprietary software technology. Billing relies principally on trade secret and copyright law and nondisclosure agreements and other contractual arrangements to protect its software technology. Billing currently enters into confidentiality agreements with its key employees. There can be no assurance that the steps taken by the Company will be effective in preventing misappropriation of its proprietary rights. ABSENCE OF TRADING MARKET FOR THE BILLING COMMON STOCK There is not currently a public market for the Billing Common Stock, and there can be no assurance as to the prices at which trading in the Billing Common Stock will occur after the Distribution. Until the Billing Common Stock is fully distributed and an orderly market develops, the prices at which trading in such stock occurs may fluctuate significantly. The trading price of the Billing 11 Common Stock will be influenced by a variety of factors, including the Company's operating results, the depth and liquidity of the market for Billing Common Stock, investor perception of Billing and the industry in which its business operates and general and economic market conditions. The Company has made application to list and anticipates that the Billing Common Stock will be approved for listing on the Nasdaq National Market subject to official notice of issuance. See "The Distribution -- Listing and Trading of the Billing Common Stock." CHANGES IN TRADING PRICES OF USLD COMMON STOCK It is expected that USLD Common Stock will continue to be listed and traded on the Nasdaq National Market after the Distribution. As a result of the Distribution, the trading price range of USLD Common Stock is expected to be lower than the trading price range of USLD Common Stock prior to the Distribution. The combined trading prices of the Billing Common Stock and USLD Common Stock held by stockholders after the Distribution may be less than, equal to or greater than the trading prices of USLD Common Stock prior to the Distribution. See "The Distribution -- Listing and Trading of the Billing Common Stock." CERTAIN ANTI-TAKEOVER FEATURES Upon consummation of the Distribution, certain provisions of Billing's Certificate of Incorporation and Bylaws, along with certain provisions of Delaware statutory law and certain agreements between Billing and USLD, could discourage potential acquisition proposals and could delay or prevent a change in control of the Company. Such provisions could diminish the opportunities for a stockholder to participate in tender offers, including tender offers at a price above the then-current market value of Billing Common Stock. Such provisions also may inhibit fluctuations in the market price of Billing Common Stock that could result from takeover attempts. See "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law." UNCERTAINTY OF TAX CONSEQUENCES As a condition to the completion of the Distribution, USLD and Billing will receive an opinion from special tax counsel, to the effect that the Distribution will qualify as a tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"). This tax opinion is delivered in reliance on a number of representations made by USLD and Billing. Certain of these representations are critical to the qualification of the Distribution as a tax-free spinoff under Section 355 of the Code. If any of the representations are breached, then the total foundation of the tax opinion would be flawed and it may not be relied upon. Among the principal representations made by USLD to special tax counsel, USLD has represented that it has no current plan or intent, and is not currently engaged in any discussions, to merge USLD or Billing with another company or sell or otherwise dispose of all or a substantial portion of its business operations or assets of USLD or Billing after the Distribution (a "Disposition") other than (i) in the ordinary course of business or (ii) in a transaction that, in the opinion of tax counsel, would not be inconsistent with the Distribution qualifying as a tax-free spinoff. In general, if a Disposition occurred in which gain or loss was recognized and such Disposition, based upon all the facts and circumstances, was found to be related to the Distribution, the Service may assert that the Distribution was used as a "device" to distribute the earnings and profits of one or both of USLD and Billing, with the result that the Distribution may not qualify as a tax-free spinoff under Section 355 of the Code. Legislation recently has been introduced proposing changes in the nation's tax laws, including a proposal to recognize gain in certain Section 355 spinoff transactions. The probability of passage of such a proposal and its impact on the Distribution are uncertain. Further, as reflected in the tax opinion, the applicability of Section 355 to the Distribution is complex and may be subject to differing interpretations. Accordingly, even if the representations are accurate, there can be no assurance that the Service will not successfully challenge the applicability of Section 355 to the Distribution, or assert that the Distribution fails the requirements of Section 355 12 on the basis of facts either existing at the Distribution Date or which may arise after the Distribution Date. No ruling will be sought from the Service, and the opinion of special tax counsel is not binding on the Service. See "The Distribution -- Certain Federal Income Tax Consequences of the Distribution." CERTAIN CONSENT REQUIREMENTS USLD and its subsidiaries have reviewed their existing debt agreements and other contractual arrangements in connection with the Distribution. It is a condition of the Distribution that any amendments, consents or waivers necessary to effect the Distribution have been obtained, except for those the failure of which to obtain would not have a material adverse effect on Billing or USLD. The Company believes that there will be no individual consents, the failure of which to obtain would have a material adverse effect on it, USLD or the Distribution. However, certain of the waivers and/or consents are expected to require that existing cross guarantees and pledges of assets remain in effect. See "Relationship between Billing and USLD after the Distribution -- Distribution Agreement." DIVIDEND POLICY The future payment of dividends by the Company will depend on decisions that will be made by the Board of Directors of the Company from time to time based on the results of operations and financial condition of Billing and such other business considerations as the Board of Directors of Billing considers relevant. The Company currently does not expect to pay dividends in the foreseeable future. Additionally, the Company is a holding company whose only material assets are the stock of its subsidiaries. As a result, the Company conducts no business and will be dependent on distributions it receives from its subsidiaries to pay dividends. There can be no assurance that any such distributions will be adequate to pay any dividends. Moreover, the Company is subject to certain restrictions on the payment of dividends pursuant to its credit agreements. See "Dividend Policy." THE RELATIONSHIP BETWEEN USLD AND BILLING The Distribution Agreement also provides that by the Distribution Date Billing's Certificate of Incorporation and Bylaws shall be in the form as attached hereto as Annexes C and D, respectively, and that the Company and USLD will take all actions that may be required to elect or otherwise appoint, as directors of Billing, the persons indicated herein. See "Management," "Description of Capital Stock" and "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law." For purposes of governing certain of the ongoing relationships between USLD and the Company after the Distribution and to provide for an orderly transfer on the Distribution Date of certain of the billing clearinghouse and information management services business to the Company and an orderly transition to the status of two separate companies, USLD and the Company have entered or will enter into various agreements. In addition, the Company and USLD will adopt policies and procedures to be followed by the Board of Directors of each company to limit the involvement of Parris H. Holmes, Jr. in conflict situations, including requiring him to abstain from voting as a director of either Billing or USLD on certain matters that present a conflict of interest between the two companies. See "Relationship between Billing and USLD after the Distribution." FRAUDULENT TRANSFER CONSIDERATIONS; LEGAL DIVIDEND REQUIREMENTS It is a condition to the consummation of the Distribution that the USLD Board shall have received a satisfactory opinion regarding the solvency of Billing and USLD and that the USLD Board determine the permissibility of the Distribution under Section 170 of the Delaware General Corporation Law ("DGCL"). See "The Distribution -- Opinions of Financial Advisors." There is no certainty, however, that a court would find the solvency opinion rendered by Houlihan Lokey Howard & Zukin to be binding on creditors of the Company and USLD or that a court would reach the same conclusions set forth in such opinion in determining whether the Company or USLD was insolvent at the time of, or after giving effect to, the Distribution. If a court in a lawsuit by an unpaid creditor or representative of creditors, such as a trustee in bankruptcy, were to find that at the time USLD effected the Distribution, Billing or USLD, as the case 13 may be, (i) was insolvent; (ii) was rendered insolvent by reason of the Distribution; (iii) was engaged in a business or transaction for which Billing's or USLD's remaining assets, as the case may be, constituted unreasonably small capital; or (iv) intended to incur, or believed it would incur, debts beyond its ability to pay as such debts matured, such court may be asked to void the Distribution (in whole or in part) as a fraudulent conveyance and require that the stockholders return the special dividend (in whole or in part) to USLD, or require Billing to fund certain liabilities for the benefit of creditors. The measure of insolvency for purposes of the foregoing will vary depending upon the jurisdiction whose law is being applied. Generally, however, Billing or USLD, as the case may be, would be considered insolvent if the fair value of their respective assets were less than the amount of their respective liabilities or if they incurred debt beyond its ability to repay such debt as it matures. In addition, under Section 170 of the DGCL (which is applicable to the Distribution), a corporation may make distributions to its stockholders only out of its surplus (net assets minus capital) and not out of capital. USLD's Board and management believe that, in accordance with the solvency opinion rendered in connection with the Distribution, (i) Billing and USLD each will be solvent at the time of the Distribution (in accordance with the foregoing definitions), will be able to repay its debts as they mature following the Distribution and will have sufficient capital to carry on their respective businesses, and (ii) the Distribution will be made entirely out of surplus, as provided under Section 170 of the DGCL. DEPENDENCE UPON CONTRACTS WITH LOCAL TELEPHONE COMPANIES The Company's business is dependent upon its contractual relationships with over 1,200 local telephone companies pursuant to which these local telephone companies bill and collect from their customers on Billing's behalf. Most of the billing and collection agreements cover a one to five year period and provide for automatic renewals unless notice of termination is given. Certain of these local telephone companies, whose billing services provide access to a vast majority of the businesses and households in the United States, are legally required to provide billing and collection services for Billing if they provide such services for any other third party, such as Billing's competitors. Although the Company has not experienced the termination of any contracts in the past, there can be no assurance that these contracts will continue in effect on their present terms, if at all. The termination of one or more of these contracts would severely diminish the Company's capacity to provide billing services in the geographic areas covered by the terminated contracts and could adversely affect the Company's business. ANTICIPATED BILLING SYSTEM EXPENDITURES To facilitate and support the growth anticipated in its business, Billing plans to make significant expenditures in its operations over the next one to two years. Specifically, the Company currently intends to spend approximately $18 million to license, develop and create information systems that will enable it to offer "direct billing" and "invoice ready" services to its customers (see "Business -- Business Strategy"). These expenditures are expected to be made in the areas of software development, hardware, additional local telephone company agreements and related staffing. The Company believes that it will be able to fund these expenditures with internally generated funds and borrowings, but there can be no assurance that such funds will be generated and/or spent in these projects. COMPETITION The billing services industry is highly competitive and is based upon pricing, customer service and value-added services. The Company competes primarily with a unit of Electronic Data Systems, Inc., a subsidiary of General Motors Corporation. This competitor and its parent company have greater name recognition than the Company and have, or have access to, substantially greater financial and personnel resources than those available to the Company. While management believes that measured by revenues, Billing is currently the largest third-party billing clearinghouse in the industry, its success is dependent upon its continued ability to maintain high quality, market driven services at competitive prices. Although the Company believes that it currently competes favorably with respect 14 to these factors, there can be no assurance that Billing will be able to compete successfully with existing or future competitors or that the competitive pressures faced by Billing will not have a material adverse effect on its business, operating results or financial condition. See "Business -- Competition." FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE This Information Statement contains certain forward-looking statements and information relating to Billing that are based on the beliefs of USLD or Billing management as well as assumptions made by and information currently available to USLD or Billing management. When used in this document the words "anticipate," "believe," "estimate," "expect" and "intend" and similar expressions, as they relate to USLD, Billing or USLD or Billing management, are intended to identify forward-looking statements. Such statements reflect the current views of USLD or Billing with respect to future events and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this Information Statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. Neither USLD nor Billing intends to update these forward-looking statements. THE DISTRIBUTION REASONS FOR THE DISTRIBUTION USLD, through its Telecommunications Group, provides direct dial long distance and operator services and, through its Billing Group, provides billing clearinghouse and information management services to direct dial long distance, operator services and other telecommunications businesses. The USLD Board, after careful study and analysis and consultation with financial and other advisors, has determined that it is in the best interests of USLD and its stockholders, for the reasons set forth below, to separate ownership of the Telecommunications Group and the Billing Group. USLD will continue to conduct the Telecommunications Group business, and Billing will conduct the Billing Group business. The USLD Board believes that the Distribution will enhance value to USLD's stockholders. The spinoff will provide Billing with more efficient access to capital markets to finance the anticipated growth of its business. In addition, the Distribution will eliminate the perceived concern of Billing's customers and potential customers who compete with the Telecommunications Group that the Billing Group's affiliation with the Telecommunications Group could compromise customer proprietary information. Regarding this reason, the Billing Group uses "most favored nations" contracts (wherein all customers pay the same rates for given volumes of records) for certain of its services in part to appease the concerns of the Telecommunications Group's competitors that they are subsidizing the Telecommunications Group's billing and collection expenses. Although the Billing Group is widely believed to be the most cost efficient provider of billing and information management services, the prospect of any special arrangement between the Telecommunications Group and the Billing Group, and the possibility that the Telecommunications Group could have access to certain proprietary information of the Billing Group's customers, has led some potential customers to express concerns over such matters and in some cases to use the Billing Group's competitors. The advent of the new telecommunications law has heightened the telecommunications industry's awareness of such potential conflicts. Prior to the enactment of the Telecommunications Act of 1996 (the "Telecommunications Act"), the Regional Bell Operating Companies ("RBOCs") and the General Telephone Operating Companies from whom Billing purchased certain billing and collection services were generally prohibited from competing in the direct dial long distance market, and direct dial long distance carriers such as USLD, to whom Billing resold local telephone company billing and collection services, were generally prohibited from competing with the local telephone companies for local services. The Telecommunications Act now allows this competition, but requires the structural 15 separation between an RBOC local service provider and the RBOC's long distance entity. This structural separation was deemed necessary to prevent the RBOC's long distance entity from utilizing customer proprietary information obtained through the RBOC's local telephone records or billing and collection data to target their competitors' premium long distance customers for their own long distance service. As a result of the Telecommunications Act, all of the local telephone companies with whom the Billing Group has contracts are now potential direct dial long distance billing customers, and all of the Billing Group's existing direct dial long distance billing customers may now enter into the local telephone market as Billing's vendors and customers aggressively vie for each other's market share. As evidenced by Congress's mandate to separate the local and long distance arms of the RBOCs, the concerns of direct dial long distance businesses in these areas will take a forefront in the new telecommunications marketplace. Although the Telecommunications Group and the Billing Group have taken measures to ensure that no such proprietary information could be shared in the past, it has become extremely important for the continued growth of the Billing Group to eliminate these fears from its existing and potential customer base. Moreover, as a result of the Distribution, the Telecommunications Group will be able to compete with customers of the Billing Group for the provision of telecommunications services without any concern as to the impact on the Billing Group. The Distribution will separate two distinct companies with different missions and different financial, investment and operating characteristics so that each can pursue business strategies and objectives appropriate to its specific business. While the Telecommunications Group and the Billing Group are currently operated by separate management teams, separation of the two businesses will enable each management group to concentrate its attention and financial resources on its own business without regard to the corporate objectives, policies and capital requirements of the other and allow for more effective incentives for key employees of each business, including stock-based and other incentive programs that will more directly reward employees of each business. The separation will permit investors, customers, lenders and other constituencies to evaluate the respective businesses of USLD and Billing. OPINIONS OF FINANCIAL ADVISORS BEST INTERESTS OF STOCKHOLDERS. As a condition of the Distribution Agreement to be entered into between USLD and Billing prior to the Distribution, the USLD Board received a written opinion from The Chicago Corporation dated May 13, 1996, to the effect that, based upon the factors set forth in such opinion, the Distribution is in the best interests of the stockholders of USLD from a financial point of view after considering other alternatives that were available regarding Billing. The full text of The Chicago Corporation's opinion is set forth in Annex A, and this summary is qualified in its entirety by reference to the text of such opinion. It is a condition to the consummation of the Distribution that The Chicago Corporation deliver an updated opinion to the USLD Board, to be dated the Distribution Date, in substantially the same form as the opinion set forth in Annex A. See "The Distribution -- Conditions; Termination" below. In its opinion, The Chicago Corporation states that it has, among other things, (i) reviewed the publicly available consolidated financial statements of USLD for recent years and interim periods to date and certain other relevant financial and operating data of USLD made available to it from published sources and by officers of USLD; (ii) reviewed the financial statements of Billing contained in the Information Statement; (iii) reviewed certain internal financial and operating information, including certain projections, relating to USLD and Billing prepared by the managements of USLD and Billing, respectively; (iv) discussed the business, financial condition and prospects of USLD with certain officers of USLD; (v) discussed the business, financial condition and prospects of Billing with certain officers of USLD and Billing; (vi) reviewed the financial terms of the Distribution; (vii) reviewed the financial terms, to the extent publicly available, of certain transactions it deemed relevant; (viii) reviewed certain publicly available information relating to certain companies it deemed appropriate in analyzing USLD and Billing; (ix) reviewed the trading history of USLD Common Stock; (x) reviewed the Information Statement included in the Registration Statement on Form 10 for the Billing Common Stock filed with the Securities and Exchange Commission on May 14, 1996; 16 (xi) reviewed the tax opinion of Arter & Hadden, Special Tax Counsel, that, among other things, the transaction will be tax-free to USLD and its stockholders; (xii) reviewed the solvency and sufficient surplus opinions provided by Houlihan, Lokey, Howard and Zukin; and (xiii) performed such other analysis and examinations and considered such other information, financial studies, analyses and investigations and financial, economic and market data as it deemed relevant. In making its analysis, The Chicago Corporation considered the financial aspects of other alternatives available to USLD, including selling certain of USLD's subsidiaries to an unaffiliated purchaser, the potential sale of all or a portion of Billing to the public through an initial public offering and maintaining Billing as a USLD subsidiary. The opinion also states that The Chicago Corporation has relied upon publicly available information and information provided by USLD and Billing (including the information contained in this Information Statement), has not independently verified the information concerning USLD and Billing or other data considered in its review, and has relied upon the accuracy and completeness of all such information. In connection with its opinion provided to the USLD Board, The Chicago Corporation was not asked to, and did not, provide any opinion as to the valuation, future performance or long-term viability of Billing as an independent public company following the Distribution. The Chicago Corporation's opinion does not opine or give assurances of the price at which the shares of USLD Common Stock or Billing Common Stock will trade after the Distribution. In connection with the services performed and to be performed by The Chicago Corporation regarding the Distribution, including the rendering of its written opinion, USLD has paid The Chicago Corporation the sum of $200,000 and has agreed to pay The Chicago Corporation a fee equal to .75% of the market value of the Billing Common Stock distributed to USLD stockholders upon completion of the Distribution, less the $200,000 fee previously paid. USLD also has agreed to reimburse The Chicago Corporation for its reasonable expenses, and to indemnify it against certain liabilities and expenses in connection with its services as financial advisor. The Chicago Corporation has from time to time performed various investment banking and financial advisory services for USLD. The Chicago Corporation, as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, strategic alliances, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. SOLVENCY AND ADEQUATE SURPLUS. In reaching a decision to undertake the Distribution, the USLD Board considered, among other things, the advice of one its financial advisors, Houlihan Lokey Howard & Zukin ("Houlihan Lokey"). A summary of the opinion rendered by Houlihan Lokey with respect to the Distribution is set forth below. The opinion rendered by Houlihan Lokey assumes that the Distribution is consummated substantially as described in this Information Statement. The full text of Houlihan Lokey's opinion is set forth in Annex B, and this summary is qualified in its entirety by reference to the text of such opinion. It is a condition to the consummation of the Distribution that Houlihan Lokey deliver an updated opinion to the USLD Board, to be dated the Distribution Date in substantially the same form as the opinion set forth in Annex B. See "The Distribution -- Conditions; Termination" below. In a written opinion dated May 13, 1996, Houlihan Lokey stated that, based upon the conditions set forth therein and other factors it deemed relevant, it was of the opinion that, (i) with respect to USLD before the Distribution and with respect to each of USLD and Billing, assuming the Distribution is consummated as proposed, immediately after and giving effect to the Distribution on a pro forma basis (a) the fair value of such company's aggregate assets would exceed such company's total liabilities (including contingent liabilities); (b) the present fair salable value for such company's aggregate assets would be greater than such company's probable liabilities on its debts as such debts become absolute and mature or due; (ii) with respect to each of USLD and Billing, assuming the Distribution is consummated as proposed, immediately after and giving effect to the Distribution (c) such company would be able to pay its debts and other liabilities (including contingent liabilities) as they become absolute and mature or due; and (d) the capital remaining in such company after the 17 Distribution would not be unreasonably small for the business in which such company is engaged, as management has indicated it is now conducted and is proposed to be conducted following consummation of the Distribution; and (iii) the excess of the value of aggregate assets of USLD, before consummation of the Distribution, over the total identified liabilities (including contingent liabilities) of USLD would equal or exceed the value of the Distribution to USLD stockholders plus the stated capital of USLD. In preparing its opinion, Houlihan Lokey relied on the accuracy and completeness of all information supplied or otherwise made available to it by USLD and did not independently verify such information or undertake any physical inspection or independent appraisal of the assets or liabilities of USLD or Billing. Such opinion was based on business, economic, market and other conditions existing on the date such opinion was rendered. Houlihan Lokey's opinion is also based on, among other things, its review of the agreements relating to the Distribution, historical and pro forma financial information and certain business information relating to Billing and USLD, including that contained in this Information Statement, as well as certain financial forecasts and other data provided by USLD relating to the respective businesses and prospects of Billing and USLD. Houlihan Lokey also conducted discussions with USLD's management with respect to the business and prospects of USLD and Billing and conducted such financial studies, analysis and investigations as it deemed appropriate in rendering its opinion. In connection with the Distribution, USLD has paid Houlihan Lokey a fee of $65,000 and out-of-pocket expenses in connection with Houlihan Lokey's delivery of the opinion. DISTRIBUTION AGENT The Distribution Agent ("Distribution Agent") is Montreal Trust Company of Canada. MANNER OF EFFECTING THE DISTRIBUTION The general terms and conditions relating to the Distribution are set forth in the Distribution Agreement, dated as of , 1996 (the "Distribution Agreement"), between USLD and Billing. USLD will effect the Distribution on the Distribution Date by delivering shares of Billing Common Stock to the Distribution Agent, for distribution to holders of record of USLD Common Stock as of the close of business on the Record Date. The Distribution will be made on the basis of one share of Billing Common Stock for each share of USLD Common Stock outstanding as of the close of business on the Record Date. The actual total number of shares of Billing Common Stock to be distributed will depend on the number of shares of USLD Common Stock outstanding on the Record Date. The shares of Billing Common Stock will be fully paid and nonassessable and the holders thereof will not be entitled to preemptive rights. See "Description of Capital Stock." Certificates representing shares of Billing Common Stock will be mailed to USLD stockholders by the Distribution Agreement as soon as practicable after the Distribution Date. HOLDERS OF USLD COMMON STOCK SHOULD NOT SEND CERTIFICATES TO BILLING, USLD OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK CERTIFICATES REPRESENTING SHARES OF BILLING COMMON STOCK AS SOON AS PRACTICABLE AFTER THE DISTRIBUTION DATE. USLD STOCK CERTIFICATES WILL CONTINUE TO REPRESENT SHARES OF USLD COMMON STOCK AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON THE CERTIFICATES. No holder of USLD Common Stock will be required to pay any cash or other consideration for the shares of Billing Common Stock received in the Distribution or to surrender or exchange shares of USLD Common Stock in order to receive shares of Billing Common Stock. Because of the one for one share dividend, there will be no fractional shares issued in the Distribution. 18 RESULTS OF DISTRIBUTION After the Distribution, Billing will be a separate public company and will own and operate the commercial billing clearinghouse and information management services business formerly conducted by USLD's Billing Group. The number and identity of the holders of Billing Common Stock immediately after the Distribution will be substantially the same as the number and identity of USLD Common Stock on the Record Date. Immediately after the Distribution, Billing expects to have approximately 730 holders of record of Billing Common Stock and approximately 14,839,486 shares of Billing Common Stock outstanding based on the number of record stockholders and outstanding shares of USLD Common Stock as of the close of business on May 10, 1996 and a Distribution ratio of one share of Billing Common Stock for each share of USLD Common Stock. The actual number of shares of Billing Common Stock to be distributed will be determined as of the Record Date. The Distribution will not affect the number of outstanding shares of USLD Common Stock or any rights of USLD stockholders. For certain information regarding the options to purchase Billing Common Stock that will be outstanding after the Distribution, see "Relationship Between Billing and USLD After the Distribution -- Benefit Plans and Employment Matters Allocation Agreement." LISTING AND TRADING OF THE BILLING COMMON STOCK Billing has made application to the Nasdaq National Market for the listing of the Billing Common Stock. It is presently anticipated that Billing Common Stock will be approved for listing on the Nasdaq National Market prior to the Distribution Date, and trading may commence on a "when-issued" basis prior to the Distribution. It is also possible that USLD Common Stock would be traded on a "when-distributed" basis prior to the Distribution. On the trading day following the date that certificates for Billing Common Stock are mailed by the Distribution Agent, "when-issued" or "when-distributed" trading, as applicable, in respect of each of the Billing Common Stock and USLD Common Stock would end and "regular-way" trading would begin. The Nasdaq National Market will not approve any trading in respect of the Billing Common Stock until the Securities and Exchange Commission (the "Commission") has declared effective the Registration Statement of Billing on Form 10 in respect of the Billing Common Stock (the "Registration Statement on Form 10"), which is expected to occur prior to the Distribution Date. There is not currently a public market for the Billing Common Stock. Prices at which the Billing Common Stock may trade prior to the Distribution on a "when-issued" basis or after the Distribution cannot be predicted. Until the Billing Common Stock is fully distributed and an orderly market develops, the prices at which trading in such stock occurs may fluctuate significantly. The prices at which the Billing Common Stock trades will be determined by the marketplace and may be influenced by many factors, including, among others, the depth and liquidity of the market for the Billing Common Stock, investor perception of Billing and the industries in which Billing participates, Billing's dividend policy and general economic and market conditions. Such prices also may be affected by certain provisions of Billing's Certificate of Incorporation and Bylaws, each of which will be in effect following the Distribution, which may have an anti-takeover effect. See "Special Factors -- Dividend Policy" and "Purposes and Anti-Takeover Effects of Certain Provisions of the Billing's Certificate and Bylaws and Delaware Law." USLD filed a request for a no action letter with the staff of the Commission, setting forth, among other things, USLD's view that the Distribution of Billing Common Stock does not require registration under the Securities Act of 1933, as amended (the "Securities Act"). As of the date hereof, USLD has not received a decision from the Commission Staff in response to such request. Assuming receipt of a favorable decision from the Commission Staff, it is Billing's belief that the shares of Billing Common Stock distributed to USLD stockholders will be freely transferable, except for shares received by persons who may be deemed to be "affiliates" of Billing under the Securities Act. Persons who may be deemed to be affiliates of Billing after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with, Billing, and may include the Directors and principal executive officers of Billing as well as any principal stockholder of Billing. Persons who are affiliates of Billing will be permitted to sell their shares of Billing Common Stock only 19 pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as the exemptions afforded by Section 4(1) of the Securities Act and Rule 144 thereunder. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION The following discussion sets forth certain federal income tax considerations under the Code, for holders of USLD Common Stock with respect to the receipt of the Billing Common Stock pursuant to the Distribution. The discussion is intended for general information only and may not address all federal income tax consequences that may be relevant to particular USLD stockholders, e.g., foreign persons, dealers in securities and persons who received USLD Common Stock in compensatory transactions. In addition, the discussion does not address any state, local or foreign tax considerations relative to the Distribution. ACCORDINGLY, ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. USLD has not requested a ruling from the Service with respect to the federal income tax consequences of the Distribution. However, it is a condition of consummation of the Distribution that USLD and Billing receive an opinion of Arter & Hadden ("Special Tax Counsel") to the effect that the Distribution will qualify as a tax-free spinoff under Section 355 of the Code and in general that: (1) No gain or loss will be recognized by USLD or Billing solely as a result of the Distribution; (2) No gain or loss will be recognized by or be includable in the income of a holder of USLD Common Stock solely as a result of the receipt of Billing Common Stock pursuant to the Distribution; (3) The tax basis of USLD Common Stock held by a USLD stockholder immediately before the Distribution will be allocated between such USLD Common Stock and the Billing Common Stock received by such stockholder in the Distribution (based upon the relative fair market value of such USLD Common Stock and Billing Common Stock on the Distribution Date); and (4) Assuming that USLD Common Stock is held as a capital asset by the holder thereof, the holding period for the Billing Common Stock received in the Distribution will include the period during which such USLD Common Stock was held by the holder thereof. The tax opinion does not bind the Service nor does it preclude the Service from adopting a contrary position from that taken in the tax opinion. In rendering the tax opinion, Special Tax Counsel will rely upon certain representations made by USLD and Billing, certain of which are critical to the qualification of the Distribution as a tax-free spinoff under Section 355 of the Code. In the event the representations are not accurate, USLD and Billing will be unable to rely on the tax opinion. The Company is not aware of any present facts or circumstances that could make such assumptions, facts, representations and advice unobtainable or untrue. However, certain future events not within the control of USLD and Billing, including, for example, certain dispositions of USLD Common Stock or Billing Common Stock after the Distribution, could cause the Distribution not to qualify as tax-free. Among the principal representations made by USLD to Special Tax Counsel, USLD has represented that it has no current plan or intent to merge USLD or Billing with another company or sell or otherwise dispose of all or a substantial portion of its business operations or assets of USLD or Billing after the Distribution (a "Disposition") other than (i) in the ordinary course of business or (ii) in a transaction which, in the opinion of tax counsel, would not be inconsistent with the Distribution qualifying as a tax-free spinoff. In general, if a Disposition occurred in which gain or loss was recognized and such Disposition, based upon all the facts and circumstances, was found to be related to the Distribution, the Service may assert that the Distribution was used as a "device" to distribute the earnings and profits of one or both of USLD and Billing, with the result that the Distribution may not qualify as a tax-free spinoff under Section 355 of the Code. Other representations made by USLD to Special Tax Counsel, the accuracy of which are critical to the conclusions set forth in the tax opinion, include statements that (i) except for the provision by USLD to Billing of certain administrative services and subleasing of office space for a short period of 20 time following the Distribution, the provision by Billing of certain billing services to USLD, the provision by USLD of certain telecommunications services to Billing, after the Distribution the provision of certain guarantees by both companies in consideration of a credit support fee, and an agreement by USLD and Billing to pay certain usage charges and to share certain expenses relating to the operation of an airplane, USLD and Billing will continue the conduct of their active businesses independently of one another; (ii) any indebtedness incurred after the Distribution between USLD and Billing will be entered into in the ordinary course of business; (iii) to the best knowledge of the management of USLD, there is no current plan or intent on the part of USLD stockholders to dispose of their stock in USLD or Billing after the Distribution; (iv) there is no current plan or intent on the part of Billing to dispose of any of its assets other than in the ordinary course of business; and (v) all payments made in connection with transactions between USLD and Billing after the Distribution will be based upon terms and conditions arrived at by the parties bargaining at arm's length. To avoid adversely affecting the intended tax consequences of the Distribution and related transactions, the Distribution Agreement provides that, until the second anniversary of the Distribution Date, Billing must obtain an opinion of counsel reasonably satisfactory to USLD or a supplemental tax ruling before Billing may make certain material dispositions of its assets, engage in certain repurchases of Billing capital stock or cease the active conduct of its business independently, with its own employees and without material changes. Billing does not expect these limitations to inhibit significantly its operations, growth opportunities or its ability to respond to unanticipated developments. USLD also must obtain an opinion of counsel reasonably satisfactory to Billing or a supplemental tax ruling before USLD may engage in similar transactions during such period. See "Special Factors -- Uncertainty of Tax Consequences." USLD does not expect these limitations to inhibit significantly its operations, growth opportunities or its ability to respond to unanticipated developments. If USLD should determine to engage in a Disposition that required stockholder approval, the possible effect of such Disposition on the tax treatment of the Disposition would be considered and presented to the stockholders in connection with obtaining their approval. As reflected in the tax opinion, the applicability of Section 355 of the Code to the Distribution is complex and may be subject to differing interpretations. Accordingly, even if the representations made by USLD and Billing are accurate, there can be no assurance that the Service could not successfully challenge the applicability of Section 355 of the Code to the Distribution or assert that the Distribution fails the requirements of Section 355 on the basis of facts either existing at the time of the Distribution or which may arise thereafter. If the Distribution does not satisfy the requirements to be treated as a tax-free spinoff under Section 355 of the Code, then: (i) USLD would recognize capital gain equal to the difference between the fair market value of the Billing Common Stock on the Distribution Date and the tax basis of USLD therein; (ii) each stockholder receiving shares of Billing Common Stock in the Distribution would be treated as having received a dividend taxable to the extent of USLD's current and accumulated earnings and profits; (iii) the holding period for determining capital gain treatment of the Billing Common Stock received in the Distribution would commence on the Distribution Date; and (iv) each stockholder would have a tax basis in the shares of Billing Common Stock received in the Distribution equal to the fair market value of such shares on the Distribution Date. Further, corporate stockholders may be eligible for a dividend-received deduction (subject to certain limitations) with respect to the portion of the Distribution constituting a dividend, and may be subject to the Code's extraordinary dividend provisions which, if applicable, would require a reduction in such holder's tax basis to the extent of such deduction. Whether or not the Distribution qualifies as a tax-free spinoff, the Distribution will trigger the recognition of certain income or tax items to USLD. In October 1991, ZPDI declared a stock dividend payable to Mega Plus Dialing, Inc. ("MPDI") (ZPDI's parent company at that time) payable in non- voting cumulative preferred shares of ZPDI with redemption/liquidation and fair market values equal 21 to the then fair market value of ZPDI of $4,000,000. Immediately thereafter, USLD (parent company) converted its advances to ZPDI into voting common shares of ZPDI resulting in USLD (parent company) owning over 99% of the common shares of ZPDI. Prior to the Distribution of Billing, MPDI will sell all of its preferred and common share holdings in ZPDI to USLD (parent company). The sale of ZPDI stock to USLD (parent company) will cause MPDI to recognize Canadian-taxable gain equal to the excess of the sales proceeds of the ZPDI shares over their cost. For U.S. tax purposes, the gain will be considered "sub-part F" income and cause a deemed dividend to USLD (parent company) in the amount of the gain. After the sale, MPDI will distribute its assets to its sole stockholder, USLD (parent company), in liquidation. The liquidating distribution will be subject to Canadian withholding tax to the extent it exceeds MPDI's "paid-up" capital. As a result of the above transactions, MPDI will recognize gain and pay income and withholding taxes to Revenue Canada of approximately $2.1 million and to the provincial government of British Columbia of approximately $1.1 million. USLD (parent company) will recognize "sub-part F" income, but will generate a U.S. federal income tax benefit directly through foreign tax credits for the Canadian taxes paid with respect to this income. Consequently, no U.S. income taxes will be payable as a result of the above transactions. Within a reasonable time following the Distribution Date, USLD will provide appropriate information to USLD stockholders concerning the appropriate allocation of tax basis between USLD Common Stock and Billing Common Stock as well as other relevant tax information. THE FOREGOING IS ONLY A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. EACH STOCKHOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, IN LIGHT OF HIS OR HER PERSONAL CIRCUMSTANCES, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE. CONDITIONS; TERMINATION USLD Board has conditioned the Distribution upon, among other things, (i) the transfers of assets and liabilities contemplated by the Distribution Agreement to occur prior to the Distribution having been consummated in all material respects; (ii) the Billing Board having been elected by USLD as sole stockholder of Billing, and the Certificate of Incorporation and the Bylaws of Billing, as each will be in effect after the Distribution, having been adopted and being in effect; (iii) the Registration Statement on Form 10 having become effective under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (iv) The Chicago Corporation having delivered an updated opinion to the USLD Board, dated as of the Distribution Date, in substantially the same form as the opinion attached hereto as Annex A; (v) Houlihan Lokey having delivered an updated opinion to the USLD Board, dated as of the Distribution Date, in substantially the same form as the opinion attached hereto as Annex B; and (vi) receipt of any necessary consents to the Distribution from third parties to certain contracts, except for those the failure of which to obtain would not have a material adverse effect on Billing or USLD. USLD believes that, there will be no individual consents, the failure of which to obtain would have a material adverse effect on Billing, USLD or the Distribution. Because the terms of certain debt agreement waivers and consents are expected to require that, after the Distribution, USLD or Billing each remain liable as a guarantor and continue to pledge security with respect to certain indebtedness that cannot be economically allocated to only USLD or only Billing prior to the Distribution Date, each of USLD and Billing has agreed to pay each other a credit support fee equal to 1% per annum of the average monthly balance of indebtedness guaranteed by one on behalf of the other for as long as such guarantees continue. Any of the above conditions may be waived in the discretion of USLD Board. Even if all of the above conditions are satisfied, the USLD Board has reserved the right to abandon, defer or modify aspects of the Distribution or the other elements of the Distribution at any time prior to the Distribution Date; however, the USLD Board will not waive any of the conditions to the Distribution or make 22 any changes in the terms of the Distribution unless the USLD Board determines that such changes would not be materially adverse to the USLD stockholders. See "Relationship Between Billing and USLD After the Distribution -- Distribution Agreement." REASONS FOR FURNISHING THE INFORMATION STATEMENT This Information Statement is being furnished by USLD solely to provide information to USLD stockholders who will receive the Billing Common Stock in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any securities of USLD or Billing. The information contained in this Information Statement is believed by USLD and Billing to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither Billing nor USLD will update the information except in the normal course of their respective public disclosure practices. RELATIONSHIP BETWEEN BILLING AND USLD AFTER THE DISTRIBUTION For purposes of governing certain of the ongoing relationships between USLD and Billing after the Distribution, and to provide for an orderly transfer on the Distribution Date of certain of the billing clearinghouse and information management services business to Billing and an orderly transition to the status of two separate companies, USLD and Billing have entered or will enter into various agreements, including those described in this section. The terms of these agreements are subject to change prior to execution. The forms of agreements summarized in this section are included as exhibits to the Registration Statement on Form 10 of which this Information Statement forms a part, and the following summaries are qualified in their entirety by reference to the agreements as filed. DISTRIBUTION AGREEMENT Prior to the Distribution Date, Billing and USLD will enter into the Distribution Agreement, which provides for, among other things, (i) certain of the Preliminary Transactions (see "Preliminary Transactions"); (ii) the Distribution; (iii) the division between Billing and USLD of certain assets and liabilities with Billing retaining substantially all the commercial billing clearinghouse and information management services business and USLD retaining its direct billing function, pursuant to which USLD will continue to directly bill its direct dial long distance charges; and (iv) certain other agreements governing the relationship between Billing and USLD following the Distribution. Subject to certain exceptions, the Distribution Agreement provides for, among other things, assumptions of liabilities and cross-indemnities designed to allocate, effective as of the Distribution Date, financial responsibility for the liabilities arising out of or in connection with the business of the Billing Group ("Billing Group Business") to Billing and its subsidiaries, and financial responsibility for the liabilities arising out of or in connection with the business of the Telecommunications Group ("Telecommunications Group Business") to USLD and its retained subsidiaries. The agreements to be executed in connection with the Distribution Agreement set forth certain specific allocations of liabilities between Billing and USLD. See "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement"; -- "Tax Sharing Agreement"; and -- "Transitional Services and Sublease Agreement" below. Under the Distribution Agreement, Billing will transfer to USLD on the Distribution Date cash in an amount necessary to cause USLD's working capital to be approximately $21,500,000 after taking into account direct costs of the Distribution estimated to range from approximately $8,500,000 to approximately $10,500,000. The calculation of this cash amount will be based upon current assets and current liabilities as reported on the USLD balance sheet at the month-end date immediately preceding the Distribution and is subject to change at any time prior to execution of the Distribution Agreement in light of changes in the financial position and results of operation of Billing and USLD. See "Pro Forma Condensed Consolidated Balance Sheet." 23 To avoid adversely affecting the intended tax consequences of the Distribution and related transactions, the Distribution Agreement provides that, until the second anniversary of the Distribution Date, Billing must obtain an opinion of counsel reasonably satisfactory to USLD or a supplemental tax ruling from the Service before Billing may make certain material dispositions of its assets, engage in certain repurchases of Billing capital stock or cease the active conduct of its business independently, with its own employees and without material changes. Billing does not expect these limitations to inhibit significantly its operations, growth opportunities or its ability to respond to unanticipated developments. USLD must also obtain an opinion of counsel reasonably satisfactory to Billing or a supplemental tax ruling from the Service before USLD may engage in similar transactions during such period. See "Special Factors -- Uncertainty of Tax Consequences." USLD does not expect these limitations to inhibit significantly its operations, growth opportunities or its ability to respond to unanticipated developments. The Distribution Agreement also provides that by the Distribution Date, Billing's Certificate of Incorporation and Bylaws shall be in the forms attached hereto as Annex C and D, respectively, and that Billing and USLD will take all actions which may be required to elect or otherwise appoint, as directors of Billing, the persons indicated herein. See "Description of Capital Stock" and "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law." The Distribution Agreement also provides that each of Billing and USLD will be granted access to certain records and information in the possession of the other generally consisting of pre-Distribution, nonproprietary, noncustomer, noncompetitive related information, and requires the retention by each of Billing and USLD for a period of ten years following the Distribution of all such information in its possession, and thereafter requires that each party give the other prior notice of its intention to dispose of such information. In addition, the Distribution Agreement provides for the allocation of shared privileges with respect to certain information and requires each of Billing and USLD to obtain the consent of the other prior to waiving any shared privilege. Because the terms of certain debt agreement waivers and consents are expected to require that, after the Distribution, USLD or Billing each remain liable as a guarantor and continue to pledge security with respect to certain indebtedness that cannot be economically allocated to only USLD or only Billing prior to the Distribution Date, each of USLD and Billing has agreed to pay annually to each other a credit support fee equal to 1% per annum of the average monthly balance of indebtedness guaranteed by one on behalf of the other for as long as such guarantees continue after the Distribution Date. The Distribution Agreement provides that, except as otherwise set forth therein or in any related agreement, all costs and expenses in connection with the Distribution will be charged to the party for whose benefit the expenses are incurred. BENEFIT PLANS AND EMPLOYMENT MATTERS ALLOCATION AGREEMENT Prior to the Distribution Date, USLD and Billing will enter into a Benefit Plans and Employment Matters Allocation Agreement (the "Benefit Plans and Employment Matters Allocation Agreement") providing for the allocation of certain responsibilities with respect to employee compensation, benefit and labor matters. The allocation of responsibility and adjustments to be made pursuant to the Benefit Plans and Employment Matters Allocation Agreement are substantially consistent with the existing benefits provided to USLD employees under USLD's various compensation plans. The Benefit Plans and Employment Matters Allocation Agreement will provide that, effective as of the Distribution Date, Billing will, or will cause one or more of its subsidiaries to, assume or retain, as the case may be, all liabilities of USLD, to the extent unpaid as of the Distribution Date, under employee benefit plans, policies, arrangements, contracts and agreements, with respect to employees who, on or after the Distribution Date, will be employees of Billing or its subsidiaries. The Benefit Plans and Employment Matters Allocation Agreement will also provide that, effective as of the Distribution Date, USLD will, or will cause one or more of its subsidiaries to, assume or retain, as the case may be, 24 all liabilities of USLD, to the extent unpaid as of the Distribution Date, under employee benefit plans, policies, arrangements, contracts and agreements with respect to employees who on or after the Distribution Date will be employees of USLD or its subsidiaries. USLD currently provides additional compensation to its employees (including Billing employees) under one or more of the following employee benefit plans: USLD 401(k) Retirement Plan (the "USLD Retirement Plan"), the USLD 1990 Employee Stock Option Plan ("USLD Employee Stock Option Plan"), the 1993 Non-Employee Director Plan of USLD (the "USLD Director Plan"), the USLD Executive Compensation Deferral Plan (the "USLD Executive Deferral Plan"), the USLD Director Compensation Deferral Plan ("USLD Director Deferral Plan"), the USLD Employee Stock Purchase Plan ("USLD Stock Purchase Plan") and the USLD 1995 Employee Restricted Stock Plan ("USLD Restricted Stock Plan"). Pursuant to the Benefit Plans and Employment Matters Allocation Agreement, subject to certain conditions set forth in the Benefit Plans and Employment Matters Allocation Agreement in connection with the Distribution, USLD will adjust each existing USLD employee benefit plan and award outstanding thereunder in the following manner: U.S. LONG DISTANCE CORP. 401(K) RETIREMENT PLAN Under the USLD Retirement Plan, participants generally may make voluntary salary deferred contributions, on a pre-tax basis of between 1% and 15% of their base compensation in the form of voluntary payroll deductions up to a maximum amount as indexed for cost of living adjustments. USLD has agreed to make matching contributions equal to 50% of the first 3% of a participant's compensation contributed as salary deferral. USLD also may from time to time make additional discretionary contributions at the sole discretion of the Board of Directors of USLD. USLD will make matching contributions under the USLD Retirement Plan prior to the Distribution Date. As of the Distribution Date, the plan administrator of the USLD Retirement Plan shall adjust the account balance of all participants entitled under such plan to reflect such contributions and any forfeitures under the plan. As soon as is practicable after the Distribution Date, USLD shall cause the trustee of the USLD Retirement Plan to transfer to the trustee or other funding agent of the Billing Information Concepts Corp. 401(k) Retirement Plan the amounts (in cash, securities, other property or a combination thereof) acceptable to the Billing administrator or trustee representing the account balances of all employees who, on or after the Distribution Date, will be employees of Billing or its subsidiaries and certain former employees of Billing or any Billing Group Business, and Billing shall credit the accounts of such individuals under the Billing Information Concepts Corp. 401(k) Retirement Plan with these amounts. U.S. LONG DISTANCE CORP. DIRECTOR COMPENSATION DEFERRAL PLAN AND EXECUTIVE COMPENSATION DEFERRAL PLAN Under the USLD Director Deferral Plan and the USLD Executive Deferral Plan, respectively, as of April 30, 1996, three outside directors and 26 executives and other employees, defer current compensation for retirement or other purposes. In connection with the Distribution, Billing will adopt the Billing Information Concepts Corp. Director Compensation Deferral Plan and the Billing Information Concepts Corp. Executive Compensation Deferral Plan and will assume all liabilities and obligations of USLD relating to outside directors of Billing and all employees who, on or after the Distribution Date, will be directors or employees of Billing or its subsidiaries and certain former employees of Billing or any Billing Group Business, accrued through the day immediately preceding the Distribution Date with respect to the USLD Director Deferral Plan and USLD Executive Deferral Plan, respectively, along with the earnings required to be credited to account balances included in such plans. USLD will retain such obligations with respect to all directors or employees who, on or after the Distribution Date, will be directors or employees of USLD or its subsidiaries and certain former employees of USLD or any Telecommunications Group Business and directors of USLD. All service with USLD will be credited under the Billing Information Concepts Corp. Director Compensation Deferral Plan and Billing Information Concepts Corp. Executive Compensation Deferral Plan, as applicable, for purposes of vesting thereunder. 25 U.S. LONG DISTANCE CORP. 1995 EMPLOYEE RESTRICTED STOCK PLAN As of April 30, 1996, there were outstanding 115,000 shares of USLD Common Stock awarded under the USLD Restricted Stock Plan. Immediately prior to the Distribution, the vesting of all of these shares will be accelerated and all restrictions on these shares shall lapse. As a result, the holders of these shares will participate in the Distribution as any other USLD stockholder and no adjustments will be required. U.S. LONG DISTANCE CORP. 1990 EMPLOYEE STOCK OPTION PLAN AND 1993 NON-EMPLOYEE DIRECTOR PLAN As of April 30, 1996, there were outstanding options to purchase (i) 1,702,386 shares of USLD Common Stock under the USLD Employee Stock Option Plan, and (ii) 70,000 shares of USLD Common Stock under the USLD Director Plan. Of these outstanding stock options ("USLD Options"), options to purchase 603,986 shares are held by individuals who will continue as directors, officers or employees of Billing after the Distribution. Prior to the Distribution, Billing also will adopt the 1996 Employee Comprehensive Stock Plan (the "Billing Employee Stock Plan") and 1996 Non-Employee Director Plan (the "Billing Director Plan") under which officers and employees, and non-employee directors, respectively, of Billing and its affiliates are eligible to receive stock option grants. See "Executive Compensation -- Employee Benefit Plans -- Stock Option and Grant Plans." Immediately prior to the Distribution, Billing intends to grant, under the Billing Employee Stock Plan and Billing Director Plan, respectively, options to purchase Billing Common Stock ("Billing Options") to each holder of an outstanding option to purchase shares of USLD Common Stock under the USLD Employee Stock Option Plan and USLD Director Plan, respectively. The Billing Options will be exercisable for Billing Common Stock on the basis of one share of Billing Common Stock for every one share of USLD Common Stock subject to the outstanding USLD Options. Based on the number of USLD Options outstanding on April 30, 1996, it is anticipated that Billing Options to purchase a total of 1,772,386 shares of Billing Common Stock will be granted in connection with the grant to USLD Option holders. In connection with the grant of the Billing Options, the exercise price of the USLD Options will be adjusted (the "Formula Adjustment"). The Formula Adjustment and the grant of the Billing Options are designed to preserve the economic value of the USLD Options existing immediately prior to the Distribution (collectively, the "USLD Adjusted Options"). The Billing Options shall have vesting schedules mirroring the vesting schedules of the related USLD Options. As a result of the Formula Adjustment, and subject to the vesting provisions of the Billing Options, the holders of the USLD Adjusted Options will have the opportunity to acquire the same number of shares of Billing Common Stock as they would have received had they exercised their USLD Options in full prior to the Distribution. Except for the Formula Adjustment, the terms of each USLD Adjusted Option will be substantially the same as those in effect under the related USLD Options prior to the Distribution. FORMULA ADJUSTMENT. The per share exercise price of the USLD Options will be adjusted by allocating it among each of the USLD Adjusted Options on the basis of the relative fair market values of the underlying common stock of each of the two companies after the Distribution. For purposes of such allocation, the fair market value per share of common stock of each company will be the average of the last sales price per share of that common stock on the Nasdaq National Market for each of the ten (10) consecutive trading days beginning with and including the Distribution Date. The USLD Adjusted Options will remain exercisable for the same number of shares of USLD Common Stock as before the Distribution. 26 The Formula Adjustment will be based on the following formulas: X THE EXERCISE PRICES FOR USLD ADJUSTED OPTIONS WILL EQUAL: A X Z Y THE EXERCISE PRICE FOR BILLING OPTIONS WILL EQUAL: A X Z
Where A = The original exercise price of the USLD Options. x = The fair market value per share of USLD Common Stock based on the average of the last sales price per share for each of the 10 consecutive trading days beginning on the Distribution Date. y = The fair market value per share of Billing Common Stock based on the average of the last sales price per share for each of the 10 consecutive trading days beginning on the Distribution Date. z = The sum of x + y.
The Formula Adjustment will assure that each holder of an outstanding USLD Option prior to the Distribution will have the opportunity after the Distribution to obtain Billing Common Stock and the same number of shares of USLD Common Stock at the same aggregate exercise price as if such individual had exercised the USLD Option in full (as if such options were fully vested) prior to the Distribution Date. POST-DISTRIBUTION EXERCISABILITY. It is anticipated that immediately after the Distribution each option holder who is an employee of USLD or Billing prior to the consummation of the Distribution will continue in employment with the same company employing that individual as prior to the Distribution. Therefore, after the Distribution Date, such USLD Option holders will not only have the right to purchase shares of USLD Common Stock, but will also possess separately exercisable Billing Options. For each such USLD Option holder who continues to be employed with either USLD or Billing after the Distribution Date, the post-Distribution exercisability of his or her Billing Options and USLD Adjusted Options will be as follows: (a) Each USLD Adjusted Option held by a USLD employee after the Distribution Date will terminate in accordance with the USLD Employee Stock Option Plan upon the earliest to occur of (i) the specified expiration date of the original USLD Option, (ii) the expiration of the three-month period following the retirement (with the written consent of USLD) or other termination of employment with USLD other than a termination that is either (y) for cause or (z) voluntary on the part of the employee and without the written consent of USLD (except that in the event that employment terminates due to disability, the three month period shall be a one year period), or (iii) the expiration of the 12 month period following the date of the option holder's death, if such individual dies while in the service of USLD or within three months after the termination of employment with USLD. In the event of termination that is either for cause or voluntary on the part of the employee and without the written consent of USLD, each USLD Adjusted Option will terminate immediately on the date of termination of employment with USLD. (b) Each Billing Option granted in connection with the Distribution and held by a USLD employee after the Distribution Date will terminate in accordance with the Billing Employee Stock Plan upon the earliest to occur of (i) the specified expiration date of the original USLD Option, (ii) the expiration of the three month period following the retirement (with the written consent of USLD) or other termination of employment with USLD other than a termination that is (y) for cause or (z) voluntary on the part of the employee and without the written consent of USLD (except that in the event that employment terminates due to disability, the three month period shall be a one year period), or (iii) the expiration of the 12 month period following the date of the option holder's death, if such individual dies while in the service of USLD or within three 27 months after the termination of employment with USLD. In the event of termination that is either for cause or voluntary on the part of the employee and without the written consent of USLD, each Billing Option will terminate immediately on the date of termination of employment with USLD. (c) Each USLD Adjusted Option held by a Billing employee after the Distribution Date will terminate in accordance with the USLD Employee Stock Option Plan upon the earliest to occur of (i) the specified expiration date of the original USLD Option, (ii) the expiration of the three month period following the retirement (with the written consent of Billing) or other termination of employment with Billing other than a termination that is (y) for cause or (z) voluntary on the part of the employee and without the written consent of Billing (except that in the event that employment terminates due to disability, the three month period shall be a one year period), or (iii) the expiration of the 12 month period following the date of the option holder's death, if such individual dies while in the service of Billing or within three months after the termination of employment with Billing. In the event of termination that is either for cause or voluntary on the part of the employee and without the written consent of Billing, each USLD Adjusted Option will terminate immediately on the date of termination of employment with Billing. (d) Each Billing Option granted in connection with the Distribution and held by a Billing employee after the Distribution Date will terminate in accordance with the Billing Employee Stock Plan upon the earliest to occur of (i) the specified expiration date of the original USLD Option, (ii) the expiration of the three month period following the retirement (with the written consent of Billing) or other termination of employment with Billing other than a termination that is either (y) for cause or (z) voluntary on the part of the employee and without the written consent of Billing (except that in the event that employment terminates due to disability, the three month period shall be a one year period), or (iii) the expiration of the 12 month period following the date of the option holder's death, if such individual dies while in the service of Billing or within three months after the termination of employment with Billing. In the event of termination that is either for cause or voluntary on the part of the employee and without the written consent of Billing, each Billing Option will terminate immediately on the date of termination of employment with Billing. Each USLD Adjusted Option agreement provides, and each Billing Option agreement will provide, that upon a change of control (as defined in the applicable stock option agreement) of either USLD or Billing, all nonvested USLD Adjusted Options and all nonvested Billing Options shall immediately vest, whether held by a USLD employee or a Billing employee. USLD and Billing have also agreed to give effect in its corrresponding stock option agreement to any amendments that the other may make to any USLD Adjusted Option agreement or any Billing Option agreement, as the case may be, subsequent to the Distribution Date. The USLD Adjusted Options will be administered under the USLD Employee Stock Option Plan and USLD Director Plan, as applicable. The Billing Options will be granted and administered under the Billing Employee Stock Plan and Billing Director Plan, as applicable, adopted by Billing prior to the Distribution. TAX EFFECT OF OPTION ADJUSTMENT. Neither the grant of the Billing Options nor the Formula Adjustment to the USLD Options should result in the recognition of taxable income by USLD or Billing or their respective option holders. U.S. LONG DISTANCE CORP. EMPLOYEE STOCK PURCHASE PLAN The USLD Stock Purchase Plan provides the ability for USLD employees to purchase, on the last day of each participation period (each offering period commences at the beginning of USLD's regular payroll period that falls closest to February 1 and August 1 of each year, and lasts approximately six months, or such other period as the committee administering the USLD Stock Purchase Plan prescribes), USLD Common Stock at the lesser of (i) 85% of the fair market value on the first day of 28 the applicable participation period or (ii) 85% of the fair market value on the last day of such participation period. The purchase price is collected by means of employee salary and wage deferrals. The USLD Stock Purchase Plan provides that the right to participate terminates immediately upon the date the participant ceases employment with USLD. Any contributions collected prior to the date of termination are paid to the participant in cash. The committee administering the USLD Stock Purchase Plan will adjust the length of the current participation period to end prior to the Record Date and shares of USLD Common Stock shall be purchased for all eligible participants so as to allow participants to participate in the Distribution of Billing Common Stock. After the Distribution, employees of Billing will be eligible to enroll in the Billing Stock Purchase Plan. New offering periods under the USLD Stock Purchase Plan and the Billing Stock Purchase Plan will begin on August 1, 1996, or on such other date that the administrators under the respective plans determine. ADDITIONAL ACTIONS Prior to the Distribution, USLD, as sole stockholder of Billing, will approve the adoption by Billing of the Billing Comprehensive Stock Plan, the Billing Stock Purchase Plan and the Billing Director Plan. USLD will also approve the reservation by Billing of 3,500,000, 1,000,000, and 400,000 shares of Billing Common Stock under the Billing Comprehensive Stock Plan, the Billing Stock Purchase Plan and the Billing Director Plan, respectively. For a discussion of the principal terms and conditions of each of these stock plans, see "Executive Compensation -- Employee Benefit Plans -- Stock Option and Grant Plans." Billing will assume, with respect to employees who, on or after the Distribution Date, will be employees of Billing or any of its subsidiaries, all responsibility for liabilities and obligations as of the Distribution Date for medical and dental plan coverage and for vacation and welfare plans. USLD will assume, with respect to employees who, on or after the Distribution Date, will be employees of USLD or any of its subsidiaries, all responsibility for liabilities and obligations as of the Distribution Date for medical and dental plan coverage and for vacation and welfare plans. The Benefit Plans and Employment Matters Allocation Agreement will provide that the Distribution does not constitute a termination of employment for employees who, on or after the Distribution Date, will be employees of Billing or any of its subsidiaries or employees who, on or after the Distribution Date, will be employees of USLD or any of its subsidiaries, and those employees who, on or after the Distribution Date, will be employees of Billing or any of its subsidiaries who are employed immediately prior to the Distribution Date will not be deemed severed from employment from USLD or any of its subsidiaries for purposes of any policy, plan, program or agreement that provides for the payment of severance, salary, continuation or similar benefits based on periods of past service. TAX SHARING AGREEMENT Billing and USLD will enter into a Tax Sharing Agreement (the "Tax Sharing Agreement") that defines the parties' rights and obligations with respect to deficiencies and refunds of federal, state and other income or franchise taxes relating to Billing's business for tax years prior to the Distribution and with respect to certain tax attributes of Billing after the Distribution. In general, with respect to periods ending on or before September 30, 1996, the fiscal year end for USLD, USLD is responsible for (i) filing both consolidated federal tax returns for the USLD affiliated group and combined or consolidated state tax returns for any group that includes a member of the USLD affiliated group, including in each case Billing and its subsidiaries for the relevant periods of time that such companies were members of the applicable group and (ii) paying the taxes related to such returns (including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities). Billing will reimburse to USLD the taxes attributed to any Billing Group member and the cost of preparation of the associated tax returns related to the Billing Group. Billing is responsible for filing returns and paying taxes related to the Billing Group for periods commencing on and after October 1, 1996. Billing and USLD have agreed to cooperate with each other and to share information in preparing such tax returns and in dealing with other tax matters. 29 TRANSITIONAL SERVICES AND SUBLEASE AGREEMENT USLD and Billing will enter into the Transitional Services and Sublease Agreement pursuant to which (i) USLD will provide to Billing for six months after the Distribution Date certain services necessary for the conduct of its business, (ii) USLD will sublease to Billing certain office space utilized by Billing until January 1998 with a one year renewal option and certain other office space on a month-to-month basis, and (iii) Billing will provide to USLD for six months after the Distribution Date certain services necessary for the conduct of its business. The fee for USLD's services will be based on a cost-plus basis or other negotiated arm's length basis. The sublease will be on the same terms and conditions as the terms and conditions of the lease agreement pursuant to which USLD leases such space from its landlord. The fee for Billing's services will be based on a cost-plus basis or other negotiated arm's length basis. Subject to termination provisions of the agreement, Billing and USLD will be free to procure such services from outside vendors or may develop an in-house capability in order to provide such services internally and Billing may lease office space from outside landlords. The transitional services to be provided to Billing pursuant to such agreement will include corporate secretary services, accounting services, legal services, tax planning and administration, information services, and may include any other similar services that Billing may require. The transitional services to be provided to USLD pursuant to such agreement will include management information systems and software consulting with respect to the direct billing function to be retained by USLD. BILLING AGREEMENT USLD and Billing will enter into a Zero Plus - Zero Minus Billing and Information Management Services Agreement (the "Zero Plus -- Zero Minus Billing Agreement"). Under the Zero Plus -- Zero Minus Billing Agreement, Billing will provide to USLD billing through local telephone companies for certain qualifying "zero plus" and "zero minus" direct dialed or operator assisted station to station or person to person calls. USLD is charged for the local telephone company's applicable fees, charges, chargebacks, credits and adjustments as prescribed in the agreement between Billing and the local telephone company, as well as billing service fees, charges, chargebacks, credits and assessments of Billing. These charges are deducted from the amounts payable to USLD for qualifying calls. The Zero Plus -- Zero Minus Billing Agreement will have an initial term of three (3) years. TELECOMMUNICATIONS AGREEMENT USLD and Billing will enter into a Telecommunications Agreement (the "Telecommunications Agreement") whereby USLD will provide to Billing certain direct dial long distance and 800 services. The Telecommunications Agreement has a three-year term and renews for an additional one year unless either party notifies the other not less than 60 days prior to the termination date. In addition, Billing has the right to terminate services under the Telecommunications Agreement by providing written notice within 30 days of Billing's intent to cancel services 60 days from notice. POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS The ongoing relationship between USLD and Billing will present certain conflict situations for Parris H. Holmes, Jr., who serves as Chairman of the Board of USLD and Billing and Chief Executive Officer of Billing. Parris H. Holmes, Jr., as well as other officers and directors of USLD and Billing, also own (or have options or other rights to acquire) a significant number of shares of USLD Common Stock and, as a result of the Distribution, will own (or have options or other rights to acquire) a significant number of shares of Billing Common Stock. Billing and USLD have adopted appropriate policies and procedures to be followed by the board of directors of each company to limit the involvement of Parris H. Holmes, Jr. (or such executive officers and other directors having a significant ownership interest in the companies) in conflict situations, including matters relating to contractual relations or litigation between USLD and Billing. Such procedures include requiring Mr. Holmes (or such executive officers or other directors having a significant ownership interest in the companies) to abstain from voting as directors of each company with respect to matters that place a significant conflict of interest between the companies. Whether or not a significant conflict of interest situation exists will be determined on a case by case basis depending on such factors as the dollar value of the matter, the degree of personal interest of Mr. Holmes (or such executive officers and other directors having a significant ownership 30 interest in the companies) in the matter and a likelihood that resolution of the matter has significant strategic, operational or financial implications for the business of Billing. It is the principal responsibility of the general counsel of each of Billing and USLD to monitor this issue in consultation with USLD's or Billing's (as applicable) board of directors. In the event that the Board of either company is unable to reach a decision on a particular matter because of a split in the Board, the vote of its outside directors will control. Billing and USLD believe such conflicts will be minimal. PRELIMINARY TRANSACTIONS The following transactions will be consummated prior to the Distribution: (a) USLD will organize Billing as a wholly owned subsidiary; (b) USLD will contribute or cause certain of its Telecommunications Group Subsidiaries to contribute certain Billing Group related assets to Zero Plus Dialing, Inc., a 99%-owned subsidiary of USLD ("ZPDI"), and ZPDI will make a transfer of cash to USLD in an amount necessary to cause USLD's working capital to be approximately $21,500,000 after taking into account the direct costs of the Distribution estimated to range from approximately $8,500,000 to approximately $10,500,000; (c) USLD's net intercompany payable to Billing ($14,500,000 at March 31, 1996) will be cancelled; (d) USLD will contribute the stock of U.S. Billing Management Corp. ("USBMC") and U.S. Billing, Inc. ("USBI"), also wholly owned subsidiaries of USLD, to Billing in exchange for shares of Billing Common Stock; (e) MPDI, a wholly owned subsidiary of USLD, and holder of all the preferred stock and 1% of the common stock of ZPDI ("MPDI/ZPDI Holdings") will sell such MPDI/ZPDI Holdings to USLD for $8,185,000 in cash; (f) ZPDI will redeem from USLD all of its shares of preferred stock and common stock previously held by MPDI, and (g) ZPDI and one other wholly owned subsidiary of USLD engaged in the billing business, Enhanced Services Billing, Inc. ("ESBI"), will adopt plans of merger with USBMC and USBI, whereby (i) ZPDI and ESBI will be merged with USBMC and USBI, respectively, with ZPDI and ESBI continuing as the surviving corporations with ZPDI changing its name to Billing Information Concepts, Inc., ("BICI") and (ii) the stock of USBMC and USBI will be converted into shares of Billing Common Stock. As a result of the foregoing transactions, BICI and ESBI will be wholly owned operating subsidiaries of Billing. See "Pro Forma Condensed Consolidated Balance Sheet." The calculation of the cash amount to be transferred by Billing to USLD will be based on current assets and current liabilities as reported on the USLD balance sheet on the month-end date immediately preceding the Distribution and is subject to change at any time prior to execution of the Distribution Agreement in light of changes in the financial position and results of operation of Billing and USLD. Had the Distribution occurred on March 31, 1996, approximately $13,561,000 of cash would have been required to be transferred by Billing to USLD, not including any transfers of cash for payment of direct costs of the Distribution. Had the Distribution occurred on March 31, 1996, the total transfers from Billing to USLD under the cash transfer in (b) above and the cancellation of the net intercompany payable in (c) above would have been $28,061,000. ACCOUNTING TREATMENT The historical financial statements of Billing present its financial position, results of operations and cash flows as if it were a separate entity for all periods presented. USLD's historical basis in the assets and liabilities of Billing has been carried over. Upon approval of the Distribution, USLD will present the Billing Group business as a discontinued operation to the extent financial information for periods prior to the Distribution is required to be included in USLD's historical financial statements. After the Distribution, the Billing Group business will be reflected in Billing's own separate consolidated financial statements. DIVIDEND POLICY Billing presently intends to retain earnings for use in its business and does not anticipate paying cash dividends in the foreseeable future. 31 CAPITALIZATION The following table sets forth the capitalization of Billing as of March 31, 1996, and pro forma capitalization as of March 31, 1996, after giving effect to the transactions described under the caption "Pro Forma Condensed Consolidated Balance Sheet." The capitalization of Billing should be read in conjunction with Billing's Consolidated Financial Statements and the notes thereto, the "Pro Forma Condensed Consolidated Balance Sheet" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each contained elsewhere herein.
AS OF MARCH 31, 1996 ------------------------ ACTUAL PRO FORMA (1) --------- ------------- (IN THOUSANDS) Revolving credit receivable financing facility............................... $ 23,686 $ 23,686 Debt, including current portion.............................................. 2,524 2,524 Stockholders' equity......................................................... 34,456 20,895 --------- ------------- Total Capitalization......................................................... $ 60,666 $ 47,105 --------- ------------- --------- -------------
- - ------------------------ (1) Pro forma for the consummation of the Distribution including the cash transfer by Billing to USLD in the amount of $13,561,000, assuming the Distribution was consummated as of March 31, 1996. The pro forma excludes direct costs associated with the Distribution, estimated to range from approximately $8,500,000 to approximately $10,500,000. See "Pro Forma Condensed Consolidated Balance Sheet." 32 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET The unaudited Pro Forma Condensed Consolidated Balance Sheet of Billing gives effect to the Distribution, the Preliminary Transactions and certain adjustments including a cash transfer from Billing to USLD of $13,561,000 as of March 31, 1996 as if such transactions occurred as of such date. The Pro Forma Condensed Consolidated Balance Sheet of Billing does not include adjustments for direct costs incurred in connection with the Distribution that are estimated to range from approximately $8,500,000 to approximately $10,500,000. The Pro Forma Condensed Consolidated Balance Sheet of Billing is unaudited and presented for informational purposes only and may not reflect Billing's future results of operations and financial position or what the results of operations and financial position of Billing would have been had such transactions occurred as of the dates indicated. Billing's Pro Forma Condensed Consolidated Balance Sheet and notes thereto should be read in conjunction with Billing's Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein. 33 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) MARCH 31, 1996 ASSETS
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ----------- --------------- ----------- (IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents............................................ $ 32,582 $ (13,561)(A) $ 19,021 Accounts receivable.................................................. 20,368 20,368 Purchased receivables................................................ 62,381 62,381 Prepaids and other................................................... 731 731 ----------- --------------- ----------- Total current assets............................................... 116,062 (13,561) 102,501 Property and equipment............................................... 6,826 6,826 Less accumulated depreciation and amortization....................... (2,747) (2,747) ----------- --------------- ----------- Net property and equipment......................................... 4,079 4,079 Equipment held under capital leases.................................. 1,369 1,369 Other assets, net.................................................... 785 785 ----------- --------------- ----------- Total assets....................................................... $ 122,295 $ (13,561) $ 108,734 ----------- --------------- ----------- ----------- --------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable: Trade.............................................................. $ 10,922 $ $ 10,922 Billing customers.................................................. 32,730 32,730 Accrued liabilities.................................................. 17,921 17,921 Revolving line of credit for purchased receivables................... 23,686 23,686 Current portion of long-term debt.................................... 298 298 Current portion of obligations under capital leases.................. 421 421 ----------- --------------- ----------- Total current liabilities.......................................... 85,978 85,978 Long-term debt, less current portion................................... 880 880 Obligations under capital leases, less current portion................. 925 925 Other liabilities...................................................... 56 56 ----------- --------------- ----------- Total liabilities.................................................. 87,839 87,839 STOCKHOLDERS' EQUITY: Preferred shares, $10.00 par value, 10,000 shares authorized, 10,000 shares issued and oustanding........................................ 100 (100)(B) 0 Common shares, no par value, 102,000 shares authorized, 102,000 shares issued and outstanding....................................... 1 149(C) 150 U.S. Long Distance Corp.'s investment in and advances to Billing....... 34,355 (34,355)(D) 0 Paid-in capital........................................................ 0 20,745 20,745 ----------- --------------- ----------- Total stockholders' equity......................................... 34,456 (13,561) 20,895 ----------- --------------- ----------- Total liabilities and stockholders' equity......................... $ 122,295 $ (13,561) $ 108,734 ----------- --------------- ----------- ----------- --------------- -----------
Notes to unaudited pro forma condensed consolidated balance sheet: (A) Cash transfer made to USLD (B) Redemption of preferred stock (C) Issuance of Billing Common Stock (D) Reclassified to paid-in capital 34 SELECTED HISTORICAL FINANCIAL DATA The following table presents selected historical financial and other data and selected pro forma financial data for the Company after giving effect to the Distribution and related transactions. The financial data presented for the fiscal years ended September 30, 1993, 1994 and 1995 should be read in conjunction with the Consolidated Financial Statements, the notes thereto and the other financial information included in this Information Statement. The Statements of Income and Statements of Cash Flows for the years ended September 30, 1993, 1994 and 1995 and the Balance Sheets at September 30, 1994 and 1995 have been audited by Arthur Andersen LLP, the Company's independent public accountants. All historical financial data shown below for these periods have been derived from the audited financial statements. The Income Statement data for the six months ended March 31, 1996 and March 31, 1995 and for the fiscal years ended September 30, 1992 and 1991, the balance sheet data at March 31, 1996, and all Operating Data are unaudited. In the opinion of management of Billing, the data presented reflects all adjustments considered necessary for a fair presentation of the results for such periods. Historical per share amounts are not included as they may not be indicative of future performance. The following data should be read in conjunction with Billing's Consolidated Financial Statements and the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere herein.
SIX MONTHS FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS) CONSOLIDATED INCOME STATEMENT DATA: Operating revenues............. $ 16,327 $ 33,162 $ 46,451 $ 57,746 $ 80,847 $ 34,942 $ 50,301 Gross profit................... * * 16,458 20,158 29,510 12,966 18,156 Advance funding program income........................ 1,896 2,435 3,299 3,467 4,384 1,898 2,968 Advance funding program expense....................... (1,552) (1,794) (2,581) (1,858) (1,351) (624) (598) Income from operations......... * * 10,416 13,392 22,055 9,402 14,230 Net income..................... * * 6,441 8,565 14,118 6,013 8,969
SEPTEMBER 30, PRO FORMA (1) ----------------------------------------------------- MARCH 31, MARCH 31, 1991 1992 1993 1994 1995 1996 1996 --------- --------- --------- --------- --------- ----------- ------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital................ * * * $ 11,132 $ 17,300 $ 30,084 $ 16,523 Total assets................... * * * 89,710 106,895 122,295 108,734 Long-term obligations, less current portion............... * * * 853 2,216 1,805 1,805 U.S. Long Distance Corp.'s investment in and advances to Billing (2)................... * * * 13,001 21,122 34,355 0 Paid-in capital................ 0 0 0 0 0 0 20,745
35
SEPTEMBER 30, MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS) OPERATING DATA: EBITDA(3)........................... * * $ 11,293 $ 14,346 $ 23,271 $ 9,921 $ 15,170 Billing call records processed per month (4)(5)....................... 6,500 10,800 16,900 25,920 40,410 28,530 45,340 Billing services customers (6)...... 71 115 143 168 272 * 305
- - ------------------------ * Information is not available. (1) The pro forma financial data are derived from the unaudited financial information and notes thereto included elsewhere in this Information Statement. The pro forma financial data includes an adjustment for a cash transfer from Billing to USLD of $13,561,000, assuming the Distribution was consummated as of March 31, 1996, but does not include direct costs associated with the Distribution estimated to range from approximately $8,500,000 to approximately $10,500,000. See "Pro Forma Condensed Consolidated Balance Sheet." (2) The Company has never declared cash dividends on its Common Stock, nor does it anticipate doing so in the foreseeable future. (3) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is a commonly used profitability/cash flow measurement. (4) Calculated based upon a monthly average over the fiscal quarter ended on the date indicated. (5) Does not include call records that the Company processed for billing management customers. (6) At end of the period. 36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements of the Company, the Notes thereto and the other financial information included elsewhere in this Information Statement. For purposes of the following discussion, references to year periods refer to the Company's fiscal year 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. RESULTS OF OPERATIONS
YEAR ENDED SIX MONTHS ENDED SEPTEMBER 30, MARCH 31, ---------------------------------- ---------------------- AS A PERCENTAGE OF REVENUES 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- Operating revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0% Cost of services............................... 64.6 65.1 63.5 62.9 63.9 ----- ----- ----- ----- ----- Gross profit................................... 35.4 34.9 36.5 37.1 36.1 Selling, general and administrative............ 12.7 12.9 11.5 12.4 10.6 Advance funding program income................. (7.1) (6.0) (5.4) (5.4) (5.9) Advance funding program expense................ 5.6 3.2 1.7 1.8 1.2 Depreciation and amortization.................. 1.9 1.7 1.5 1.5 1.9 ----- ----- ----- ----- ----- Operating income............................... 22.4 23.2 27.3 26.9 28.3 Other income (expense), net.................... (.5) .4 .9 .9 .5 ----- ----- ----- ----- ----- Income before taxes............................ 21.9 23.6 28.2 27.8 28.8 Income tax..................................... 8.1 8.7 10.7 10.6 10.9 ----- ----- ----- ----- ----- Net income..................................... 13.9 14.8 17.5 17.2 17.8
OPERATING REVENUES The Company's revenues are derived from the provision of billing clearinghouse and information management services to direct dial long distance carriers and operator services providers. Beginning in 1995, revenues also have been derived from enhanced services billing provided to companies that offer 900 services, as well as the billing for non-regulated telecommunications equipment and services. Fees charged by the Company include processing and customer service inquiry fees. Processing fees are assessed to customers either as a fee charged for each telephone call record or other transaction processed or as a percentage of the customer's revenue that is submitted by the Company to local telephone companies for billing and collection. Customer service inquiry fees are assessed to customers either as a fee charged for each record processed by the Company or as a fee charged for each billing inquiry made by end-users. Revenues include processing and customer service fees, as well as any charges assessed to the Company by local telephone companies for billing and collection services which are passed through to the customer. Billing services revenues during the first six months of 1996 increased 44% to $50.3 million from $34.9 million during the comparable period of 1995. Billing services revenues in 1995 totaled $80.8 million compared to $57.7 million for 1994 and $46.5 million for 1993 representing increases of 40% and 24%, respectively. During the five-year period ended September 30, 1995, the Company's revenues grew at a compounded annual rate of approximately 61%. The revenue increases are primarily attributable to an increase in the number of telephone call records processed and billed. Call record volume increases in all periods were primarily the result of new business from new direct dial long distance carriers, as well as expanded business from existing direct dial long distance customers. The revenue increase in the first six months of 1996 from the comparable prior year period is also due to the growth of enhanced billing services revenues. Revenues derived from operator services customers in both 1994 and 1995 were virtually the same as 1993. This lack of operator services revenues growth is attributable to several factors, including an increasing number of regulatory agencies that impose guidelines or rules on operator services providers, such as 37 the imposition of rate ceilings, which limit or impair the growth of the operator services industry. Additionally, there has been an increased awareness on the part of the consumer of the ability of the telephone user to select a carrier of choice by dialing access codes of carriers other than the carrier contracted by the telephone owner, resulting in a lower number of billable telephone calls generated by the Company's customers (800 dial-around). Telephone call record volumes were as follows:
SIX MONTHS YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, ------------------------------- -------------------- 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- (MILLIONS) Direct dial long distance services....................... 30.9 103.3 252.0 99.4 191.0 Operator services........................................ 133.7 142.9 138.0 67.2 63.9 Enhanced billing services................................ 0.0 0.0 4.4 1.1 5.1
COST OF SERVICES Cost of services includes billing and collection fees charged to the Company by local telephone companies and related transmission costs, as well as all costs associated with the customer service organization, including staffing expenses and costs associated with 800 services. Billing and collection fees charged by the local telephone companies include fees that are assessed for each record submitted and for each bill rendered to its end-user customers. The Company achieves discounted billing costs due to its aggregated volumes and can pass these discounted costs on to its customers. Gross profit margin of 36.1% reported for the first six months of 1996 compares to 37.1% achieved in the comparable prior year period. This decrease was primarily attributable to higher customer service costs which were partially offset by lower billing and collection fees. The higher customer service costs were due to increased 800 services usage and staffing expenses incurred by the Company in order to support the rapid growth in the volume of customer inquiries resulting from the significant growth in the number of records processed. Gross profit margin of 36.5% reported for 1995 compares to 34.9% achieved in 1994 and 35.4% achieved in 1993. The improvement from 1994 to 1995 is due primarily to the significant growth of the Company's higher gross margin business from direct dial long distance and enhanced services billing customers. The decrease in gross profit margin from 1993 to 1994 is attributable to higher customer service costs that were partially offset by lower billing and collection fees. The lower billing and collection fees as a percentage of revenues were the result of growth of the Company's higher gross margin business. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative ("SG&A") expenses are comprised of all selling, marketing and administrative costs incurred in direct support of the business operations of the Company. Additionally, the expense of certain USLD corporate functions, such as treasury, financial reporting, investor relations, legal, payroll and management information systems has been allocated to the Company and is reflected in its historical financial results. SG&A expenses as a percentage of revenues may be higher or lower in the future as actual costs incurred differ from costs historically allocated to the Company. SG&A expenses for the first six months of 1996 were $5.4 million, representing 10.6% of revenues, compared to $4.3 million in the first six months of 1995, or 12.4% of revenues. SG&A expenses for 1995 were $9.3 million, representing 11.5% of revenues, compared to $7.4 million in 1994, or 12.9% of revenues, and $5.9 million in 1993, or 12.7% of revenues. SG&A expenses as a percentage of revenues for 1995 and the first six months of 1996 decreased from the comparable prior year periods primarily as a result of efficiencies associated with significant revenue growth, as certain SG&A expenses, such as office administration and accounting, do not change proportionately with revenue. The increase in SG&A expenses as a percentage of revenues from 1993 to 1994 was primarily attributable to higher legal and accounting costs allocated to the 38 Company in connection with USLD's Securities and Exchange Commission investigations and subse- quent stockholder litigation. Based upon its review of facts and circumstances, management expects that these costs will be nonrecurring. ADVANCE FUNDING PROGRAM INCOME AND EXPENSE Advance funding program income increased from $1.9 million in the first six months of 1995 to $3.0 million in the first six months of 1996. Advance funding program income was $4.4 million in 1995 compared with $3.5 million in 1994 and $3.3 million in 1993. The year-to-year increases were primarily the result of financing a higher level of customer receivables under the Company's advance funding program (see "Advance Funding Program and Receivable Financing Facility" below). The quarterly average balance of purchased receivables was $51.1 million, $44.1 million and $42.2 million in 1995, 1994 and 1993, respectively. Advance funding program expense during the first six months of 1996 of $598,000 compares to $624,000 during the comparable prior year period. Advance funding program expense was $1.4 million in 1995 compared with $1.9 million in 1994 and $2.6 million in 1993. In addition to declining from year to year, advance funding program expense in 1994 and 1995 declined relative to advance funding program income reported in the respective years. The decreases in these year-to-year periods were primarily attributable to the Company financing a higher level of customer receivables with internally generated funds and lower interest rates on borrowed funds as a result of renegotiating the Company's revolving credit facility in December 1993. During the periods when this Company operated as a subsidiary within the USLD consolidated group, the cash management function was centralized and utilized all the available cash among the consolidated entities to pay down the revolving credit facility to reduce the expense of this facility as much as possible. Subsequent to the Distribution, the Company will no longer have access to USLD's funds. In addition, the Company anticipates making certain capital expenditures over the next two years (see "Liquidity and Capital Resources"). Consequently, Advance Funding Program expense initially will increase as a result of lower cash balances. DEPRECIATION AND AMORTIZATION Depreciation and amortization expenses are incurred with respect to certain assets including computer hardware and software, office equipment, furniture, leasehold improvements, and costs incurred in securing contracts with local telephone companies and agreements with financing institutions. Asset lives generally range between three and seven years. Depreciation and amortization expense was $940,000 during the first six months of 1996 compared with $519,000 in the first six months of 1995. Depreciation and amortization expense as a percentage of revenues increased to 1.9% in the first six months of 1996 from 1.5% over the corresponding prior year period. The increase in the percentage of revenues is primarily attributable to the purchase of computer equipment and software and office furniture and equipment to support the growth of the Company. Depreciation and amortization expense was $1.2 million in 1995 compared with $954,000 in 1994 and $877,000 in 1993. Depreciation and amortization expense as a percentage of revenues was 1.5%, 1.7% and 1.9% in 1995, 1994, and 1993, respectively. These year-to-year decreases in depreciation and amortization expense as a percentage of revenues are primarily attributable to efficiencies associated with the Company's revenue growth. INCOME FROM OPERATIONS Income from operations during the first six months of 1996 increased to $14.2 million from $9.4 million during the comparable period of 1995. Income from operations as a percent of revenues increased to 28.3% during the first six months of 1996 from 26.9% during the comparable prior year period. This improvement was the result of lower SG&A expenses as a percentage of revenues and higher net advance funding program income, which were partially offset by a lower gross profit margin and higher depreciation expenses in the first six months of 1996. Income from operations was $22.1 million, $13.4 million and $10.4 million in 1995, 1994 and 1993, respectively. As a percentage of revenues, income from operations represented 27.3%, 23.2% and 22.4% in 1995, 1994, and 1993, respectively. The increase in income from operations as a percentage of 39 revenues from 1994 to 1995 is primarily attributable to an improved gross profit margin, lower SG&A expenses as a percentage of revenues and higher net advance funding income. The increase in the percentage of revenues from 1993 to 1994 is primarily attributable to higher net advance funding income. OTHER INCOME (EXPENSE) Net other income decreased to $236,000 in the first six months of 1996 from $301,000 in the first six months of 1995. Net other income of $724,000 in 1995 compares to net other income of $211,000 in 1994 and net other expense of $228,000 in 1993. The year-to-year improvements were primarily attributable to increased interest income from short-term investments. During the periods when the Company operated as a subsidiary within the USLD consolidated group, the cash management function was centralized and all excess cash of the consolidated group was used to pay down the revolving credit facility or invested in short-term investments. Subsequent to the Distribution, the Company will no longer have access to USLD's funds. In addition, the Company anticipates making certain capital expenditures over the next two years (see "Liquidity and Capital Resources"). Consequently, investment income is expected to decrease initially as a result of lower cash balances. INCOME TAXES The Company's effective tax rate was 38.0% in the first six months of 1996 and 1995. The effective tax rate was 38.0%, 37.0% and 36.8% in 1995, 1994 and 1993, respectively. 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 that are not deductible for federal income tax purposes. The increase in the effective tax rate from 1994 to 1995 is due to an increase in the federal statutory tax rate. NET INCOME The Company reported net income of $9.0 million during the first six months of 1996 compared to net income of $6.0 million during the comparable period of 1995, representing an increase of 49%. The Company reported net income of $14.1 million in 1995 compared to net income of $8.6 million in 1994 and $6.4 million in 1993. The net income in 1995 and 1994 represented increases of 65% and 33% over 1994 and 1993, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's operating cash requirements consist principally of working capital requirements, requirements under its advance funding program, scheduled payments of principal on its outstanding indebtedness and capital expenditures. The Company believes that cash flow from operating activities and periodic borrowings under its receivable financing facility will be adequate to meet the Company's operating cash requirements in the future. Net cash provided by operating activities was $21.1 million, $9.6 million and $9.0 million in 1995, 1994 and 1993, respectively, and reflected the increases in net income from 1993 to 1995. To facilitate and support the growth anticipated in its business, the Company plans to spend approximately $18 million, over the next one to two years, to develop and create information systems that will enable it to offer "direct billing" and "invoice ready" services to its customers. These expenditures, if made, will be focused in the areas of software development, computer hardware, additional local telephone company agreements and related staffing. The Company believes that it will be able to fund these expenditures with internally generated funds and borrowings, but there can be no assurance that such funds will be available and/or invested in these projects. See "Special Factors -- Anticipated Billing System Expenditures." Statements regarding anticipated billing system expenditures are forward-looking statements which by their nature are subject to numerous uncertainties that could cause actual results to vary. 40 Historically, the Company has obtained financing for capital expenditures through term debt agreements and capital lease agreements that were guaranteed and cross-collateralized by USLD and other members of the Telecommunications Group. These debt agreements were negotiated based on the strength of the consolidated financial statements, earnings and cash flow of the USLD consolidated group. Most of these debt agreements were secured by the assets of all the subsidiaries within the consolidated group. The Company expects to receive from certain lenders loan agreement amendments or separate loan agreements whereby the subject indebtedness will be secured by only the Company's or USLD's assets. In other cases, the Company expects to obtain waivers from its lenders, provided that the cross guarantees and existing security arrangements remain in place for the duration of the facility. In other cases, Billing and USLD intend to pay off existing indebtedness releasing applicable guarantees and security arrangements. The Company believes that it has the ability to continue to secure long-term equipment financing and that this ability, combined with cash flows generated from operations, will be sufficient to fund capital expenditures, working capital needs and debt repayment requirements for the foreseeable future. Additionally, management believes that it has the ability to raise funds in the private and public equity markets. The Company's credit facilities and equipment loans contain various restrictions. Under the most restrictive terms of its credit facilities, the Company is prohibited from paying dividends on its common stock. The Company may also be subject to certain limitations on its annual capital expenditures and on the issuance of additional secured debt. 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, the Company has guaranteed the obligations of its subsidiaries. The Company was in compliance with all required covenants at March 31, 1996, September 30, 1995 and 1994. ADVANCE FUNDING PROGRAM AND RECEIVABLE FINANCING FACILITY The Company has a $45 million revolving line of credit facility with FINOVA to draw upon to advance funds to its billing customers prior to collection of the funds from the local telephone companies (see Note 4 to the Consolidated Financial Statements). This credit facility terminates on December 31, 1996. Management believes that the capacity under this revolving credit facility is sufficient to fund advances to its billing customers for the foreseeable future. Because it generally takes 40 to 90 days to collect receivables from the local telephone companies, customers can significantly accelerate cash receipts by utilizing the Company's advance funding program. The Company offers participation in this program to qualifying customers through its Advanced Payment Agreement. Under the terms of this agreement, the Company purchases the customer's accounts receivable for an amount equal to the face amount of the billing records submitted to the local telephone companies by the Company for billing and collection, less certain deductions. The purchase price is remitted by the Company to its customers in two payments. Within five days from receiving a customer's records, an initial payment is made to the customer based on a percentage of the value of the customer's call records submitted to the local telephone companies. This percentage is established by the Advanced Payment Agreement and generally ranges between 50% and 80%, but typically averages approximately 70%. The Company pays the remaining balance of the purchase price upon collection of funds from the local telephone companies. The funds used to make the initial payments generally are borrowed under the Company's revolving line of credit facility with FINOVA. Since the facility was amended in December 1993, the Company has from time to time paid down a portion of the line with excess funds prior to collection of the related receivables from the local telephone companies. The Company had paid down $18.8 million of the credit facility at September 30, 1995, and consequently, the outstanding balance of the line of credit represented approximately 42% of purchased receivables at September 30, 1995. The amount borrowed by the Company under this credit facility to finance the advance funding program was $23.0 million and $25.2 million at September 30, 1995 and 1994, respectively. Service fees charged to customers by the Company are recorded as advance funding program income and are computed at a rate above the prime rate on the amount of advances (initial payments) 41 outstanding to a customer during the period commencing from the date the initial payment is made until the Company recoups the full amount of the initial payment from local telephone companies. The rate charged to the customer by the Company is higher than the interest rate charged to the Company by FINOVA, in part to cover the administrative expenses incurred in providing this service. Borrowing costs are computed at a rate above the prime interest rate and are based on the amount of borrowings outstanding during the period commencing from the date the funds are borrowed until the loan is repaid by the Company. Borrowing costs are recorded as advance funding program expense. The result of these financing activities is the generation of a net amount of advance funding program income that contributes to the net income of the Company. As part of the Advanced Payment Agreement, the Company contractually purchases the customer accounts upon which funds are advanced. Further, the customer may grant a first lien security interest in other customer accounts and assets and will take other action as may be required to perfect the Company's first lien security interest in such assets. Under the terms of the agreement with FINOVA, the Company is obligated to repay amounts borrowed from FINOVA and advanced to its billing customers whether or not the purchased accounts receivable are actually collected. SEASONALITY To some extent, the revenues and telephone call record volumes of most customers of the Company are affected by seasonality. For example, the Company's operator services customers typically experience decreases in operator services revenues and telephone call record volumes 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 this seasonal variation, operator services telephone call record volumes processed by the Company during the Company's first fiscal quarter ending December 31 (which includes the Thanksgiving, Christmas and New Year's Eve holidays), historically have been the lowest level of any quarter of the year. Consequently, revenues reported by the Company that are derived from operator services telephone call records are similarly affected. 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 processed its highest volumes of operator services telephone call records and reported its highest operator services-related revenues in the third and fourth quarters of the fiscal year. The seasonal effects caused by the Company's operator services customers has been lessened, however, as a result of the growth in the Company's business from direct dial long distance carriers. The Company's direct dial long distance customers use the Company's services primarily to bill residential accounts, which typically generate a higher traffic volume around holidays, particularly Thanksgiving, Christmas and New Year's Day. The growth in billing revenues derived from direct dial long distance carrier customers as a percentage of total revenues has mitigated the seasonal effects of the revenues derived from the Company's operator services customers. EFFECT OF INFLATION Inflation is not a material factor affecting the Company's business. Prices charged to the Company by local telephone companies and third-party vendors for billing, collection and transmission services have not increased significantly during the past year. General operating expenses such as salaries, employee benefits and occupancy costs are, however, subject to normal inflationary pressures. NEW ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," which provides for a fair-value-based method of accounting for stock-based compensation plans with employees and others. The Company will not adopt the recognition and measurement provisions of SFAS No. 123, but will continue to account for stock-based compensation plans in accordance with APB Opinion 25. However, the Company will be required to comply with the disclosure requirements of SFAS No. 123 beginning in fiscal 1997. 42 BUSINESS GENERAL The Company believes it is the largest third-party billing clearinghouse and information management services provider to the telecommunications industry. Billing's customers include direct dial long distance telephone companies, operator services providers, information providers, telecommunications equipment suppliers and other telecommunication services providers. The Company maintains contractual billing arrangements with over 1,200 local telephone companies which provide access lines to and collect for services from end-users of telecommunication services. The Company processes telephone call records and other transactions and collects the related end-user charges from these local telephone companies on behalf of its customers. Billing's direct dial long distance customers, including local and regional long distance carriers, use the Company as a billing clearinghouse for processing and collecting call records generated by their end-users. Although such carriers can bill end-users directly, Billing provides these carriers with a very cost-effective means of billing and collecting residential and small commercial accounts through the local telephone companies. The Company processes telephone call records for customers providing operator services largely to the hospitality, penal, and private and public pay telephone industries. In addition, Billing processes records for telephone calls that require operator assistance and/or alternative billing options such as collect and person-to-person calls, third-party billing and calling card billing. Because operator services providers have only the billing number and not the name or address of the billed party, they must have access to the services of the local telephone companies to collect their charges. The Company provides this access to its customers through its contractual billing arrangements with the local telephone companies that bill and collect on behalf of these operator services providers. Because Billing acts as an aggregator of telephone call records and other transactions from various sources, it can negotiate discounted billing costs with the local telephone companies due to its large volume and can pass on these discounts to its customers. Additionally, Billing can provide its services to those long distance carriers and operator services providers who would otherwise not be able to make the investments in billing and collection agreements with the local telephone companies, fees, systems, infrastructure and volume commitments required to establish and maintain the necessary relationships with the local telephone companies. In 1994, Billing began providing enhanced billing services for processing transactions related to providers of premium services or products that can be billed through the local telephone companies, such as charges for 900 access pay-per-call transactions, cellular long distance services, paging services, voice mail services, caller ID and other telecommunications equipment charges. In addition to its billing clearinghouse services, Billing also offers billing management services to customers who have their own billing arrangements with the local telephone companies. These management services may include data processing, accounting, end-user customer service, telecommunication tax processing and reporting. INDUSTRY BACKGROUND Billing clearinghouse and information management services in the telecommunications industry developed out of the 1984 breakup of American Telephone & Telegraph ("AT&T") and the Bell System. In connection with the breakup, the local telephone companies that make up the Regional Bell Operating Companies, Southern New England Telephone, Cincinnati Bell and the General Telephone Operating Companies ("GTE") were required to provide billing and collections on a nondiscriminatory basis to all carriers that provided telecommunication services to their end-user customers. Because of both the cost of acquiring and the minimum charges associated with many of the local telephone company billing and collection agreements, only the largest long distance carriers, including AT&T, MCI Telecommunications Corporation ("MCI") and Sprint Incorporated ("Sprint"), could afford the option of billing directly through the local telephone companies. Several companies, including Billing, entered into these billing and collection agreements and became aggregators of 43 telephone call records for operator services providers and second and third tier long distance carriers, thereby becoming "third-party clearinghouses." Today, management believes that Billing is the largest third-party clearinghouse in the telecommunications industry, providing billing and information services to approximately 300 customers as of the date hereof. The operator services industry began to develop in 1986 with the advent of technology that allowed a zero-plus call (automated calling card call) or zero-minus call (collect, third-party billing, operator assisted calling card or person-to-person call) to be routed away from AT&T to a competitive long distance services provider. Because a zero-plus or zero-minus call is placed by an end-user whose billing information is unrelated to the telephone being used to place the call, a long distance carrier would typically not have adequate information to produce a bill. This information typically resides with the billed party's local telephone company. In order to bill its telephone call records, a long distance services provider carrying zero-plus and zero-minus telephone calls must either obtain billing and collection agreements with the local telephone companies or utilize the services of a third-party clearinghouse that has the billing and collection agreements required. Third-party clearinghouses such as Billing process these telephone call records and other transactions and submit them to the local telephone companies for inclusion in their monthly bills to end-users. As the local telephone companies collect payments from end-users, they remit them to the third-party clearinghouses who, in turn, remit payments to their carrier customers. DEVELOPMENT OF BUSINESS Billing is a newly formed corporation that, upon the completion of the Distribution, will be an independent, publicly held company. Billing will comprise the existing billing clearinghouse and information management services business currently operated by USLD through its Billing Group subsidiaries. In 1988, USLD acquired ZPDI and its billing and collection agreements with several local telephone companies. USLD used these billing and collection agreements to bill and collect through the local telephone companies for its own operator services call record transactions. As USLD's operator services business expanded, ZPDI entered into additional billing and collection agreements with other local telephone companies, including the Regional Bell Operating Companies, GTE and other independent local telephone companies. The Company recognized the expense and time related to obtaining and administering these billing and collection agreements and began offering its services as a third-party clearinghouse to other operator services businesses who did not have any proprietary agreements with the local telephone companies. In 1992, Billing entered into a new set of billing and collection agreements with the local telephone companies and began offering billing clearinghouse and information management services as a third-party clearinghouse to direct dial long distance services providers. The Company has billing and collection agreements covering over 1,200 local telephone companies with access lines into approximately 95% of the United States, Canada and Puerto Rico. A key factor in the evolution of the Company's business has been the ongoing development of its information management systems. In 1990, the Company developed a comprehensive information system capable of processing, tracing and accounting for telephone call record transactions (see "Business -- Operations"). Management believes that this proprietary system provides the Company's customers with more detailed information and yields a better collection rate than its competitors. Also in 1990, the Company became the first third-party billing clearinghouse to finance its customers' accounts receivable. Today, this activity is accomplished through a revolving receivable financing facility with FINOVA Capital Corporation (see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Advance Funding Program and Receivable Funding Facility"). In 1991, USLD separated the day-to-day management and operations of the Company from its long distance and operator services businesses. The purpose of this separation was to satisfy some of the Company's customers who were also competitors of USLD's long distance and operator services businesses. These customers had two main concerns: (i) that USLD's long distance and operator services businesses could gain knowledge of its competitors through call records processed by Billing 44 and (ii) that Billing was somehow subsidizing USLD's long distance and operator services businesses with which these customers compete. Since the separation, the Billing Group and the Telecommunications Group have operated independently, except for certain corporate activities conducted by USLD's corporate staff. In 1993, the Company began to offer billing management services to direct dial long distance carriers and information services providers who have their own billing and collection agreements with the local telephone companies. These customers collect charges directly from the local telephone companies and, for marketing purposes, may desire to place their own logo, name and customer service number on the long distance bill page. Billing management services provided by the Company to such customers may include contract management, transaction processing, information management and reporting, tax compliance and customer service. In 1994, the Company began offering enhanced billing clearinghouse and information management services to other businesses within the telecommunications industry. These businesses include telecommunications equipment providers, information providers and other communication services providers of nonregulated services and products such as 900 access pay-per-call transactions, cellular long distance services, paging services, voice mail services, caller ID and other telecommunications equipment. The Company entered into additional billing and collection agreements with the local telephone companies to process these types of transactions. Management believes that billing for such nonregulated products and services represents a significant expansion opportunity for the Company. BILLING CLEARINGHOUSE AND INFORMATION MANAGEMENT SERVICES In general, the Company performs four types of billing clearinghouse and information management services under different billing and collection agreements with the local telephone companies. First, the Company offers Zero Plus -- Zero Minus billing and information management services to operator services providers. This service is the original form of local telephone company billing provided by the Company and has driven the development of the systems and infrastructure utilized by all of the Company's billing clearinghouse and information management services. Second, the Company performs direct dial long distance billing, which is the billing of "1+" long distance telephone calls to individual residential customers and small commercial accounts. Third, the Company performs enhanced billing clearinghouse and information management services whereby it bills a wide array of charges that can be applied to a local telephone company telephone bill, including charges for 900 pay-per-call transactions, cellular services, paging services, voice mail services, caller ID and other telecommunications equipment. Finally, under its billing management function, the Company provides any of the three services discussed above utilizing the customer's own billing and collection agreements. BILLING PROCESS Local telephone company billing relates to billing for transactions that are included in the monthly local telephone bill of the end-user as opposed to a direct bill that the end-user would receive directly from the telecommunications or other services provider. The Company's customers submit telephone call record data in batches, typically in weekly intervals; however, the frequency can range from daily to monthly. The data is submitted either electronically or via magnetic tape. Billing, through its proprietary software, sets-up an account receivable for each batch of call records that it processes and processes the telephone call record data to determine the validity of each record and to include for each record certain telecommunication taxes and applicable customer identification information. The Company then submits, through a third-party vendor, the relevant billable telephone call records and other transactions to the appropriate local telephone company for billing and collection. Billing monitors and tracks each account receivable by customer and by batch throughout the billing and collection process. The local telephone companies then include these telephone call records and other transactions in their monthly local telephone bills and remit the collected funds to the Company for payment to its customers. The complete cycle can take up to 18 months from the time the records are submitted for billing until all bad debt reserves are "trued up" with actual bad debt experience. However, the billing and collection agreements provide for the local telephone companies to purchase 45 the accounts receivable, with recourse, within a 40 to 90 day period. The payment cycle from the time call records are transmitted to the local telephone companies to the initial receipt of funds by the Company is, on average, approximately 55 days. Typically, 90% of the value of the call records is received in the initial payments by the local telephone companies. The Company processes the tax records associated with each customer's submitted telephone call records and other transactions and files certain federal excise and state and local telecommunications-related tax returns covering such records and transactions on behalf of many of its customers. The Company submits more than 1,000 tax returns on behalf of its customers each month. Billing provides end-user inquiry and investigation (customer service) for billed telephone call records. This service allows end-users to inquire regarding calls for which they were billed. The Company's customer service telephone number is included in the local telephone company bill to the end-user, and the Company's customer service representatives are authorized to resolve end-user disputes regarding such calls. Billing earns its revenues based on (i) a processing fee that is assessed to customers either as a fee charged for each telephone call record or other transaction processed or as percentage of the customer's revenue that is submitted by the Company to the local telephone companies for billing and collection and (ii) a customer service inquiry fee that is assessed to customers either as a fee charged for each record processed by the Company or as a fee charged for each billing inquiry made by end-users. Any charges assessed to the Company by local telephone companies for billing and collection services also are included in revenues and are passed through to the customer. Through its accounts receivable financing program, Billing offers its customers the option to receive, within five days of the customer's submission of records to Billing, a significant portion of the revenue associated with such records. The customer pays interest for the period of time between the purchase of records by the Company and the time the local telephone company submits payment to Billing for the subject records. OPERATIONS The Company's billing clearinghouse and information management services are highly automated through the Company's proprietary computer software and state-of-the-art data transmission protocols. Except for the end-user inquiry and investigation service (Customer Service), the staff required to provide the Company's billing clearinghouse and information management services is largely administrative and the number of employees is not directly volume sensitive. Most of the services offered by Billing are automated and electronic by nature and require a minimal amount of human intervention. Many of Billing's customers submit their records to the Company using electronic transmission protocols directly into the Company's electronic bulletin board. These records are automatically accessed by Billing's proprietary software, processed, and then submitted to the local telephone companies electronically. Upon completion of the billing process, the Company provides reports relating to billable records and returns any unbillable records to its customers electronically through the bulletin board. The Company operates two independent computer systems to ensure a continual, uninterrupted processing of billing and information management services. One system is dedicated to daily processing activities and the other serves as both a back-up to the primary system and for storage of up to 12 months of billing detail. This detail is immediately accessible to Billing's customer service representatives who handle billing inquiries. Because timely submission of call records to the local telephone companies is critical to prompt collections and high collection rates, Billing has made a significant investment in computer systems so that its customers' call records are processed and submitted to the local telephone companies in a timely manner, generally within 24 hours of receipt by Billing. The Company's contracts with its customers provide for the billing and information management services required by the customer specifying, among other things, the services to be provided and the cost and term of the services. Once the customer executes an agreement, Billing updates tables within 46 each of the local telephone companys' billing systems to control the type of records processed, the products or services allowed by the local telephone companies, and the printing of the customer's name on the end-user's monthly bill. While these local telephone company tables are being updated, the Company's technical support staff tests the customer's records through its proprietary software to ensure that the records can be transmitted to the local telephone companies. Billing maintains a relatively small direct sales force of less than ten people and accomplishes most of its marketing efforts through active participation in telecommunications industry trade shows, educational seminars and workshops. The Company advertises to a limited extent in trade journals and other industry publications. CUSTOMERS The Company provides billing and information management services to the following categories of telecommunications services providers: - Interexchange Carriers or Long Distance Companies: Facilities based carriers that possess their own telecommunications switching equipment and networks and that provide traditional direct dial telecommunications services. Certain long distance companies provide operator assisted services as well as direct dial services. These calls are billed to the end-user by the local telephone company in the case of residential and small commercial accounts. - Switchless Resellers: Marketing organizations, affinity groups, or even aggregator operations that buy direct dial long distance services in volume at wholesale rates from a facilities based long distance company and sell it back to individual customers at market rates. These calls are billed to the end-user by the local telephone company in the case of residential and small commercial accounts. - Operator Services Providers: Carriers who handle "live" operator assisted or "automated" operator assisted calls from remote locations using a centralized telecommunications switching device. These calls are billed to local telephone company calling cards, collect, third-party numbers or person-to-person. - Customer Owned Coin Operated Telephone Providers: Privately owned, intelligent pay telephones that handle "automated" operator assisted calls that are billed to a local telephone company calling card, collect or to a third-party number. - Customer Premise Equipment Providers: Carriers who install equipment at aggregator locations, such as hotels, university dormitories, penal institutions, etc., which handle calls originated from that location device. These calls are subsequently billed to local telephone company calling cards, collect, third-party numbers or person-to-person. - Information Providers: Companies that provide various forms of information, entertainment or voice mail services to subscribers. These services are typically billed to the end-user by the local telephone company based on a 900 pay-per-call or a monthly recurring service fee. Other billing customers include suppliers of various forms of telecommunications equipment, pager and cellular telephone companies. COMPETITION The Company operates in a highly competitive segment of the telecommunications industry. All the third-party clearinghouses are either privately held or, like Billing, are part of a larger parent company. Management believes that Billing is the largest participant in the third-party clearinghouse industry in the United States followed by OAN Services, Inc., a subsidiary of Electronic Data Systems, Inc., itself a subsidiary of General Motors Corporation. Consequently, availability of information on the industry is scarce and it is difficult to accurately assess. However, management believes that approximately 110 million transactions are processed each month by third-party clearinghouses. The 47 Company estimates that it processes approximately 60% of these transactions. Competition among the clearinghouses is based on the quality of information reporting, collection history, the speed of collections and the price of services. The Company believes that there are several significant challenges that face potential new entrants in the local telephone company billing and information management services industry. The cost to acquire the necessary billing and collection agreements is significant as is the cost to develop and implement the required systems for processing telephone call records and other transactions. Additionally, most of the billing and collection agreements require a user to make substantial monthly or annual volume commitments. Given these factors, the average cost of billing and collecting a record could be expensive until a new entrant could generate sufficient traffic to compete effectively on price. The price charged by most local telephone companies for billing and collection services is based on volume commitments and actual volumes being processed. As a major third-party clearinghouse, Billing enjoys some of the most favorable rates available in the industry and passes the benefits of its buying power on to its customers. Because most customers in the billing clearinghouse industry are under contract with Billing or one of its competitors, management believes that the existing market is already committed for up to three years. In addition, a new entrant must be financially sound and have system integrity because funds collected by the local telephone companies flow through the third-party clearinghouse, which then distributes the cash to the customer whose traffic is being billed. Management believes that the Company enjoys a reputation within the industry for the timeliness and accuracy of its collections and disbursements to customers. BUSINESS STRATEGY As the markets for the Company's services continue to develop and its target market continues to demand increasingly sophisticated billing clearinghouse and information management services, the Company believes there exist significant opportunities to continue the expansion of its business base as new and existing customers seek to outsource these services to the Company. The Company's business strategy contains the following key elements: MAINTAIN LEADERSHIP POSITION. Billing has developed a leadership position in providing billing clearinghouse and information management services to its customers. These services include managing relations with the local telephone companies, developing automated reporting and cash management tools, providing cost efficient customer service operations and offering cash flow alternatives in the form of its advanced payment program. While each of these functions was developed separately over time, the combination of these service offerings has positioned the Company as a total solution for the management of a customer's billing and information management function. Billing's services are currently utilized by approximately 300 customers, and management believes that Billing will maintain and expand its leadership position. EXPAND CUSTOMER BASE. Management believes that the Company's reputation for high quality services will make it an important resource for providers of services and products, such as, 900 pay-per-call transactions, cellular services, paging services, voice mail services, Internet services, personal communication services ("PCS"), caller ID and other telecommunications equipment. Like its existing customers, these services providers are likely candidates not only for the core services of billing clearinghouse and information management, but also for the full package of services that includes customer service and advanced payment for receivables. Management believes that the high growth potential of these services providers may present significant potential opportunities for the Company. NEW AND ENHANCED SERVICES. The Company believes that certain new or enhanced services it currently contemplates developing and offering to the marketplace present significant opportunities. These include the following: ENHANCE SYSTEM TO INCLUDE INVOICE READY PLATFORM. The Company plans to enhance its systems and billing and collection agreements with the local telephone companies to include an "invoice ready" billing option for its customers. An invoice ready billing platform will enable the Company to offer a 48 customized bill page for inclusion in the local telephone company bill. The Company will be able to put each customer's logo, end-user customer service number, and a brief marketing message on this bill page. Currently, companies such as AT&T, MCI and Sprint bill in this manner through the local telephone companies. Because of the substantial cost associated with the implementation of an invoice ready platform, it is not economical for many of the Company's customers to develop this capability in-house. Therefore, the Company intends to invest in system enhancements and new billing and collection agreements that will allow it to offer invoice ready billing to its customers. EXPAND DIRECT BILLING CAPABILITY. Management believes that there is substantial demand by its customers and potential customers for a direct billing product that would allow them to bill end-users directly for the services they provide. Because these customers typically do not have or desire to maintain the operational infrastructure or the billing platform necessary to produce bills and send them directly to end-users, these customers typically outsource this activity to third-party clearinghouses. The Company has targeted as likely candidates for such a direct billing product the following types of customers: long distance providers serving commercial accounts, cellular services providers, PCS providers, competitive local access providers, cable television companies and utilities. Additionally the Company is investigating the concept of a "Universal Bill" whereby multiple services and products can be billed directly to the end-user under one, unified billing statement. The Company is currently expanding its direct billing capability and plans to begin marketing the expanded service in 1997. PURSUE NEW TELECOMMUNICATIONS ACT OPPORTUNITIES. Management believes that the recently enacted Telecommunications Act will create new opportunities for third-party clearinghouses. The Telecommunications Act requires that the Regional Bell Operating Companies use separate subsidiaries to provide services not related to their existing regulated local services. The Company is presently negotiating with several Regional Bell Operating Companies to provide both in-territory and out-of-territory billing for their long distance services. While certain telephone call records are currently being billed by local telephone companies for each other, the competition among the local telephone companies created by the Telecommunications Act may encourage these companies to use a third-party clearinghouse such as the Company. The Telecommunications Act may provide an opportunity for the Company to compete for certain telephone call records originated on pay telephones owned by the local telephone companies that terminate out of their territories. Management believes the Company is the most efficient processor of these types of telephone call records and can succeed in penetrating this potential market as it develops. EMPLOYEES At April 30, 1996, Billing had 215 full-time employees, including five executive officers, five sales and marketing personnel, 34 technical and operations personnel, 71 accounting, administrative and support personnel, and 100 customer service representatives and related support personnel. At April 30, 1996, Billing also employed 181 part-time customer service representatives and support personnel. None of Billing's employees is represented by a union. Billing believes that its employee relations are good. PROPERTIES At April 30, 1996, Billing occupied approximately 16,000 square feet of space for its corporate offices at 9311 San Pedro, Suite 400, San Antonio, Texas, substantially all of which will be leased pursuant to a sublease agreement with USLD that expires in January 1998 with an option for a one year renewal. In addition, Billing will also sublease certain space from USLD on a month to month basis. See "Relationship Between Billing and USLD After The Distribution -- Transitional Services and Sublease Agreement." At such date, Billing also occupied an additional 50,000 square feet located at 10500 Highway 281, also in San Antonio, Texas. Billing believes that its facilities are adequate to meet its current needs. LITIGATION In December 1993, the Securities and Exchange Commission (the "Commission"), Division of Enforcement, instituted an informal inquiry relating to certain of USLD's accounting practices, 49 including revenue recognition and accounting related to accounts receivable, purchased receivables and other assets, and related disclosures. When the USLD Board learned of the Commission's informal inquiry, Arthur Andersen LLP, USLD's independent public accountants, was engaged to conduct a special review of USLD's accounting policies and procedures. This review was managed by a senior partner of Arthur Andersen LLP who was not then involved in the annual audit process. This special review provided strong additional assurance that the financial statements of USLD were fairly stated and in conformity with generally accepted accounting principles. Representatives of USLD and Arthur Andersen LLP have met with the Enforcement Division of the Commission to discuss the issues raised by the inquiry. On May 5, 1994, USLD was informed that the Commission had instituted a formal order of private investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934, as amended (IN THE MATTER OF U.S. LONG DISTANCE (HO-2852)), relating to, among other things, USLD's financial condition, results of operations, assets and liabilities, revenues and revenue recognition and agreements and transactions. Prior to August 1994, the Commission issued subpoenas requesting documentation in a number of areas from USLD, from Arthur Andersen LLP, USLD's independent auditors, and from certain third parties, including former employees of USLD. USLD has and will continue to cooperate fully with the Commission. Although USLD and Billing cannot predict when the Commission's private investigation will be concluded, based upon their review of facts and circumstances, neither of USLD's nor Billing's management believes that the Commission's review of this matter will result in any adjustment of USLD's or Billing's financial statements. Billing is involved in various claims, legal actions and regulatory proceedings arising in the ordinary course of business. Billing believes it is unlikely that the final outcome of any of the claims or proceedings to which Billing is a party would have a material adverse effect on Billing'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 Billing's results of operations for the fiscal period in which such resolution occurred. 50 MANAGEMENT BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD Upon consummation of the Distribution, Billing's Board of Directors will comprise five directors, Parris H. Holmes, Jr. (Chairman), Alan W. Saltzman, Lee Cooke, and two directors to be named prior to the Distribution. In connection with the Distribution, the Billing Board will be divided into three classes. Directors for each class will stand for re-election at the annual meeting of stockholders held in the year in which the term for such class expires and, if elected, will serve thereafter for three years. The expiration of the initial term of Billing's directors as of the Distribution Date will be as follows:
INITIAL TERM DIRECTOR EXPIRES - - ----------------------------------------------------------------------------------- ------------------- Parris H. Holmes, Jr............................................................... Alan W. Saltzman................................................................... Lee Cooke.......................................................................... ........................................................... ...........................................................
The business of Billing will be managed under the direction of its Board of Directors. The Billing Board will have three standing committees: (i) Audit, (ii) Compensation and (iii) Nominating and Corporate Governance ("Nominating"). The Audit Committee will comprise certain directors who are not employees of Billing or any of its subsidiaries. The Audit Committee will meet with the independent auditors, management representatives and internal auditors; recommend to the Billing Board appointment of independent auditors; approve the scope of audits and other services to be performed by the independent and internal auditors; consider whether the performance of any professional service by the auditors other than services provided in connection with the audit function could impair the independence of the outside auditors; and review the results of internal and external audits and the accounting principles applied in financial reporting and financial and operational controls. The independent auditors and internal auditors will have unrestricted access to the Audit Committee and vice versa. The Compensation Committee will comprise certain directors who are not employees of Billing or any of its subsidiaries. The Compensation Committee's functions will include recommendations on policies and procedures relating to senior officers' compensation and various employee stock and other benefit plans and approval of individual salary adjustments and stock awards in those areas. The Nominating Committee will comprise certain directors who are not employees of Billing or any of its subsidiaries. The Nominating Committee will consider candidates for election as directors and will be responsible for keeping abreast of and making recommendations with regard to corporate governance in general. In addition, the Committee will fulfill an advisory function with respect to a range of matters affecting the Billing Board and its Committees, including the making of recommendations with respect to qualifications of director candidates, compensation of directors, the selection of committee chairmen, committee assignments and related matters affecting the functioning of the Billing Board. The Committee will consider nominees to the Billing Board recommended by stockholders of Billing where such recommendations are made pursuant to the procedures which are described in Billing's Certificate of Incorporation and Bylaws. The form of Billing's Bylaws is attached hereto as Annex D. COMPENSATION OF DIRECTORS MEETING AND ANNUAL RETAINER FEES. Each outside member of the Board of Directors will receive a meeting fee of $2,000 for each meeting of the Board attended. Additionally, each member of the Compensation Committee, Audit Committee or Nominating Committee will receive $500 for each committee meeting attended during the year except that the Chairperson of each such committee will receive $1,000 for attendance. In each case, the members of the Board will be reimbursed for their 51 travel expenses to and from the meetings. The Board members will not receive a fee for telephonic meetings. In addition, Billing will pay an Annual Director Fee, currently $15,000 per year, to each outside director of Billing. See "Executive Compensation -- Employee Benefit Plans -- Stock Option and Grant Plans." STOCK OPTIONS. Pursuant to Billing's Director Plan, each outside director automatically will be granted a stock option to purchase certain shares of Billing Common Stock. See "Executive Compensation -- Employee Benefit Plans -- Stock Option and Grant Plans." Options automatically received under the Billing Director Plan are in addition to any stock option elected to be received in payment of the Annual Director Fee. The following table sets forth certain information regarding options granted during the period October 1, 1994 through September 30, 1995 to outside directors of USLD, who will be outside directors of Billing. For information concerning the treatment of USLD options held by Billing directors after the Distribution, see "Relationship Between Billing and USLD after the Distribution - - -- Benefit Plans and Employment Matters Allocation Agreement."
UNREALIZED SECURITIES VALUE OF UNDERLYING EXERCISE OPTIONS AT PRESENTLY PRICE SEPTEMBER 30, DIRECTOR EXERCISABLE OPTIONS PER SHARE 1995 ($)(1) - - ------------------------------------------------- ------------------- ------------- --------------- Lee Cooke........................................ 15,000 $ 11.125 $ 59,063 10,000 $ 12.00 $ 30,625
- - ------------------------ (1) Reflects the aggregate market value of the underlying securities as determined by reference to the closing price of USLD Common Stock on the Nasdaq National Market on September 29, 1995 ($15.0625 per share) minus the aggregate exercise price for each option. DIRECTOR COMPENSATION DEFERRAL PLAN. Billing has adopted, to be effective upon the Distribution, the Billing Information Concepts Corp. Director Compensation Deferral Plan (the "Billing Director Deferral Plan"). Participation in the Billing Director Deferral Plan will be offered to outside directors of Billing who elect to participate as provided in the plan ("Billing Director Deferral Participants"). The Billing Director Deferral Plan is a deferred compensation plan that generally allows Billing Director Deferral Participants to make voluntary deferral contributions ("Voluntary Director Contribution"), on a pre-tax basis, in increments of 1%, of up to 100% of the fees paid by Billing for services rendered as a director. In addition, Billing intends to contribute each plan year, on behalf of each Billing Director Deferral Participant, an amount equal to 33% of that director's Voluntary Director Contribution (the "Billing Director Contribution"); provided, however, that Billing reserves the right to eliminate the Billing Director Contribution at any time or provide a Billing Director Contribution of a different amount. From time to time Billing shall credit each Billing Director Deferral Participant's participating plan with interest at the rate declared by Billing in accordance with the Billing Director Deferral Plan. Billing Director Deferral Participants will be annually vested in 33% of any Billing Director Contribution beginning with the Billing Director Deferral Participant's first anniversary of service and becoming 100% vested after the third anniversary of service or upon a change in control of Billing. Benefits are generally payable to a Billing Director Deferral Participant (or his beneficiary) upon retirement, disability, termination of service or death, in each case as provided in the Billing Director Deferral Plan. In fiscal 1995, Lee Cooke elected to make voluntary deferral contributions of $14,500, and USLD made a contribution of $4,785 on Mr. Cooke's behalf. 52 BOARD OF DIRECTORS AND EXECUTIVE OFFICERS Set forth below is information with respect to each individual who will serve as a director or executive officer of Billing as of the Distribution Date.
NAME AGE POSITION - - ------------------------- --- -------------------------------------------------------------------- Parris H. Holmes, Jr..... 52 Chairman of the Board and Chief Executive Officer Alan W. Saltzman......... 49 President and Chief Operating Officer Kelly E. Simmons......... 41 Senior Vice President and Chief Financial Officer Paul L. Gehri............ 42 Vice President of Sales of BICI and ESBI Michael R. Long.......... 51 Vice President of Information Technology of BICI and ESBI Lee Cooke................ 49 Director
- - ------------------------ (1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Nominating Committee. The following is a description of the biographies of Billing's executive officers and directors for the past five years. PARRIS H. HOLMES, JR. has served as Chairman of the Board and Chief Executive Officer of USLD since September 8, 1986. Prior to March 1993, Mr. Holmes also served as President of USLD. Mr. Holmes is also a member of the Board of Directors of Tanisys Technology, Inc., a developer and marketer of computer peripheral equipment. ALAN W. SALTZMAN has been Executive Vice President -- Operations, Billing and Information Management of the USLD since May 1993. Mr. Saltzman has been Chief Operating Officer of ZPDI since February 1991. In August 1994, Mr. Saltzman was elected President of ZPDI. Mr. Saltzman has been an adviser to the Board of Directors of USLD since February 1994. Mr. Saltzman joined Billing in 1989 as Vice President -- Information Management Systems. Mr. Saltzman is a director of Tanisys Technology, Inc. KELLY E. SIMMONS joined USLD in November 1988 as Corporate Controller. During 1990, Mr. Simmons was promoted to the position of Vice President of Accounting and Corporate Treasurer. In July 1992, separate departments for the accounting and treasury functions were created, at which time Mr. Simmons retained responsibility for the treasury function and was named Vice-President - - -- Finance and Corporate Treasurer. In September 1994, Mr. Simmons also became Vice President -- Administration. In October 1995, Mr. Simmons also became Senior Vice President of Business Development and Corporate Treasurer. PAUL L. GEHRI has served as Vice President of Sales for ZPDI since May 1992. Mr. Gehri was Vice President of Sales of U.S. Long Distance, Inc. from July 1991 to May 1992 and was Director of Sales and a principal of National Telephone Exchange, Inc., a company acquired by USLD, from 1988 to July 1991. MICHAEL R. LONG has served as Vice President -- Management Information Systems of U.S. Long Distance, Inc. since December 1993. Prior to that time, from 1989 to 1993, Mr. Long served in various capacities at United Services Automobile Association, first as Director -- Life Systems Strategic Development (1989-1991), then as Executive Director -- Life Systems Strategic Development (1991-1993) and most recently as Assistant Vice President -- Life, Health and Annuity Systems (1993). 53 LEE COOKE has served as a director of USLD since 1991. Since May 1992, he has been Chairman of the Board and Chief Executive Officer of Medical Polymers Technologies, Inc. From 1988 through 1991, Mr. Cooke served in the elected position of Mayor of Austin, Texas. EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth certain information regarding compensation paid by USLD to the individuals serving as Billing's Chief Executive Officer and the four other most highly compensated executive officers for the three fiscal years ended September 30, 1995, 1994 and 1993. During the periods presented, the individuals were compensated in accordance with USLD's plan and policies. All references in the tables to stock and stock options relate to awards of stock and stock options of USLD. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS -------------------------- ANNUAL COMPENSATION RESTRICTED SECURITIES NAME AND ------------------------- OTHER ANNUAL STOCK UNDERLYING PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($) AWARDS ($)(3) OPTIONS (#) - - ------------------------------ ----------- ------------ ----------- ----------------- ------------- ----------- Parris H. Holmes, Jr.......... 1995 $ 276,000 $ 750,000 $ 22,421(2) $ 0 100,000 Chairman of the Board 1994 271,113 0 0 159,375(4) 90,000 and Chief Executive Officer 1993 223,254 175,000 0 0 50,000 Alan W. Saltzman.............. 1995 147,308 100,000 0 0 25,000 President and 1994 136,790 10,000 0 31,875(6) 58,000 Chief Operating Officer 1993 118,269 45,000 0 0 28,000 Kelly E. Simmons.............. 1995 96,000 33,000 0 0 0 Senior Vice President 1994 95,479 5,000 0 12,250(8) 19,000 and Chief Financial Officer 1993 86,385 10,000 0 0 10,000 Paul L. Gehri................. 1995 83,654 10,000 0 0 0 Vice President of Sales 1994 80,462 10,000 0 0 16,500 of BICI and ESBI 1993 74,923 16,000 0 0 6,500 Michael R. Long............... 1995 84,900 15,500 0 0 0 Vice President of 1994 63,750(11) 0 0 0 19,500 Information Technology of 1993 0 0 0 0 0 BICI and ESBI ALL OTHER NAME AND COMPENSATION PRINCIPAL POSITION ($) - - ------------------------------ -------------- Parris H. Holmes, Jr.......... $ 38,964(5) Chairman of the Board 24,637 and Chief Executive Officer 3,125 Alan W. Saltzman.............. 8,792(7) President and 6,614 Chief Operating Officer 2,212 Kelly E. Simmons.............. 2,863(9) Senior Vice President 0 and Chief Financial Officer 0 Paul L. Gehri................. 3,333(10) Vice President of Sales 3,033 of BICI and ESBI 1,390 Michael R. Long............... 0 Vice President of 0 Information Technology of 0 BICI and ESBI
- - ------------------------------ (1) In 1994 and 1993, represents bonuses earned in the applicable fiscal year, but paid 50% in January and 50% in April of the following fiscal year. Payment of such bonuses was conditioned upon USLD recognizing a profit in its first and second fiscal quarters respectively. These conditions, however, were waived by USLD for those bonuses earned for fiscal 1993 and 1994. (2) Represents amounts reimbursed during fiscal 1995 for the payment of taxes. (3) At September 30, 1995, the number and value of aggregate restricted stock award holdings were as follows: Mr. Holmes, 15,000 shares ($225,938) and Mr. Saltzman, 3,000 shares ($45,188). The value of the restricted stock awards was determined by multiplying the market value of the USLD's Common Stock on September 29, 1995 as determined by reference to the closing price of the Common Stock on the Nasdaq National Market ($15.0625 per share) by the number of shares of restricted stock held. If any dividends are paid with respect to USLD's Common Stock, such dividends will be paid on the restricted stock. (4) Mr. Holmes was granted 15,000 shares of restricted stock on March 1, 1994, which vested 50% on February 1, 1995 and 50% on February 1, 1996. (5) Represents $1,871 in USLD 401(k) Retirement Plan contributions, $15,686 in USLD deferred compensation contributions and $21,407 in life insurance premiums made or paid on behalf of Mr. Holmes during fiscal 1995. (6) Mr. Saltzman was granted 3,000 shares on March 1, 1994, which vest 50% on February 1, 1995 and 50% on February 1, 1996. (7) Represents $2,391 in USLD 401(k) Retirement Plan contributions and $6,401 in USLD deferred compensation contributions made on behalf of Mr. Saltzman during fiscal 1995. (8) Mr. Simmons was granted 1,000 shares on March 24, 1994, which vested 50% on February 1, 1995 and 50% on February 1, 1996. (9) Represents $1,303 in USLD 401(k) Retirement Plan contributions and $1,560 in USLD deferred compensation contributions made on behalf of Mr. Simmons during fiscal 1995. (10) Represents $1,538 in USLD 401(k) Retirement Plan contributions and $1,795 in USLD deferred compensation contributions made on behalf of Mr. Gehri. 54 (11) Amount shown reflects Mr. Long's salary from December 27, 1993, the beginning date of his employment with U.S. Long Distance, Inc., through the end of fiscal 1994. STOCK OPTION GRANTS IN FISCAL 1995 The following table provides certain information related to options granted to the named executive officers of Billing during the period October 1, 1994 through September 30, 1995 pursuant to USLD stock plans. For information concerning the treatment of USLD options held by Billing officers after the Distribution, see "Relationship Between Billing and USLD after the Distribution - - -- Benefit Plans and Employment Matters Allocation Agreement."
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ------------------------------ ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SECURITIES OPTIONS EXERCISE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM (4) OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------- NAME GRANTED (#)(1) FISCAL 1995 ($/SH) (2) DATE 5% ($) 10% ($) - - ------------------------------------------ --------------- ------------- -------------- ------------ --------- --------- Parris H. Holmes, Jr...................... 100,000 44.4 $ 14.875(3) 4/12/00(3) $ 410,969 $ 908,134 (310,817) (686,824) Alan W. Saltzman.......................... 25,000 11.1 14.875(3) 4/12/00(3) 102,742 227,033 (77,704) (171,706) Kelly E. Simmons.......................... 0 0 N/A N/A N/A N/A Paul L. Gehri............................. 0 0 N/A N/A N/A N/A Michael R. Long........................... 0 0 N/A N/A N/A N/A
- - ------------------------------ (1) For each named executive officer, the option listed represents a grant under USLD's Employee Option Plan. Of the options granted in 1995, one-third were immediately vested and, under the terms of the Employee Option Plan, were exercisable six months from the date of grant and one-third each are exercisable on the two anniversaries following the date of grant. (2) The exercise price may be paid by delivery of already owned shares of Common Stock or by offset of the underlying shares of USLD Common Stock, subject to certain conditions. (3) In November 1995, each of these options was voluntarily surrendered in consideration of an option grant for the same number of shares at an option exercise price of $11.25 per share, and the option expiration dates were extended to November 27, 2000. (4) Calculation based on stock option exercise price over period of option assuming annual compounding. The columns present estimates of potential values based on certain mathematical assumptions. The actual value, if any, that an executive officer may realize is dependent upon the market price on the date of option exercise. Amounts in parentheses indicate potential realizable value after giving effect to repricing described in footnote 3. AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES The following table provides information related to options exercised by the named executive officers of Billing during the period October 1, 1994 through September 30, 1995 and the number and value of USLD options held at fiscal year end.
NUMBER OF SECURITIES VALUE(3) OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY SHARES ACQUIRED OPTIONS AT FY-END (#)(2) OPTIONS AT FY-END ($)(3) UPON OPTION VALUE -------------------------- ---------------------------- NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - - -------------------------------- ----------------- -------------- ----------- ------------- ------------- ------------- Parris H. Holmes, Jr............ 18,000 $ 138,250 105,501 100,499 $ 396,304 $ 200,571 (517,140)(4) (442,235)(4) Alan W. Saltzman................ 15,000 129,375 64,334 38,666 315,313 125,000 (345,562)(4) (185,414)(4) Kelly E. Simmons................ 7,333 88,913 24,000 11,000 177,000 60,813 Paul L. Gehri................... 7,000 78,785 24,709 10,041 184,620 20,118 Michael R. Long................. 6,501 35,370 0 12,999 0 111,222
- - ------------------------------ (1) Market value of the underlying securities at exercise date, minus the exercise price. (2) Does not give effect to the repricing and regrant of options in fiscal 1996, which, among other things, lengthened the period of time in which certain options become exercisable. (3) Market value of the underlying securities at September 29, 1995 ($15.0625 per share), minus the exercise price. 55 (4) Amount in parentheses reflects value after repricing of options occurring in fiscal 1996. See "Stock Option Grants in Fiscal 1995" above. EMPLOYEE BENEFIT PLANS BILLING INFORMATION CONCEPTS CORP. 401(K) RETIREMENT PLAN Prior to the Distribution, Billing will adopt the Billing Information Concepts Corp. 401(k) Retirement Plan (the "Billing Retirement Plan") which will be effective upon the effective date of the Registration Statement on Form 10. Participation in the Billing Retirement Plan will be offered to eligible employees of Billing or its subsidiaries (collectively, the "Participants"). Generally, all employees of Billing 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 will be eligible for participation in the Billing Retirement Plan. The Billing Retirement Plan will be a 401(k) plan, a form of defined contribution plan which provides that Participants generally may make voluntary salary deferral contributions, on a pre-tax basis, of between 1% and 15% of their base compensation in the form of voluntary payroll deductions up to a maximum amount as indexed for cost-of-living adjustments ("Voluntary Contributions"). Billing will make matching contributions equal to 50% of the first 3% of a Participant's compensation contributed as salary deferral. Billing may from time to time make additional discretionary contributions at the sole discretion of the Billing Board. The discretionary contributions, if any, are allocated to Participants' accounts based on a discretionary percentage of the Participants' respective salary deferrals. Participants will be gradually vested in all contributions made by Billing over a period of five years of credited service, vesting 25% a year for each full year of service beginning with the Participant's second anniversary, and becoming 100% vested after five years of service or upon death, total and permanent disability, retirement under the Billing Retirement Plan or Billing Retirement Plan termination. Participants will be always 100% vested in their Voluntary Contributions. Service with USLD prior to the Distribution Date will be credited under the Billing Retirement Plan for purposes of vesting as well as eligibility to participate. STOCK OPTION AND GRANT PLANS. BILLING INFORMATION CONCEPTS CORP. 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN GENERAL. Prior to the Distribution, Billing will adopt, and USLD as the sole stockholder of Billing will approve, the Billing Information Concepts, Inc. 1996 Employee Comprehensive Stock Plan (the "Billing Employee Stock Plan"), which will become effective upon the effective date of the Registration Statement on Form 10. The purpose of the Billing Employee Stock Plan is to further the success of Billing and its affiliates by making the Billing Common Stock available for purchase by all officers and employees upon the exercise of options and by awarding restricted shares of Billing Common Stock to its officers and employees and thus providing incentive to such individuals to continue in the service of Billing and its affiliates and giving such individuals a greater interest in Billing as stockholders. The Billing Employee Stock Plan provides for (i) the grant of incentive stock options ("ISOs"), under Section 422 of the Internal Revenue Code, (ii) the grant of nonqualified stock options that do not qualify under Section 422 of the Code ("NQSOs") and (iii) the award of shares of restricted stock of Billing. Under the terms of the Billing Employee Stock Plan, 3,500,000 shares of Billing Common Stock have been reserved for the granting of options and awards of restricted stock. If any option or award granted under the Billing Employee Stock Plan terminates, expires or is surrendered as to any shares, new options or awards may thereafter be made covering such shares. Based upon the number of USLD stock options outstanding on May 10, 1996, it is anticipated that NQSOs to purchase a total of 1,685,475 shares of Billing Common Stock will be granted in connection with the distribution to USLD option holders prior to the Distribution. See "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement." 56 ADMINISTRATION. The Billing Employee Stock Plan will be administered by the Compensation Committee of two "disinterested persons" appointed by the Board. The Billing Employee Stock Plan grants broad authority to the Compensation Committee to grant options or award restricted shares to full-time employees and officers of Billing and its subsidiaries (estimated to total 600 eligible individuals at the Distribution Date) selected by the Compensation Committee, to determine the number of shares subject to options or awards and to provide for the appropriate periods and methods of exercise and requirements regarding the vesting of options and awards of restricted shares. TERMS OF OPTIONS. The Billing Employee Stock Plan will limit the discretion allowed to the Compensation Committee in granting options. The option price per share with respect to each option shall be determined by the Compensation Committee, but shall in no instance be less than the par value of the shares subject to the option. In addition, the option price for ISOs may not be less than 100% of the fair market value of the Billing Common Stock on the date of grant. An ISO may be granted to a participant only if such participant, at the time the option is granted, does not own stock possessing more than 10% of the total combined voting power of all classes of Common Stock of Billing or of its parent or subsidiary. The preceding restriction shall not apply if at the time the option is granted the option price is at least 110% of the fair market value of the Billing Common Stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date of grant. The aggregate fair market value (determined as of the time the option is granted) of the stock with respect to which ISOs are exercisable for the first time by a participant in any calendar year (under all plans of Billing and of any parent or subsidiary) shall not exceed $100,000. There is no price requirement for NQSOs, other than that the option price must exceed the par value of the Billing Common Stock. The Compensation Committee may permit the option purchase price to be payable by transfer to Billing of Billing Common Stock owned by the option holder with a fair market value at the time of exercise equal to the option purchase price. The expiration date of each option shall be fixed by the Compensation Committee, but notwithstanding any provision of the Billing Employee Stock Plan to the contrary, such expiration shall not be more than ten years from the date of grant. No participant shall receive any grant of options, whether ISOs or NQSOs, for more than an aggregate of 150,000 shares of Billing Common Stock during any one fiscal year of Billing. Options to acquire Billing Common Stock granted to USLD optionees under the Billing Employee Stock Plan prior to the Distribution shall have vesting and other material provisions similar to those of the related USLD options. See "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement." TERMS OF RESTRICTED STOCK AWARDS. The Billing Employee Stock Plan permits the Compensation Committee to make awards of shares of Billing Common Stock that are subject to a designated period during which such shares of Billing Common Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered, which period shall not be less than one (1) year nor more than two (2) years from the date of grant. As a condition to any award, the Compensation Committee may require an employee to pay to Billing the amount (such as the par value of such shares) required to be received by Billing in order to assure compliance with applicable state law. Any award for which such requirement is established shall automatically expire if not purchased in accordance with the Compensation Committee's requirements within 60 days after the date of grant. The Compensation Committee may, at any time, reduce the restricted period with respect to any outstanding shares of restricted stock and any retained distributions with respect thereto awarded under the Billing Employee Stock Plan. Shares of restricted stock awarded under the Billing Employee Stock Plan shall constitute issued and outstanding shares of Billing Common Stock for all corporate purposes. Each employee shall have the right to vote the restricted stock held by such employee, to receive and retain all cash dividends and distributions thereon and exercise all other rights, powers and privileges of a holder of Billing Common Stock with respect to such restricted stock, with the exception that (i) the employee will not be entitled to delivery of the stock certificate or certificates representing such restricted stock until the restricted period applicable to such shares or a portion thereof shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; 57 (ii) other than cash dividends and distributions and rights to purchase stock that might be distributed to stockholders of Billing, Billing will retain custody of all retained distributions (any securities or other property other than cash dividends distributed by Billing or otherwise received by the holder in respect of restricted stock during any restricted period) made or declared or otherwise received by the holder thereof with respect to restricted stock (and such retained distributions will be subject to the same restrictions, terms and conditions as are applicable to the restricted stock with respect to which they made, paid or declared) until such time, if ever, as the restricted period applicable to the shares with respect to which such retained distribution shall have been made, paid or declared or received shall have expired, and such retained distribution shall not bear interest or be segregated in separate accounts; (iii) an employee may not sell, assign, transfer, pledge, exchange, encumber or dispose of any restricted stock or any retained distributions during the applicable restricted period; and (iv) upon the breach of any restrictions, terms or conditions provided in the Billing Employee Stock Plan or the respective agreement or otherwise established by the Compensation Committee with respect to any restricted stock or retained distributions, such restricted stock and any related retained distributions shall thereupon be automatically forfeited. Unless otherwise provided in the agreement relating to award, upon the occurrence of a change of control, as defined in the Billing Employee Stock Plan, all restrictions imposed on the employee's restricted stock and any retained distributions shall automatically terminate and lapse and the restricted period shall terminate; provided, however, that if the change in control occurs within six months of the date of grant the restrictions and the restricted period shall terminate on the sixth anniversary of the date of grant. ADJUSTMENTS. The Compensation Committee, in its discretion, may make such adjustments in the option price, the number of shares and other appropriate provisions covered by outstanding options and the number or kind of shares covered by outstanding awards of restricted stock that are required to prevent any dilution or enlargement of the rights of the holders of such options and awards 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 Billing. The Compensation Committee, in its discretion, may also make such adjustments in the aggregate number of shares subject to options and the number or class of shares subject to restricted stock awards which are appropriate to reflect any transaction or event described in the preceding sentence. AMENDMENT AND TERMINATION. The Board of Directors may at any time suspend or terminate the Billing Employee Stock Plan or may amend it from time to time in such respects as the Board of Directors may deem advisable in order that options and awards of restricted stock granted thereunder may conform to any changes in the law or in any other respect that the Board of Directors may deem to be in the best interests of Billing; PROVIDED, HOWEVER, that without approval by the stockholders of Billing voting the proper percentage of its voting power, no such amendment shall make any change in the Billing Employee Stock Plan for which stockholder approval is required of Billing in order to comply with (i) Rule 16b-3, as amended, promulgated under the Exchange Act, (ii) the Code or regulatory provisions dealing with ISOs, (iii) any rules for listed companies promulgated by any national stock exchange on which Billing stock is traded, or (iv) any other applicable rule or law. Unless sooner terminated, the Billing Employee Stock Plan shall terminate ten years after the date it becomes effective. Except in connection with satisfaction of withholding requirements of any federal, state or local withholding tax, no amendment, suspension or termination of the Billing Employee Stock Plan shall, or consent impair or negate any of the rights or obligations under any option or award of restricted stock theretofore granted under the Billing Employee Stock Plan without the consent of the participant granted such option or awarded such shares of restricted stock. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is intended only as a general guide as to certain federal income tax consequences under current law for participation in the Billing Employee Stock Plan and does not attempt to describe all potential tax consequences. Furthermore, tax consequences are subject to change and a taxpayer's particular situation may be such that some variation of the described rules is applicable. 58 Options. No tax obligation will arise for the optionee or Billing upon the granting of either ISOs or NQSOs under the Billing Employee Stock Plan. Upon exercise of a NQSO, an optionee will recognize ordinary income in an amount equal to the excess, if any, of the fair market value on the date of exercise of the stock acquired over the exercise price of the option. Billing will be entitled to a tax deduction in an amount equal to the ordinary income recognized by the optionee. Any additional gain or loss realized by an optionee on disposition of the shares generally will be capital gain or loss to the optionee and will not result in any additional tax deduction to Billing. Because a NQSO cannot be exercised prior to six months from the date of grant, the taxable event arising from exercise of NQSOs by officers of Billing subject to Section 16(b) of the Exchange Act occurs on the date the option is exercised. The income recognized at the end of any deferral period will include any appreciation in the value of the stock during that period, and the capital gain holding period of the stock for purposes of obtaining long-term capital gain treatment will not begin until the completion of such period. Upon the exercise of an ISO, an optionee recognizes no immediate taxable income. The tax cost is deferred until the optionee ultimately sells the shares of stock. If the optionee does not dispose of the option shares within two years from the date the option was granted and within one year after the exercise of the option ("holding periods"), and the ISO is exercised no later than three months after the termination of the optionee's employment, the gain on the sale will be treated as long-term capital gain. Subject to the limitations in the Billing Employee Stock Plan, certain of these holding periods and employment requirements are liberalized in the event of the optionee's death or disability while employed by Billing. Billing is not entitled to any tax deduction, except that if the stock is disposed of prior to satisfying the holding periods described above, the gain on the sale of such stock equal to the lesser of (i) the fair market value of the stock on the date of exercise minus the option price or (ii) the amount realized on disposition minus the option price will be taxed to the optionee as ordinary income and Billing will be entitled to a deduction in the same amount. Any additional gain or loss recognized by an optionee upon disposition of shares prior to the expiration of the holding periods outlined above generally will be capital gain or loss to the optionee and will not result in any additional tax deduction to Billing. The "spread" between the fair market value of the option stock and the option price upon exercise of an ISO is an item of adjustment used in the computation of the "alternative minimum tax" of the optionee under the Code. The tax benefits which might otherwise accrue to an optionee may be affected by the imposition of such tax if applicable in the optionee's individual circumstances. Restricted Stock. Awards of restricted stock will not result in taxable income to the employee or a tax deduction to Billing for Federal income tax purposes at the time of grant. A recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the Billing Common Stock at the time the shares of restricted stock are no longer subject to forfeiture. However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of the grant will have ordinary taxable income on the date of the grant equal to the fair market value of the restricted stock as if such shares of stock were unrestricted and could be sold immediately. If the shares of restricted stock subject to such election are forfeited, the recipient will not be entitled to any deduction, refund or loss for tax purposes with respect to the forfeited shares. Upon sale of the restricted stock after the forfeiture period has expired, the holding period to determine whether the recipient has long-term or short-term capital gain or loss begins when the restriction period expires. However, if the recipient timely elects to be taxed as of the date of the grant, the holding period commences on the date of the grant and the tax basis will be equal to the fair market value of the shares of restricted stock on the date of the grant as if such shares were then unrestricted and could be sold immediately. Billing is entitled to a deduction (subject to the provisions of Section 162(m) of the Code) for compensation paid to a participant at the same time and in the same amount as the participant is considered to have realized as compensation by reason of the lapse of restrictions on an award of restricted stock or by reason of the election under Code Section 83(b) to recognize ordinary income at the time of the grant. 59 BILLING INFORMATION CONCEPTS CORP. 1996 NON-EMPLOYEE DIRECTOR PLAN GENERAL. Prior to the Distribution, Billing will adopt, and USLD as the sole stockholder of Billing will approve, the 1996 Non-Employee Director Plan of Billing Information Concepts Corp. (the "Billing Director Plan"), which will become effective on the effective date of the Registration Statement on Form 10. The Billing Director Plan authorizes the granting of nonincentive options ("Billing Director Options") to purchase Billing Common Stock to non-employee directors (estimated to total three eligible individuals at the Distribution Date). A total of 400,000 shares of Billing Common Stock (subject to certain adjustments) have been reserved for issuance upon exercise of Billing Director Options and upon the exercise of Billing Director Fee Options (described below) granted to non-employee directors who elect to receive their Annual Director Fee (described below) wholly or partly in a Billing Director Fee Option. If any Billing Director Option or Billing Director Fee Option terminates, expires or is cancelled or surrendered as to any shares, new Billing Director Options and/or Billing Director Fee Options may be granted covering such shares. ADMINISTRATION. The Billing Director Plan will be administered by a stock option committee consisting of not fewer than three (3) members of the Board of Directors. Until this committee is appointed by the Board of Directors, the Board of Directors will administer the Billing Director Plan. TERMS OF OPTIONS. The Billing Director Plan provides that any future non-employee director of Billing (who was not previously a director of Billing) who is elected to the Board of Directors will be granted a Billing Director Option exercisable for 15,000 shares of Billing Common Stock on the date such non-employee director is so elected as a director, whether at the annual meeting of stockholders or otherwise, at an exercise price equal to the fair market value of the Billing Common Stock on the date such non-employee director is elected. In addition, each non-employee director will receive, on the first business day after the date of each annual meeting of stockholders of Billing, commencing with the annual meeting of stockholders immediately following the full vesting of any previously granted Billing Director Option, a new Billing Director Option to purchase an additional 15,000 shares of Billing Common Stock at an exercise price per share equal to the fair market value of Billing Common Stock on the date of grant. In each case, such Billing Director Option will vest as to 5,000 shares of Billing Common Stock on each of the first three anniversaries of the date of grant. Each outside Billing Director will receive an annual retainer fee (the "Annual Director Fee") on the business day on or immediately after December 15 of each year in either cash or, in lieu thereof, at the election of each outside director, a stock option ("Billing Director Fee Option") to purchase certain shares of Billing Common Stock. Each outside director may also receive the Annual Director Fee partly in cash and partly in a Billing Director Fee Option. The Billing Director Plan provides that no later than December 31 of each year, each non-employee director of Billing must elect to receive his or her Billing Annual Director Fee for the following year in cash ($15,000) or in whole or in part through the grant of a Billing Director Fee Option exercisable for up to 7,500 shares of Billing Common Stock at an exercise price per share equal to the fair market value of the Billing Common Stock on the date of grant (I.E., the business day on or immediately after December 15). A non-employee director must still be a director of Billing on December 15 to be eligible to receive a Billing Annual Director Fee. The Billing Director Fee Option will vest immediately, but will not be exercisable for six months and will expire five years from the date of grant. A Billing Director Option is not exercisable for six months commencing with the date of grant and terminates on the earlier to occur of (i) 30 days after the date that the optionee ceases to be a Director, except that if the optionee dies while a director, the Billing Director Option expires one year therefrom or six months therefrom if the optionee dies during the 30-day period referenced above, or (ii) five years from the date of grant of the Billing Director Option. A Billing Director Fee Option will terminate five years from the date of grant. LIMITS ON GRANTS. Billing Director Options and Billing Director Fee Options may not be granted at an exercise price per share that is less than the fair market value of the Billing Common Stock at the date of grant. The exercise price of a Billing Director Option and a Billing Director Fee Option may be 60 paid in cash, certified or cashier's check, money order, or by delivery of already owned shares of Billing Common Stock having a fair market value equal to the exercise price, or by delivery of a combination of the above. One purpose for permitting delivery of Billing Common Stock in full or partial payment of the exercise price is to make it possible for the optionee to exercise his Billing Director Options or Billing Director Fee Option, without the need to sell Billing Common Stock already owned, which sale would result in the optionee incurring capital gain (or loss) for federal income tax purposes and/or potential Section 16(b) liability. ADJUSTMENTS. To prevent dilution of the rights of a holder of a Billing Director Option and a Billing Director Fee Option, the Billing Director Plan provides for the adjustment of (i) the number of shares upon which Billing Director Options and Billing Director Fee Options may be granted, (ii) the number of shares subject to outstanding Billing Director Options and Billing Director Fee Options and (iii) the exercise price of a Billing Director Option and a Billing Director Fee Option, in the event of any subdivision or consolidation of shares of Billing Common Stock, any stock dividend, recapitalization or other capital adjustment. ASSIGNABILITY. The Billing Director Options and Billing Director Fee Options are not assignable or transferable other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order. During the lifetime of an optionee, a Billing Director Option or Billing Director Fee Option is exercisable only by the optionee, the optionee's guardian or legal representative. Billing has registered the shares of Billing Common Stock issuable pursuant to the exercise of Billing Director Options and Billing Director Fee Options with the Commission. TERMINATION. The Billing Director Plan terminates on , 2006 and any Billing Director Option or any Billing Director Fee Option outstanding on such date will remain outstanding until it has either expired or been exercised. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The federal income tax rules summarized below are based upon current tax laws and thus are subject to change. Moreover, this summary of the tax consequences is not intended to be a complete description of all federal, state and local tax consequences of the Billing Director Plan. The amount of the Annual Director Fee received in cash will be taxable upon receipt. The grant of a Billing Director Option or Billing Director Fee Option will not be taxable to an optionee. Generally, upon the exercise of a Billing Director Option or Billing Director Fee Option that has been held by the optionee for at least six months, an optionee who is subject to Section 16(b) of the Exchange Act will recognize ordinary income at the time of exercise in an amount equal to the excess of the then fair market value of the shares of Billing Common Stock purchased over the exercise price. Optionees who are not subject to Section 16(b) will generally recognize income at the time of exercise of a Billing Director Option or Billing Director Fee Option determined in the same manner as optionees subject to Section 16(b). Because participants in the Billing Director Plan will not be employees of Billing, there will be no withholding with respect to the recognized ordinary income resulting from the exercise of Billing Director Options or Billing Director Fee Options or with respect to receipt of the Annual Director Fee in cash (although the self-employment tax on self-employed persons generally will apply thereto). When shares of Billing Common Stock received upon the exercise of a Billing Director Option or Billing Director Fee Option subsequently are disposed of in a taxable transaction, the optionee generally will recognize capital gain (or loss) in the amount by which the amount realized exceeds (or is less than) the fair market value of the Billing Common Stock on the date the Billing Director Option or Billing Director Fee Option was exercised. Such capital gain (or loss) will be long- or short-term depending upon the optionee's holding period for the Billing Common Stock acquired upon exercise of the Billing Director Option or Billing Director Fee Option. BILLING INFORMATION CONCEPTS CORP. 1996 EMPLOYEE STOCK PURCHASE PLAN GENERAL. Prior to the Distribution, Billing will adopt, and USLD as the sole stockholder of Billing will approve, the Billing Information Concepts Corp. 1996 Employee Stock Purchase Plan (the 61 "Billing Purchase Plan"), which will become effective upon the effective date of the Registration Statement on Form 10. The Billing Purchase Plan is intended to allow employees of Billing and its subsidiaries to purchase Billing Common Stock at regular intervals by means of wage and salary deferrals on a tax-favored basis. A total of 1,000,000 shares of Billing Common Stock has been reserved for issuance under the Billing Purchase Plan. ADMINISTRATION. The Billing Purchase Plan, which is intended to qualify under Section 423 of the Code, will be administered by the Employee Stock Purchase Plan Committee, which will be appointed by the Board of Directors. The Committee will consist of at least three persons who need not be members of the Board of Directors. The Committee will supervise the administration and enforcement of the Billing Purchase Plan, and all questions of interpretation or application of the Billing Purchase Plan will be determined in the sole discretion of the Committee. All decisions made by the Committee will be final, conclusive and binding on all of the participants of the Billing Purchase Plan and Billing. ELIGIBILITY AND PARTICIPATION. Every employee of Billing and its subsidiaries will be eligible to participate in the Billing Purchase Plan on a voluntary basis with the exception of (i) employees who have not completed at least six months of continuous service with Billing as of the applicable enrollment date and (ii) employees who would, immediately upon enrollment, own directly or indirectly, or hold purchase rights, options or rights to acquire, an aggregate of 5% or more of the total combined voting power or value of all outstanding shares of all classes of Billing or any subsidiary. To participate in the Billing Purchase Plan, eligible employees must enroll in the Billing Purchase Plan and authorize payroll deductions pursuant to the Billing Purchase Plan. These payroll deductions may not exceed $10,625 in any six-month participation period. A participant will be automatically re-enrolled in the Billing Purchase Plan, under the same terms, on the next offering period unless the participant notifies Billing of his or her election not to re-enroll or desire to change his or her contribution amount. A participant has the right to suspend payroll deductions at any time, including during an offering period. Any participant who suspends participation in the Billing Purchase Plan must re- enroll during any subsequent enrollment period in order to participate in any future offering periods. Once a participant withdraws from an offering, that participant may not participate in the same offering. Billing anticipates that approximately 600 employees will be eligible to participate in the first offering period under the Billing Purchase Plan. OFFERING PERIODS. The initial offering period will begin on August 1, 1996 and will end on January 31, 1997. After the initial offering period, each offering of Billing Common Stock under the Billing Purchase Plan will be for a period of approximately six months. The commencement of each offering will start at the beginning of Billing's regular payroll period that falls closest to February 1 and August 1 of each year. PURCHASE PRICE. Enrollment in the Billing Purchase Plan constitutes a grant by Billing to the participant of the right to purchase shares of Billing's Common Stock. The aggregate number of shares that may be issued under the Billing Purchase Plan may not exceed 1,000,000 shares of Billing Common Stock, subject to adjustment as provided in the Billing Purchase Plan. The purchase price per share is the lesser of (i) 85% of the fair market value of the Billing Common Stock on the first day of the applicable participation period or (ii) 85% of the fair market value of the Billing Common Stock on the last day of such participation period. The number of shares purchased is determined by dividing the total amount of payroll deductions withheld from a participant's paychecks during a participation period by the purchase price. The aggregate of monthly payroll deductions cannot exceed $10,625 in any six-month participation period. At the end of each offering period, the applicable number of shares of Billing Common Stock is automatically purchased for the participant. ADJUSTMENTS ON CHANGES IN CAPITALIZATION. In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, merger, consolidation, offering of rights or other similar change in the capital structure of Billing, the Employee Stock Purchase Plan Committee may make such adjustment, if any, as it deems appropriate in the number, kind and 62 purchase price of the shares available for purchase under the Billing Purchase Plan and in the maximum number of shares that may be issued under the Billing Purchase Plan, subject to the approval of the Board of Directors. ASSIGNMENT. The rights of a participant under the Billing Purchase Plan are not assignable or otherwise transferrable by the participant except by will or the laws of descent and distribution. TERMINATION. The right of an employee to participate in the Billing Purchase Plan terminates immediately when a participant ceases to be employed by Billing or any subsidiary. Any contributions collected for the offering then in effect prior to the date of termination will be paid to the employee in cash. AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may amend or terminate the Billing Purchase Plan at any time as permitted by law, with the exception that the provisions of the Billing Purchase Plan that constitute a formula award for purposes of Rule 16b-3 and may not be amended more than once every six months, other than to comply with changes in the Code, or the rules thereunder. No amendment shall be effective unless within one year after the change is adopted by the Board of Directors it is approved by the holders of a majority of the voting power of Billing's outstanding shares (i) if and to the extent such amendment is required to be approved by stockholders to continue the exemption provided for in Rule 16b-3 (or any successor provision); or (ii) if such amendment would cause the rights granted under the Billing Purchase Plan to purchase shares of Billing Common Stock to fail to meet the requirements of Section 423 of the Internal Revenue Code (or any successor provision). CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Billing Purchase Plan is intended to be an "Employee Stock Purchase Plan" within the meaning of Section 423 of the Code. Under a plan that so qualifies, no taxable income is reportable by a participant, and no deductions are allowable to Billing, by reason of the grant of the purchase right at the beginning of an offering or the purchase of shares at the end of an offering. A participant will, however, recognize taxable income in the year in which the shares purchased under the Billing Purchase Plan are sold or otherwise made the subject of a taxable disposition. A sale or other disposition of the purchased shares will be a disqualifying disposition if it is made either within two years after the date the purchase right is granted (I.E., the commencement date of the offering to which the purchase right pertains) or within one year from the date of transfer of the stock received pursuant to such offering for the particular shares involved in the disposition. If the participant makes a disqualifying disposition of the purchased shares, then Billing will be entitled to an income tax deduction for the taxable year of Billing in which such disposition occurs, equal to the amount by which the fair market value of such shares on the date of purchase exceeds the purchase price. In no other instance will Billing be allowed a deduction with respect to the participant's disposition of the purchased shares. If the shares are disposed of in a disqualifying disposition, then the excess of the fair market value of the shares on the date of purchase over the purchase price will be treated as ordinary income to the participant at the time of such disposition. This amount is subject to tax even if the participant does not realize any gain on the disposition. In addition, the participant could also recognize a capital loss if the fair market value of the shares on the date of purchase exceeds the amount realized on the sale, or a capital gain if the amount realized on the sale exceeds the fair market value of the shares on the date of purchase. If the participant disposes of the shares in a taxable disposition after satisfying the two-year and one-year holding periods outlined above (a qualifying disposition), then the participant will realize ordinary income in the year of disposition equal to the lesser of (i) the amount by which the fair market value of the shares on the date of disposition exceeds the purchase price or (ii) 15% of the fair market value of the shares on the day the purchase right relating to the disposed shares was first granted. Similar rules result in the recognition of income by an individual who owns stock acquired 63 under the Billing Purchase Plan at his or her death. Except for shares held by an estate, this amount of ordinary income will be added to the participant's basis in the shares, and any gain (or loss) recognized upon the disposition will be a long-term capital gain (or loss). BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN Prior to the Distribution, Billing will adopt the Billing Information Concepts Corp. Executive Compensation Deferral Plan (the "Billing Executive Deferral Plan"), which will become effective on the effective date of the Registration Statement on Form 10. Participation in the Billing Executive Deferral Plan is offered to certain key employees occupying management positions and/or certain other highly compensated employees of Billing who are determined by the Board, from time to time, to be eligible to participate in the Billing Executive Deferral Plan ("Billing Executive Deferral Participants"). At the Distribution Date, it is estimated that 8 individuals will be eligible to participate in the Billing Executive Deferral Plan. The Billing Executive Deferral Plan is a deferred compensation plan that provides that Billing Executive Deferral Participants generally may make voluntary salary deferral contributions, on a pre-tax basis, in equal monthly amounts of up to 100% of his or her base compensation ("Voluntary Deferral Contribution"). In addition, Billing intends to make certain matching contributions with respect to each Voluntary Deferral Contribution (the "Deferral Contribution") equal to the lesser of (i) the Voluntary Deferral Contribution or (ii) that amount together with the Voluntary Deferral Contribution which actuarially determined would yield a 10-year annuity equal to 50% of the Billing Executive Deferral Participant's compensation payable at age 65, with a minimum contribution of $3,000. However, Billing reserves the right, at any time, to decrease the Billing Deferral Contribution or provide no Billing Deferral Contribution whatsoever for any plan year. From time to time Billing shall credit each Billing Executive Deferral Participant's plan account with interest at the rate declared by Billing in accordance with the Billing Executive Deferral Plan. Unless terminated for cause, Billing Executive Deferral Participants will be annually vested in 33% of any Billing Deferral Contribution beginning with the Billing Executive Deferral Participant's first anniversary of service and becoming 100% vested after the third anniversary of service or upon a change in control of Billing. Service with USLD is considered service for this purpose. Benefits will be generally payable to a Billing Executive Deferral Participant (or his or her beneficiaries) upon retirement, disability, termination of employment (other than for cause) or death, in each case as provided in the Billing Executive Deferral Plan. BILLING INFORMATION CONCEPTS CORP. EXECUTIVE QUALIFIED DISABILITY PLAN Prior to the Distribution, Billing will adopt the Billing Information Concepts Corp. Executive Qualified Disability Plan (the "Disability Plan") to be effective on the effective date of the Registration Statement on Form 10. The Disability Plan provides long-term disability benefits for certain employees occupying management positions with Billing or its subsidiaries. Benefits under the Disability Plan are provided directly by Billing based on definitions, terms and conditions contained in the Disability Plan documents. Benefits under the Disability Plan supplement benefits provided under Billing's insured long-term disability plan. At the Distribution Date, there are expected to be approximately 8 participants in the Disability Plan. EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS Prior to the Distribution Date, the Company will enter into an employment agreement with Mr. Parris H. Holmes, Jr. which will be effective as of the consummation of the Distribution. The agreement provides for a four-year term, subject to automatic extension for an additional one year on each one-year anniversary of the agreement unless terminated early as provided therein, including termination by the Company for "cause" (as defined in the employment agreement) or termination by Mr. Holmes for "good reason" (as defined in the employment agreement). This employment agreement provides for an annual, calendar year base salary of $300,000 and an incentive bonus at the discretion of the Compensation Committee of the Board. 64 Prior to the Distribution Date, the Company will enter into an employment agreement with Mr. Saltzman which will be effective as of the consummation of the Distribution. This agreement expires on , , subject to extension for successive two-year terms unless the Company elects not to extend the agreement. The employment agreement is subject to early termination as provided therein, including termination by the Company for "cause" (as defined in the employment agreement) or termination by Mr. Saltzman for "good reason" (as defined in the employment agreement). The employment agreement provides for an annual, calendar year base salary of $180,000. The employment agreement also provides for incentive bonuses at the discretion of the Compensation Committee of the Board. Prior to the Distribution Date, the Company will enter into an employment agreement with Mr. Simmons which will be effective as of the consummation of the Distribution. This agreement provides for a one-year term, subject to automatic extension unless and until terminated by either the Company or Mr. Simmons upon not less than 120 days' prior written notice. The employment agreement is subject to early termination as provided therein, including if Mr. Simmons fails to perform his duties thereunder or to comply with any of the provisions thereof or commits any act of misconduct, malfeasance, gross negligence or disloyalty, upon written notice from the Company. The employment agreement provides for an annual, calendar year base salary of $ . The employment agreement also provides for an incentive bonus at the discretion of the Compensation Committee of the Board. The employment agreements with Messrs. Holmes, Saltzman and Simmons provide that if the Company terminates their employment without cause (including the Company's election to not extend the employment agreement at any renewal date) or if they resign their employment for "good reason" (as "good reason" is defined in the employment agreement), they will be entitled to the following severance: Mr. Holmes -- at his election, either a lump-sum payment in the amount equal to his base salary for the unexpired portion of the four-year term of his agreement then in effect and without giving effect to any further extension (a maximum of approximately $1,200,000) or continuation of his base salary and benefits through the unexpired term of his agreement; Mr. Saltzman -- a lump-sum payment in the amount equal to two times his then effective annual base salary ($360,000 ); Mr. Simmons -- a lump-sum payment in the amount equal to one times his then effective annual base salary ($ ). A change of control is deemed to have occurred if (i) more than 30% of the combined voting power of the Company's then outstanding securities is acquired, directly or indirectly, 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. The employment agreements with Messrs. Holmes, Saltzman and Simmons provide that if, at any time within twelve months of a change of control, they cease to be an employee of the Company by reason of (i) termination by the Company (or its successor) without "cause" (as defined in the employment agreement) or (ii) voluntary termination by the employee for "good reason upon change of control" (as defined in the employment agreement), they will be entitled to the following benefits in 65 addition to the severance stated above: Mr. Holmes, Mr. Saltzman and Mr. Simmons - - -- all outstanding stock options held by each shall become fully vested and exercisable and such individuals shall receive an additional payment that, when added to all other payments received in connection with a change of control, will result in the maximum amount allowed to be paid to an employee without triggering an excess parachute payment (as defined by the Internal Revenue Code); Mr. Holmes -- all benefits (as defined by his employment agreement) shall continue throughout the remainder of its term. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Directors Cooke and one outside director to be named will comprise the Compensation Committee of the Board of Directors of the Company. Mr. Saltzman, the Company's President and Chief Operating Officer, and Mr. Holmes serve on the Board of Directors of Tanisys Technology, Inc., a developer and marketer of computer peripheral equipment. Mr. Holmes also serves on the Compensation Committee of Tanisys Technology, Inc. Mr. Holmes is Chairman of the Board of Directors of the Company. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT USLD knows of no person or entity that as of April 30, 1996 had beneficial ownership of five percent (5%) or more of the outstanding USLD Common Stock. Accordingly, Billing knows of no person or entity that will beneficially own five percent (5%) or more of the outstanding Billing Common Stock after completion of the Distribution based upon application of the Distribution Ratio to each stockholder's USLD holdings. The following table sets forth information with respect to the shares of Billing Common Stock which are anticipated to be beneficially owned by each director of Billing and by all directors and executive officers of Billing as a group after completion of the Distribution based upon application of the Distribution Ratio to the respective holdings of USLD Common Stock as of April 30, 1996, according to the data furnished by the person named.
COMMON STOCK ----------------------------------------------- AMOUNT AND NATURE OF PERCENT OF CLASS NAME AND BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED (1) - - --------------------------------------------------------- -------------------- ------------------------- Parris H. Holmes, Jr..................................... 262,420(2) 1.7% Alan W. Saltzman......................................... 139,411(3) * Kelly E. Simmons......................................... 36,000(4) * Paul L. Gehri............................................ 19,170(5) * Michael R. Long.......................................... 6,500(6) * Lee Cooke................................................ 5,000(7) * All executive officers and directors as a group (six persons, including the executive officers and directors listed above)........................................... 468,501 3.1
- - ------------------------ * Represents less than 1% of the issued and outstanding shares of Billing Common Stock. (1) The percentages of Common Stock indicated are based on 14,822,575 shares of Common Stock issued and outstanding on April 30, 1996. (2) Includes 151,667 shares that Mr. Holmes has the right to acquire upon the exercise of stock options, exercisable within 60 days, and 753 shares purchased under the USLD Stock Purchase Plan. (3) Includes 94,667 shares that Mr. Saltzman has the right to acquire upon exercise of stock options, exercisable within 60 days, an aggregate of 700 shares held in individual retirement accounts for 66 Mr. Saltzman and his wife, and 3,293 shares that Mr. Saltzman holds in his Billing 401(k) Retirement Plan account at March 31, 1996 and 753 shares purchased under the USLD Stock Purchase Plan. (4) Includes 32,000 shares that Mr. Simmons has the right to acquire upon exercise of stock options, exercisable within 60 days. (5) Includes 18,417 shares that Mr. Gehri has the right to acquire upon exercise of stock options, exercisable within 60 days, and 753 shares purchased under the USLD Stock Purchase Plan. (6) Includes 6,500 shares that Mr. Long has the right to acquire upon exercise of stock options, exercisable within 60 days. (7) Represents 5,000 shares that Mr. Cooke has the right to acquire upon the exercise of stock options, exercisable within 60 days. (8) Includes 308,251 shares that six directors and executive officers have the right to acquire upon exercise of stock options, exercisable within 60 days, 700 shares held in individual retirement accounts and 3,293 shares that such executive officers held in their Billing 401(k) Retirement Plan accounts at March 31, 1996. DESCRIPTION OF CAPITAL STOCK GENERAL Billing's authorized capital stock consists of 70,000,000 shares of Billing Common Stock, of which shares are issued and outstanding and owned by USLD. Prior to the Distribution Date, Billing's Certificate of Incorporation will be amended by the Billing Board and by USLD, as sole stockholder of Billing. Under such Certificate of Billing, which will be substantially in the form set for in Annex C to this Information Statement, the total number of shares of all classes of stock of which Billing will have authority to issue will be 70,000,000, of which 10,000,000 will be shares of preferred stock, par value $.01 per share ("Billing Preferred Stock"), and 60,000,000 will be shares of common stock, par value $.01 per share ("Billing Common Stock"). Based on the number of shares of USLD Common Stock outstanding at May 10, 1996, approximately 14,839,486 shares of Billing Common Stock, constituting 24.7% of the authorized Billing Common Stock, will be issued to USLD and distributed to stockholders of USLD in the Distribution. All of the shares of Billing Common Stock issued in the Distribution will be validly issued, fully paid and nonassessable. COMMON STOCK VOTING RIGHTS. The holders of Billing Common Stock will be entitled to one vote for each share on all matters voted on by stockholders, and the holders of such shares will possess all voting power, except as otherwise required by law or provided in any resolution adopted by the Board of Directors of Billing with respect to any series of Preferred Stock of Billing. The shares of Billing Common Stock will not have cumulative voting rights. As a result, subject to the voting rights, if any, of the holders of any shares of Billing's Preferred Stock that may be at any time outstanding, the holders of Billing Common Stock entitled to exercise more than 50% of the voting rights in an election of directors will be able to elect 100% of the directors to be elected if they choose to do so. In such event, the holders of the remaining shares of Billing Common Stock voting for the election of directors will not be able to elect any person to Billing's Board. The Billing Certificate will provide that Billing's Board shall be classified into three classes, each serving a three year term, with one class to be elected in each of three consecutive years. The Billing Certificate and Bylaws contain certain other provisions that could have an anti-takeover effect. See "Purpose and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law." DIVIDEND RIGHTS. Subject to any preferential or other rights of any outstanding series of Preferred Stock of Billing that may be designated from time to time by the Board of Directors of Billing, and subject to certain contractual restrictions on the payment of dividends contained in Billing's debt 67 agreements, the holders of Billing Common Stock will be entitled to such dividends as may be declared from time to time by the Board of Directors of Billing from funds legally available therefor. Because virtually all of the operations of Billing will be conducted through wholly owned subsidiaries, Billing's cash flow and consequent ability to pay dividends on the Billing Common Stock are dependent to a substantial degree upon the earnings of such subsidiaries and on dividends and other payments therefrom. See "Special Factors - - -- Dividend Policy." LIQUIDATION RIGHTS AND OTHER PROVISIONS. Subject to the prior rights of creditors and the holders of any Billing preferred stock that may be outstanding from time to time, the holders of Billing Common Stock are entitled in the event of liquidation, dissolution or winding up to share pro rata in the distribution of all remaining assets. Billing Common Stock is not liable for any calls or assessments and is not convertible into any other securities. Billing's Certificate will provide that the private property of the stockholders shall not be subject to the payment of corporate debts. There are no redemption or sinking fund provisions applicable to Billing Common Stock. BILLING STOCKHOLDER RIGHTS PLAN AND JUNIOR PREFERRED STOCK Billing's Board will adopt a stockholder rights plan that is substantially similar to the USLD stockholder rights plan, and cause to be issued, with each share of Billing Common Stock issued to USLD's stockholders in the Distribution, one Billing Right. The Billing Rights will be governed by a rights agreement to be entered into between Billing and U.S. Trust Company of Texas, N.A., acting as rights agent. See "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law -- Stockholder Rights Plan." PREFERRED STOCK The Board of Directors of Billing will be authorized to provide for the issuance of shares of Preferred Stock, in one or more series, and to fix for each such series such voting powers, designations, preferences and relative, participating, optional and other special rights, and such qualifications, limitations or restrictions, as are stated in the resolution adopted by the Board of Directors of Billing providing for the issuance of such series and as are permitted by the Delaware General Corporation Law. No shares of Billing Preferred Stock will be issued in connection with the Distribution, although it is anticipated that approximately 6,000 shares of Billing Series A Junior Participating Preferred Stock will be reserved for issuance in connection with the Billing stockholder rights plan described in "Description of Capital Stock - - -- Billing Stockholder Rights Plan and Junior Preferred Stock." See "Purposes and Anti-Takeover Effects of Certain Provisions of Billing's Certificate and Bylaws and Delaware Law -- Stockholder Rights Plan." NO PREEMPTIVE RIGHTS No holder of any stock of Billing of any class authorized at the Distribution Date will then have any preemptive right to subscribe to any securities of Billing of any kind or class. TRANSFER AGENT AND REGISTRAR The registrar and transfer agent of the Common Stock will be Montreal Trust Company of Canada. PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF BILLING'S CERTIFICATE AND BYLAWS AND DELAWARE LAW BILLING'S CERTIFICATE AND BYLAWS Billing's Certificate contains several provisions that will make difficult an acquisition of control of Billing by means of a tender offer, open market purchase, proxy fight or otherwise, that is not approved by Billing's Board. Billing's Bylaws also contain provisions that could have an anti-takeover effect. 68 The purpose of the relevant provisions of Billing's Certificate and Bylaws are to discourage certain types of transactions, described below, which may involve an actual or threatened change of control of Billing and to encourage persons seeking to acquire control of Billing to consult first with the Board of Directors to negotiate the terms of any proposed business combination or offer. The provisions are designed to reduce the vulnerability of Billing to an unsolicited proposal for a takeover that does not contemplate the acquisition of all outstanding shares or is otherwise unfair to stockholders of Billing or an unsolicited proposal for the restructuring or sale of all or part of Billing. USLD and Billing believe that, as a general rule, such proposals would not be in the best interests of Billing and its stockholders. Certain provisions of Billing's Certificate and Bylaws, in the view of USLD and Billing, will help ensure that Billing's Board, if confronted by a surprise proposal from a third party that has acquired a block of stock, will have sufficient time to review the proposal and appropriate alternatives to the proposal and to act in what it believes to be the best interests of the stockholders. These provisions, individually and collectively, will make difficult and may discourage a merger, tender offer or proxy fight, even if such transaction or occurrence may be favorable to the interests of the stockholders, and may delay or frustrate the assumption of control by a holder of a large block of Billing's Common Stock and the removal of incumbent management, even if such removal might be beneficial to the stockholders. Furthermore, these provisions may deter or could be utilized to frustrate a future takeover attempt that is not approved by the incumbent Billing Board, but which the holders of a majority of the shares may deem to be in their best interests or in which stockholders may receive a substantial premium for their stock over the then prevailing market prices of such stock. By discouraging takeover attempts, these provisions might have the incidental effect of inhibiting certain changes in management (some or all of the members of which might be replaced in the course of a change of control) and also the temporary fluctuations in the market price of the stock which often result from actual or rumored takeover attempts. Set forth below is a description of such provisions in Billing's Certificate and Bylaws. Such description is intended as a summary only and is qualified in its entirety by reference to Billing's Certificate and Bylaws, the forms of which are attached to this Information Statement as Annexes C and D, respectively. CLASSIFIED BOARD OF DIRECTORS. Billing's Certificate and Bylaws provide that, subject to any rights of holders of preferred stock, the number of directors shall be fixed by the Board but shall not be less than three. Billing's Certificate provides for its Board to be divided into three classes serving staggered terms so that directors' initial terms will expire either at the 1997, 1998 or 1999 annual meeting of stockholders. Starting with the 1997 annual meeting of Billing's stockholders, one class of directors will be elected each year for three-year terms. See "Management -- Board of Directors and Committees of the Board." The classification of directors will have the effect of making it more difficult for stockholders to change the composition of Billing's Board in a relatively short period of time. At least two annual meetings of stockholders, instead of one, generally will be required to effect a change in a majority of Billing's Board. Such a delay may help ensure that its Board, if confronted by a holder attempting to force a stock repurchase at a premium above market prices, a proxy contest or an extraordinary corporate transaction, will have sufficient time to review the proposal and appropriate alternatives to the proposal and to act in what it believes are the best interests of the stockholders. The classified board provision could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of Billing, even though such an attempt might be beneficial to Billing and its stockholders. The classified board provision thus could increase the likelihood that incumbent directors will retain their positions. In addition, because the classified board provision is designed to discourage accumulations of large blocks of Billing's stock by purchasers whose objective is to have such stock repurchased by Billing at a premium or intend to use such block to initiate a proxy contest, the classified board provision could tend to reduce the temporary 69 fluctuations in the market price of Billing's stock that could be caused by accumulations of large blocks of such stock. Accordingly, stockholders could be deprived of certain opportunities to sell their stock at a temporarily higher market price. Billing believes that a classified board of directors will help to assure the continuity and stability of Billing's Board and Billing's business strategies and policies as determined by the Billing Board, because generally a majority of the directors at any given time will have had prior experience as directors of Billing. The classified board provision also will help assure that the Billing Board, if confronted with an unsolicited proposal from a third party that has acquired a block of the voting stock of Billing, will have sufficient time to review the proposal and appropriate alternatives and to seek the best available result for all stockholders. REMOVAL; FILLING VACANCIES. Billing's Certificate provides that, subject to any rights of the holders of preferred stock, only a majority of the Board then in office shall have the authority to fill any vacancies of the Billing Board, including vacancies created by an increase in the number of directors. In addition, Billing's Certificate provides that a new director elected to fill a vacancy on the Billing Board will serve for the remainder of the full term of his or her class and that no decrease in the number of directors shall shorten the term of an incumbent. Moreover, Billing's Certificate provides that directors may be removed with or without cause only by the affirmative vote of holders of at least 66 2/3% of the voting power of the shares entitled to vote at the election of directors, voting together as a single class. These provisions relating to removal and filling of vacancies on the Billing Board will preclude stockholders from enlarging the Billing Board or removing incumbent directors and filling the vacancies with their own nominees. LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS. Billing's Certificate and Bylaws provide that stockholder action can be taken only at an annual or special meeting of stockholders and prohibit stockholder action by written consent in lieu of a meeting (except that Billing's name may be changed by written consent of the stockholders in lieu of a meeting). Billing's Certificate and Bylaws provide that, subject to the rights of holders of any series of preferred stock, special meetings of stockholders can be called only by a majority of the entire Billing Board. Stockholders are not permitted to call a special meeting or to require that Billing's Board call a special meeting of stockholders. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by or at the direction of the Billing Board. The provisions of Billing's Certificate and Bylaws restricting stockholder action by written consent may have the effect of delaying consideration of a stockholder proposal until the next annual meeting unless a special meeting is called by a majority of the entire Billing Board. These provisions also would prevent the holders of a majority of the voting power of the voting stock from using the written consent procedure to take stockholder action and from taking action by consent without giving all the stockholders of Billing entitled to vote on a proposed action the opportunity to participate in determining such proposed action. Moreover, a stockholder could not force stockholder consideration of a proposal over the opposition of the Billing Board by calling a special meeting of stockholders prior to the time the Billing Board believed such consideration to be appropriate. USLD and Billing believe that such limitations on stockholder action will help to assure the continuity and stability of the Billing Board and Billing's business strategies and policies as determined by the Billing Board, to the benefit of all of Billing's stockholders. These provisions increase the likelihood that the Billing Board, if confronted with an unsolicited proposal from stockholders, will have sufficient time to review such proposal and to seek the best available result for all stockholders, before such proposal is approved by such stockholders by written consent in lieu of a meeting or through a special meeting of stockholders. NOMINATION OF DIRECTORS AND STOCKHOLDER PROPOSALS. Billing's Bylaws establish an advance notice procedure with regard to the nomination other than by or at the direction of the Billing Board 70 of candidates for election as directors (the "Nomination Procedure") and with regard to stockholder proposals to be brought before an annual or special meeting of stockholders (the "Business Procedure"). The Nomination Procedure provides that only persons who are nominated by or at the direction of the Billing Board, or by a stockholder who has given timely prior written notice to the Secretary of Billing prior to the meeting at which directors are to be elected, will be eligible for election as directors. The Business Procedure provides that stockholder proposals must be submitted in writing in a timely manner in order to be considered at any annual or special meeting. To be timely, notice must be received by Billing (i) in the case of an annual meeting, not less than 90 days prior to the annual meeting for a director nomination, and not less than 120 days prior to the date established for release by Billing of proxy materials for the previous year's annual meeting whichever is earlier for a stockholder proposal or (ii) in the case of a special meeting not later than the seventh day following the day on which notice of such meeting is first given to stockholders for both a director nomination and a stockholder proposal. Under the Nomination Procedure, notice to Billing from a stockholder who proposes to nominate a person at a meeting for election as a director must contain certain information about that person, including business and residence addresses, a representation that the stockholder is a holder of record of stock of Billing entitled to vote at such meeting and intends to appear in person or by proxy to nominate the person, a description of all arrangements or understandings between the stockholder and each nominee and any other person pursuant to which the nomination is to be made, such other information regarding each nominee as would be required pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated by the Billing Board, the consent of such nominee to be nominated and such other information as would be required to be included in a proxy statement soliciting proxies for the election of the proposed nominee, and certain information about the stockholder proposing to nominate that person. Under the Business Procedures, notice relating to a stockholder proposal must contain certain information about such proposal and about the stockholder who proposes to bring the proposal before the meeting, including the class and number of shares of Billing Common Stock beneficially owned by such stockholder. If the Chairman or other officer presiding at a meeting determines that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director, or if he determines that the stockholder proposal was not properly brought before such meeting, such proposal will not be introduced at such meeting. Nothing in the Nomination Procedure or the Business Procedure will preclude discussion by any stockholder of any nomination or proposal properly made or brought before an annual or special meeting in accordance with the above-mentioned procedures. The purpose of the Nomination Procedure is, by requiring advance notice of nomination by stockholders, to afford the Billing Board a meaningful opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary and desirable by the Board, to inform stockholders about such qualifications. The purpose of the Business Procedure is, by requiring advance notice of stockholder proposals, to provide a more orderly procedure for conducting annual meetings of stockholders and, to the extent deemed necessary or desirable by the Billing Board, to provide the Billing Board with a meaningful opportunity to inform stockholders, prior to such meetings, of any proposal to be introduced at such meetings, together with any recommendation as to the Board's position or belief as to action to be taken with respect to such proposal, so as to enable stockholders better to determine whether they desire to attend such meeting or grant a proxy to Billing's Board as to the disposition of any such proposal. Although Billing's Bylaws do not give the Board any power to approve or disapprove stockholder nominations for the election of directors or of any other proposal submitted by stockholders, Billing's Bylaws may have the effect of precluding a nomination for the election of directors or precluding the conducting of business at a particular stockholder meeting if the proper procedures are not followed, and may discourage or deter a third 71 party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of Billing, even if the conduct of such solicitation or such attempt might be beneficial to Billing and its stockholders. The provisions of the Nomination Procedure and the Business Procedure will be subject to rules of the Commission with respect to stockholder proposals so long as the Billing Common Stock remains quoted on the Nasdaq National Market or is listed on a national securities exchange or is otherwise required to be registered under the Exchange Act. Any stockholder proposal that is submitted in compliance with such rules and is required by such rules to be set forth in the proxy statement of the Company will be so set forth despite the requirements of the Bylaws of the Company with respect to the timing and form of notice for such proposals. AMENDMENT OF BILLING'S CERTIFICATE AND BYLAWS. Billing's Certificate contains provisions requiring the affirmative vote of the holders of at least 66-2/3% of the voting power of the stock entitled to vote generally in the election of directors to amend certain provisions of Billing's Certificate and Bylaws (including the provisions discussed above). These provisions will make it more difficult for stockholders to make changes in Billing's Certificate or Bylaws, including changes designed to facilitate the exercise of control of Billing. In addition, the requirement for approval by at least a 66 2/3% stockholder vote will enable the holders of a minority of Billing's capital stock to prevent holders of less than 66 2/3% majority from amending such provisions of Billing's Certificate or Bylaws. STOCKHOLDER RIGHTS PLAN The Billing Board will adopt a stockholder rights plan and cause to be issued, with each share of Billing Common Stock issued to Billing's stockholders in the Distribution, one Right. The Rights will be governed by a rights agreement (the "Rights Agreement") to be entered into between Billing and U.S. Trust Company of Texas, N.A., as rights agent. The following is a summary of the anticipated terms of the Rights Agreement. Each Right entitles the registered holder thereof to purchase from Billing one ten-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), at a price (the "Purchase Price") of $ . As discussed below, initially the Rights will not be exercisable, certificates for the Rights will not be issued and the Rights will automatically trade with the Billing Common Stock. The Billing Common Stock will contain a legend incorporating the Rights Agreement by reference. The Rights Agreement provides that, until the Occurrence Date as defined below (or the earlier redemption or expiration of the Rights), the Rights will be represented by and transferred with, and only with, the Billing Common Stock. Until the Occurrence Date (or the earlier redemption or expiration of the Rights), the surrender for transfer of any of Billing's Common Stock certificates, with or without such legend, also will constitute the surrender for transfer of the Rights associated with the Billing Common Stock evidenced by such certificates. The Occurrence Date will be the earlier of (i) the tenth day following the public announcement that a person or group of affiliated or associated persons ("Acquiring Person") other than Billing, any subsidiary of Billing or any employee benefit plan or employee stock plan of Billing or of any subsidiary of Billing ("Exempt Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Billing Common Stock (the "Stock Acquisition Date") or (ii) the tenth business day following the commencement by any person (other than an Exempt Person) of, or the announcement of the intention to commence, a tender or exchange offer that would result in the ownership of 15% or more of the outstanding Billing Common Stock. As soon as practicable following the Occurrence Date, separate right Certificates will be mailed to holders of record of Billing Common Stock at the close of business on the Occurrence Date, and thereafter the Right Certificates alone will evidence the Rights and the Rights will be transferable separate and apart from the Billing Common Stock. The Rights are not exercisable until the Occurrence Date. The Rights will expire at the close of business on , 2006, unless redeemed or exchanged earlier as described below. 72 The Series A Preferred Stock will not be redeemable and, unless otherwise provided in connection with the creation of a subsequent series of preferred stock, will be subordinate to all other series of Billing's preferred stock. Each share of Series A Preferred Stock will represent the right to receive, when, as and if declared, a quarterly dividend at an annual rate equal to the greater of $1.00 per share or 10,000 times the quarterly per share cash dividends declared on Billing's Common Stock during the immediately preceding fiscal year. In addition, each share of Series A Preferred Stock will represent the right to receive 10,000 times any noncash dividends (other than dividends payable in Billing Common Stock) declared on the Billing Common Stock, in like kind. In the event of the liquidation, dissolution or winding up of Billing, each share of Series A Preferred Stock will represent the right to receive a liquidation payment in an amount equal to the greater of $1.00 per share or 10,000 times the liquidation payment made per share of Billing Common Stock. Each share of Series A Preferred Stock will have 10,000 votes, voting together with the Billing Common Stock. In the event of any merger, consolidation or other transaction in which common shares are exchanged, each share of Series A Preferred Stock will be entitled to receive 10,000 times the amount received per share of Billing Common Stock. The rights of the Series A Preferred Stock as to dividends, liquidation, voting rights and merger participation are protected by anti-dilution provisions. The Purchase Price payable and the number of shares of Series A Preferred Stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Series A Preferred Stock, (ii) upon the grant to holders of the Series A Preferred Stock of certain rights or warrants to subscribe for Series A Preferred Stock or convertible securities at less than the current market price of the Series A Preferred Stock or (iii) upon the distribution to holders of the Series A Preferred Stock of evidences of indebtedness or assets (excluding regular cash dividends and dividends payable in Series A Preferred Stock) or of subscription rights or warrants. If any Person (other than an Exempt Person) becomes the beneficial owner of 15% or more of the then outstanding shares of Billing Common Stock, each holder of a Right, other than the Acquiring Person, will have the right to receive, upon payment of the Purchase Price, in lieu of Series A Preferred Stock, a number of shares of Billing Common Stock having a market value equal to twice the Purchase Price. In the event that insufficient shares of Billing Common Stock are available for the exercise in full of the Rights, Billing shall, in lieu of issuing shares of Billing Common Stock upon exercise of Rights, to the extent permitted by applicable law and any material agreements then in effect to which Billing is a party, issue shares of Series A Preferred Stock, cash, property or other securities of Billing (which may be accompanied by a reduction in the Purchase Price), in proportions determined by Billing, so that the aggregate value of such cash, property or other securities received is equal to twice the Purchase Price. After the acquisition of shares of Billing Common Stock by an Acquiring Person as described in this paragraph, Rights that are (or, under certain circumstances, Rights that were) beneficially owned by an Acquiring Person will be void. The Board of Directors may, at its option, at any time after a person becomes an Acquiring Person, authorize Billing to exchange all or part of the then outstanding and exercisable Rights for shares of Billing Common Stock or Series A Preferred Stock at an exchange ratio of one share of Billing Common Stock for one ten-thousandth of a share of Series A Preferred Stock per Right, provided that the Board of Directors may not effect such exchange after the time that any Person (other than an Exempt Person) becomes the beneficial owner of 50% or more of the Billing Common Stock then outstanding. In the event that insufficient shares of Billing Common Stock are available for such exchange, the Board of Directors may substitute, in lieu thereof, shares of Series A Preferred Stock or equivalent preferred stock of equal value. Unless the Rights are earlier redeemed, if, after the Stock Acquisition Date, Billing is acquired in a merger or other business combination (in which any shares of the Billing Common Stock are changed into or exchanged for other securities or assets) or more than 50% of the assets or earning power of Billing and its subsidiaries (taken as a whole) is sold or transferred in one or more transactions, other than a transfer to a lender (or an assignee of a lender) of Billing pursuant to material 73 agreements then in effect to which Billing is a party, the Rights Agreement provides that proper provision shall be made so that each holder of record of a Right will from and after that time have the right to receive, upon payment of the Purchase Price, that number of shares of common stock of the acquiring company which has a current market price at the time of such transaction equal to twice the Purchase Price. Interests in fractions of shares of Series A Preferred Stock may, at the election of Billing, be evidenced by depository receipts. Billing also may issue cash in lieu of fractional shares of Series A Preferred Stock that are not integral multiples of one ten-thousandth of a share. At any time until a person becomes an Acquiring Person, the Board of Directors may cause Billing to redeem the Rights in whole, but not in part, at a price of $.001 per Right, subject to adjustment. Immediately upon the effective time of the redemption authorized by the Board of Directors, the right to exercise the Rights will terminate, and the holders of the Rights will be entitled to receive only the redemption price without any interest thereon. As long as the Rights are redeemable, Billing may, except with respect to the redemption price or the number of shares of Series A Preferred Stock for which a Right is exercisable, amend the Rights in any manner. At any time when the Rights are not redeemable, Billing may amend the Rights in any manner that does not adversely affect the interests of holders of the Rights as such. Until a Right is exercised, the holder, as such, will have no rights as a stockholder of Billing, including without limitation the right to vote or to receive dividends. BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS Section 203 of the DGCL prohibits transactions between a Delaware corporation and an "interested stockholder," which is defined therein as a person who, together with any affiliates and/or associates of such person, beneficially owns, directly or directly, 15% or more of the outstanding voting stock of a Delaware corporation. This provision prohibits certain business combinations (defined broadly to include mergers, consolidations, sales or other dispositions of assets having an aggregate value in excess of 10% of the consolidated assets of the corporation, and certain transactions that would increase the interested stockholder's proportionate stock ownership in the corporation) between an interested stockholder and a corporation for a period of three years after the date the interested stockholder acquired its stock unless (i) the business combination is approved by the corporation's board of directors prior to the date the interested stockholder acquired stock, (ii) the interested stockholder acquired at least 85% of the voting stock of the corporation in the transaction in which it becomes an interested stockholder, or (iii) the business combination is approved by a majority of the board of directors and by the affirmative vote of 66 2/3% of the votes entitled to be cast by disinterested stockholders at an annual or special meeting. Billing has not opted out of being governed by the above described provisions of Delaware law. Consequently, business combinations between Billing and an interested stockholder would be subject to its provisions. LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS Articles XI and XV of the Billing Certificate and Article VIII of the Billing Bylaws (the "Director Liability and Indemnification Provisions") limit the personal liability of Billing's directors to Billing or its stockholders for monetary damages for breach of fiduciary duty. The Director Liability and Indemnification Provisions define and clarify the rights of certain individuals, including Billing's directors and officers, to indemnification by Billing in the event of personal liability or expenses incurred by them as a result of certain litigation against them. Such provisions are consistent with Section 102(b)(7) of the DGCL, which is designed, among other things, to encourage qualified individuals to serve as directors of Delaware corporations by permitting 74 Delaware corporations to include in their certificates of incorporation a provision limiting or eliminating directors' liability for monetary damages and with other existing DGCL provisions permitting indemnification of certain individuals, including directors and officers. The limitations of liability in the Directors Liability and Indemnification Provisions may not affect claims arising under the federal securities laws. In performing their duties, directors of a Delaware corporation are obligated as fiduciaries to exercise their business judgment and act in what they reasonably determine in good faith, after appropriate consideration, to be the best interests of the corporation and its stockholders. Decisions made on that basis are protected by the "business judgment rule." The business judgment rule is designed to protect directors from personal liability to the corporation or its stockholders when business decisions are subsequently challenged. However, the expense of defending lawsuits, the frequency with which unwarranted litigation is brought against directors and the inevitable uncertainties with respect to the outcome of applying the business judgment rule to particular facts and circumstances mean that, as a practical matter, directors and officers of a corporation rely on indemnity from, and insurance procured by, the corporation they serve as a financial backstop in the event of such expenses or unforeseen liability. The Delaware legislature has recognized that adequate insurance and indemnity provisions are often a condition of an individual's willingness to serve as director of a Delaware corporation. The DGCL has for some time specifically permitted corporations to provide indemnity and procure insurance for its directors and officers. The Director Liability and Indemnification Provisions will be approved, along with the rest of the Billing Certificate and the Billing Bylaws, by USLD, as sole stockholder of Billing prior to the Distribution Date. Set forth below is a description of the Director Liability and Indemnification Provisions. Such description is intended as a summary only and is qualified in its entirety by reference to the Billing Certificate and the Billing Bylaws. ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. Article XV of the Billing Certificate of Incorporation ("Article XV") eliminates the personal liability of Billing's directors to Billing or its stockholders for monetary damages for breach of fiduciary duty. Directors remain liable for (i) any breach of the duty of loyalty to Billing or its stockholders, (ii) any act or omission not in good faith or which involves intentional misconduct or a knowing violation of law, (iii) any violation of Section 174 of the DGCL, which proscribes the payment of dividends and stock purchases or redemptions under certain circumstances, and (iv) any transaction from which a director is derived an improper personal benefit. Article XV further provides that future repeal or amendment of its terms will not adversely affect any rights of directors existing thereunder with respect to acts or omissions occurring prior to such repeal or amendment. Article XV also incorporates any future amendments to Delaware law which further eliminate or limit the liability of directors. INDEMNIFICATION AND INSURANCE. Under Section 145 of the DGCL, directors and officers as well as other employees and individuals may be indemnified against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation -- a "derivative action"), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of Billing, and with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. A similar standard of care is applicable in the case of derivative actions, except that indemnification extends only to expenses (including attorneys' fees) incurred in connection with defense or settlement of such an action and the DGCL requires court approval before there can be any indemnification where the person making indemnification has been found liable to Billing. Article VIII of the Billing Bylaws provides that Billing shall indemnify any person to whom, and to the extent, indemnification may be granted pursuant to Section 145 of the DGCL. 75 Article XI of the Billing Certificate provides that each person who was or is made a party to, or is involved in any action, suit or proceeding by reason of the fact that he is or was a director, officer or employee of Billing will be indemnified by Billing against all expenses and liabilities, including attorneys' fees, reasonably incurred by or imposed upon him, except in such case where the director, officer or employee is adjudged guilty of willful misfeasance or malfeasance in the performance of his duties. Article XI also provides that the right of indemnification shall be in addition to and not exclusive of all other rights, to which such director, officer or employee may be entitled. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors and officers and controlling persons pursuant to the foregoing provisions, Billing has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. INDEPENDENT ACCOUNTANTS The Board of Directors of Billing will select before the end of fiscal 1996 an independent accounting firm to audit Billing's financial statements for the year ending September 30, 1996. Arthur Andersen LLP has served as independent accountants of USLD through the periods covered by the financial statements included in this Information Statement. ADDITIONAL INFORMATION Billing has filed with the Commission a Registration Statement on Form 10 under the Exchange Act with respect to the Billing Common Stock being received by USLD stockholders in the Distribution. This Information Statement does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, to which reference is hereby made. Statements made in this Information Statement as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto filed by Billing with the Commission may be inspected at the public reference facilities of the Commission listed below. USLD is and Billing will be subject to the reporting requirements of the Exchange Act, and in accordance therewith, USLD files and Billing will file periodic reports, proxy statements and other information relating to its business, financial and other matters. Such reports, proxy statements and other information filed by Billing can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048, and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission, Washington, D.C. 20549, at prescribed rates. ------------------------ Billing intends to furnish holders of Billing Common Stock with annual reports containing consolidated financial statements audited by an independent public accounting firm and quarterly reports for the first three quarters of each fiscal year containing unaudited financial statements. 76 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE --------- Report of Independent Public Accountants................................................................... F-2 Consolidated Balance Sheets at September 30, 1994 and September 30, 1995................................... F-3 Consolidated Statements of Income for the Years Ended September 30, 1993, September 30, 1994 and September 30, 1995.................................................................................................. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1993, September 30, 1994 and September 30, 1995.................................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 1993, September 30, 1994 and September 30, 1995........................................................................................ F-6 Notes to Consolidated Financial Statements................................................................. F-7 Condensed Consolidated Balance Sheet at September 30, 1995 and March 31, 1996 (unaudited).................. F-17 Condensed Consolidated Statements of Income for the Six Months Ended March 31, 1995 and March 31, 1996 (unaudited)............................................................................................... F-18 Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 1995 and March 31, 1996 (unaudited)............................................................................................... F-19 Notes to Interim Condensed Consolidated Financial Statements (unaudited)................................... F-20
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholder of Billing Information Concepts Corp.: We have audited the accompanying consolidated balance sheets of Billing Information Concepts Corp. (a Delaware corporation) and subsidiaries as of September 30, 1994 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, 1995. 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 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 Billing Information Concepts Corp. and subsidiaries as of September 30, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1995, 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. ARTHUR ANDERSEN LLP San Antonio, Texas May 13, 1996 F-2 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, ---------------------- 1994 1995 --------- ----------- Current assets: Cash and cash equivalents.............................................................. $ 20,742 $ 26,770 Accounts receivable.................................................................... 12,668 18,113 Purchased receivables.................................................................. 53,347 55,228 Prepaids and other..................................................................... 74 624 --------- ----------- Total current assets............................................................... 86,831 100,735 Property and equipment................................................................... 3,281 5,563 Less accumulated depreciation and amortization......................................... (1,788) (2,334) --------- ----------- Net property and equipment......................................................... 1,493 3,229 Equipment held under capital leases, net of accumulated amortization of $108 (1994) and $305 (1995)............................................................................. 504 1,556 Other assets, net of accumulated amortization of $1,806 (1994) and $2,105 (1995)......... 882 1,375 --------- ----------- Total assets....................................................................... $ 89,710 $ 106,895 --------- ----------- --------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade................................................................................ $ 7,748 $ 12,604 Billing customers.................................................................... 36,995 34,756 Accrued liabilities.................................................................... 5,463 12,362 Revolving line of credit for purchased receivables..................................... 25,235 23,030 Current portion of long-term debt...................................................... 124 285 Current portion of obligations under capital leases.................................... 134 398 --------- ----------- Total current liabilities.......................................................... 75,699 83,435 Long-term debt, less current portion..................................................... 440 1,048 Obligations under capital leases, less current portion................................... 413 1,168 Other liabilities........................................................................ 56 21 --------- ----------- Total liabilities.................................................................. 76,608 85,672 Commitments and contingencies (See Note 8) Stockholders' equity: Preferred shares, $10.00 par value, 10,000 shares authorized, 10,000 shares issued and outstanding........................................................................... 100 100 Common shares, no par value, 102,000 shares authorized, 102,000 shares issued and outstanding........................................................................... 1 1 U.S. Long Distance Corp.'s investment in and advances to Billing......................... 13,001 21,122 --------- ----------- Total stockholders' equity......................................................... 13,102 21,223 --------- ----------- Total liabilities and stockholders' equity......................................... $ 89,710 $ 106,895 --------- ----------- --------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-3 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1994 1995 --------- --------- --------- Operating revenues............................................................. $ 46,451 $ 57,746 $ 80,847 Cost of services............................................................... 29,993 37,588 51,337 --------- --------- --------- Gross profit................................................................... 16,458 20,158 29,510 Selling, general and administrative expenses................................... 5,883 7,421 9,272 Advance funding program income................................................. (3,299) (3,467) (4,384) Advance funding program expense................................................ 2,581 1,858 1,351 Depreciation and amortization expense.......................................... 877 954 1,216 --------- --------- --------- Income from operations......................................................... 10,416 13,392 22,055 Other income (expense): Interest income.............................................................. 179 346 1,081 Interest expense............................................................. (466) (103) (188) Other, net................................................................... 59 (32) (169) --------- --------- --------- Total other income (expense)............................................... (228) 211 724 --------- --------- --------- Income before provision for income taxes....................................... 10,188 13,603 22,779 Provision for income taxes..................................................... (3,747) (5,038) (8,661) --------- --------- --------- Net income..................................................................... $ 6,441 $ 8,565 $ 14,118 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-4 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995 (IN THOUSANDS)
U.S. LONG DISTANCE CORP.'S COMMON STOCK PREFERRED STOCK INVESTMENT IN ------------------------ ------------------------ AND ADVANCES TO SHARES AMOUNT SHARES AMOUNT BILLING ----------- ----------- ----------- ----------- --------------- Balances at September 30, 1992............................. 102 $ 1 10 $ 100 $ 4,480 Transfers to affiliates.................................. 0 0 0 0 (5,990) Net income............................................... 0 0 0 0 6,441 --- ----- --- ----- --------------- Balances at September 30, 1993............................. 102 1 10 100 4,931 Transfers to affiliates.................................. 0 0 0 0 (495) Net income............................................... 0 0 0 0 8,565 --- ----- --- ----- --------------- Balances at September 30, 1994............................. 102 1 10 100 13,001 Transfers to affiliates.................................. 0 0 0 0 (5,997) Net income............................................... 0 0 0 0 14,118 --- ----- --- ----- --------------- Balances at September 30, 1995............................. 102 $ 1 10 $ 100 $ 21,122 --- ----- --- ----- --------------- --- ----- --- ----- ---------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, -------------------------------- 1993 1994 1995 --------- ---------- --------- Cash flows from operating activities: Net income.................................................................. $ 6,441 $ 8,565 $ 14,118 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................. 877 954 1,216 Deferred compensation..................................................... 33 24 18 Changes in current assets and liabilities: Increase in accounts receivable......................................... (1,857) (4,437) (5,445) (Increase) decrease in prepaids and other............................... (203) 129 (550) Increase in trade accounts payable...................................... 2,580 2,321 4,856 Increase in accrued liabilities......................................... 1,101 1,963 6,899 Increase (decrease) in other liabilities................................ 0 56 (35) --------- ---------- --------- Net cash provided by operating activities..................................... 8,972 9,575 21,077 Cash flows from investing activities: Purchases of property and equipment......................................... (557) (684) (1,922) Payments for purchased receivables, net..................................... (6,384) (6,078) (1,881) Collections of proceeds due (payments made) to customers, net............... 2,203 13,046 (2,239) Other investing activities.................................................. (37) (573) (792) --------- ---------- --------- Net cash provided by (used in) investing activities........................... (4,775) 5,711 (6,834) Cash flows from financing activities: Draws (payments) on revolving line of credit for purchased receivables, net........................................................................ 4,637 (10,826) (2,205) Proceeds from issuance of debt.............................................. 197 365 917 Payments on debt............................................................ (13) (44) (148) Payments on capital leases.................................................. (329) (227) (230) Transfers to affiliates..................................................... (5,894) (1,007) (6,549) --------- ---------- --------- Net cash used in financing activities......................................... (1,402) (11,739) (8,215) --------- ---------- --------- Net increase in cash and cash equivalents..................................... 2,795 3,547 6,028 Cash and cash equivalents, beginning of year.................................. 14,400 17,195 20,742 --------- ---------- --------- Cash and cash equivalents, end of year........................................ $ 17,195 $ 20,742 $ 26,770 --------- ---------- --------- --------- ---------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-6 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1993, 1994 AND 1995 NOTE 1. BUSINESS ACTIVITY Billing Information Concepts Corp., a Delaware corporation, is a wholly owned subsidiary of U.S. Long Distance Corp. ("USLD") that will, upon the effectiveness of the Distribution, be an independent, publicly held company that will own and operate all of the assets of, and will be responsible for all of the liabilities associated with, the commercial billing clearinghouse and information management services business currently owned by USLD. This business is currently conducted primarily through USLD's subsidiaries Zero Plus Dialing, Inc. ("ZPDI") and Enhanced Services Billing, Inc. ("ESBI"). Prior to the Distribution, these subsidiaries will be merged with U.S. Billing Management Corp. ("USBMC") and U.S. Billing, Inc. ("USBI"), which will become wholly owned subsidiaries of Billing (collectively referred to as "Billing" or the "Company"). NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Billing and USLD's subsidiaries ZPDI, USBI, ESBI and Mega-Plus Dialing, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. BASIS OF PRESENTATION On May 13, 1996, the Board of Directors of USLD approved a plan to distribute all of the Common Stock of Billing, pro rata to the stockholders of USLD (the "Distribution") with the result being that Billing would be an independent, publicly held company that would own and operate all of the assets of, and will be responsible for all of the liabilities associated with, the billing clearinghouse and information management services business currently owned by USLD. The accompanying financial statements include the operations of Billing which, until the date of Distribution, will be combined with and reported as part of the consolidated financial statements of USLD. The assets and liabilities of Billing are reflected at the historical book values included in the USLD consolidated financial statements. Immediately prior to the Distribution, Billing will cancel all of USLD's intercompany debt owed to Billing. In recognition of this, the balance of the intercompany receivable from USLD has been combined with and included in the balance sheet caption entitled "U.S. Long Distance Corp.'s investment in and advances to Billing." All stockholder equity account balances, except for the par value of Billing common stock, have also been reported as "U.S. Long Distance Corp.'s investment in and advances to Billing." Certain assets and liabilities and selling, general and administrative expenses of USLD were historically accounted for on a consolidated basis with no allocation to individual subsidiaries. The historical statements of Billing have been adjusted to include all of the assets, liabilities and expenses that appropriately and fairly could have been allocated to Billing except for the following items: (a) Cash -- Cash has historically been 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. There is no reasonable means by which to allocate cash to the historical financial statements of USLD's subsidiaries. (b) Income taxes -- USLD's federal income taxes have historically been determined on a consolidated basis. For purposes of preparing the Billing historical consolidated financial statements, income taxes have been determined on a separate company basis. Deferred taxes have been recorded on Billing's consolidated financial statements, as appropriate. Accrued income taxes payable are reflected in the balance sheet caption "U.S. Long Distance Corp.'s investment F-7 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) in and advances to Billing" as such amounts payable would have been payable to USLD. Tax liabilities are reflected in a manner consistent with the Tax Sharing Agreement between USLD and Billing. For purposes of preparing Billing's consolidated financial statements, certain amounts that have previously been classified as revenue, costs of service, selling, general and administrative expenses, and other income (expense) have been reclassified. Certain intercompany transactions that had been eliminated in consolidation are properly reflected in the historical consolidated financial statements of Billing at amounts that are believed by management to reflect an arm's length relationship. REVENUE RECOGNITION POLICIES The Company recognizes revenue from its billing services upon transmission of billable records to the local telephone companies, which records are to be billed and collected by the Company. BILLING SERVICES The Company provides billing services to operator services providers and direct dial long distance companies through billing agreements with the local telephone companies, which maintain the critical database of end-user names and addresses of the billed parties. Bills are generated by the local telephone companies and the collected funds are remitted to the Company, which in turn remits these funds, net of fees, to its billing customers. The Company records a trade accounts receivable and revenue for fees charged for its billing services. When the customer's receivables are collected by the Company from the local telephone companies, the Company's trade receivables are reduced by the amount corresponding to the Company's processing fees and the remaining funds are recorded as an accounts payable to billing customers. The Company offers participation in an advance funding program to qualifying customers through its Advance Payment Agreement. Under the terms of this agreement, the Company purchases the customer's accounts receivable for an amount equal to the face amount of the billing records submitted to the local telephone companies by the Company for billing and collection less: - all local telephone company charges, rejects, unbillables and bad debt deductions; - all credits and adjustments granted to end-users; - all of the Company's processing fees and sales taxes, if appropriate; - all financing service charges assessed by the Company; and - any and all losses, costs or expenses incurred by the Company in processing or collecting the customer accounts from all previously billed records. The purchase price is remitted by the Company to its customers in two payments. Within five days from receiving a customer's records, an initial payment is made to the customer based on a percentage of the face amount of the customer's call records submitted by the Company to the local telephone companies. The Company pays the remaining balance of the purchase price to the customer upon collection of funds from the local telephone companies. The purchase date is the date the initial payment is made. In connection with its purchase of billing records, the Company, generally, draws down on its revolving credit facility for purchased receivables. Any accounts receivable purchased by the Company are recorded as purchased receivables from billing customers in an amount equal to the face amount of the billing records submitted to the local telephone companies by the Company for billing and collection. Concurrently, an equal amount is recorded as accounts payable to billing customers. The amount of the initial payment made to the F-8 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) customer reduces accounts payable to billing customers. The balance, reported as accounts payable to billing customers ($36,995,000 and $34,756,000 at September 30, 1994 and 1995, respectively), consists of: - an amount equal to the face value of all purchased receivables, reduced for any amounts paid as initial payments under Advanced Payment Agreements, and - an amount equal to collections from local telephone companies that have not yet been remitted to customers. The purchased receivables balance is relieved at the time the customer receivables are collected from the local telephone companies. Any differences between the amount initially recorded as a purchased receivable and the amount ultimately collected from the local telephone companies, resulting from the fees and deductions detailed above, are recorded as a reduction of both the purchased receivable and accounts payable to billing customers in an equal amount. The funds are remitted to the customer after the Company deducts finance service charges earned under the Advance Payment Agreement. Finance service charges are assessed to customers and are computed at a rate above the prime interest rate based on the amounts funded to customers. Finance service charges are recorded as advance funding program income during the period from the date of initial payment until the Company recoups the full amount of the initial payment from receipts from local telephone companies. No other revenues or income are recorded in connection with the Advance Payment Agreement. The following receivables purchased and financed by the Company were outstanding at:
SEPTEMBER 30, -------------------- 1994 1995 --------- --------- (IN THOUSANDS) Purchased receivables from billing customers................................... $ 53,347 $ 55,228 Purchase money borrowings under revolving credit facility for purchased receivables................................................................... 25,235 23,030
The Company has virtually no collection risk related to its purchased accounts receivable and thus does not record an allowance for doubtful accounts related to such receivables. While the Company does not have the legal right of recourse against its billing customers with respect to purchased receivables, the Company does have the right of offset against all funds held for the account of such customers and may hold a first lien security interest in such billing customers' accounts, generally including those not acquired by the Company. The Company does, however, have some risk with regard to adjustments charged to it by the local telephone companies related to customers who are no longer serviced by the Company to the extent that these adjustments exceed funds withheld from such customers. Therefore, the Company has recorded an accrual for the estimated liability associated with such charges. 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 seven 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 (expense) for that period. Expenditures for maintenance and repairs are charged to expense as incurred and major improvements are capitalized. F-9 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) OTHER ASSETS Other assets include costs incurred to acquire billing agreements with local telephone companies for billing and collection services and other agreements. These costs are being amortized over five to seven-year periods. Other assets also include financing costs related to the issuance of debt, which have been deferred and are amortized over the life of each respective financing agreement. In addition, a certificate of deposit held as security for an equipment financing facility and long-term deposits have been included in other assets. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents are valued at their carrying amounts, which are reasonable estimates of fair value. The fair value of all other financial instruments approximates cost as stated. INCOME TAXES In February 1992, the Financial Accounting Standards Board 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 Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes." Billing and USLD will enter into a Tax Sharing Agreement that defines the parties' respective rights and obligations with respect to deficiencies and refunds of federal, state and other income or franchise taxes relating to Billing's business for tax years prior to the Distribution and with respect to certain tax attributes of Billing after the Distribution. In general, with respect to periods ending on or before the last day of the year in which the Distribution occurs, USLD is responsible for (i) filing both consolidated federal tax returns for the USLD affiliated group and combined or consolidated state tax returns for any group that includes a member of the USLD affiliated group, including in each case Billing and its subsidiaries for the relevant periods of time that such companies were members of the applicable group and (ii) paying the taxes related to such returns (including any subsequent adjustments resulting from the redetermination of such tax liabilities by the applicable taxing authorities). Billing will reimburse USLD for a portion of such taxes and the cost of preparation of the associated tax returns related to the Billing affiliated group. Billing is responsible for filing returns and paying taxes related to the Billing affiliated group for subsequent periods. Billing and USLD have agreed to cooperate with each other and to share information in preparing such tax returns and in dealing with other tax matters. NEW ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which provides for a fair-value-based method of accounting for stock-based compensation plans with employees and others. The Company will not adopt the recognition and measurement provisions of SFAS No. 123, but will continue to account for stock-based compensation plans in accordance with APB Opinion 25. However, the Company will be required to comply with the disclosure requirements of SFAS No. 123 beginning in fiscal 1997. F-10 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STATEMENTS OF CASH FLOWS Cash payments and non-cash activities during the periods indicated were as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1994 1995 --------- --------- --------- (IN THOUSANDS) Cash payments for interest............................................... $ 2,789 $ 1,847 $ 1,564 Cash payments for income taxes........................................... 3,677 4,954 8,859 Non-cash investing and financing activities: Capital lease obligations incurred..................................... 229 327 1,249 Tax benefit recognized in connection with stock option exercises....... 99 93 94
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. NOTE 3. DEBT Long-term debt is comprised of the following:
SEPTEMBER 30, -------------------- 1994 1995 --------- --------- (IN THOUSANDS) Revolving line of credit for purchased receivables, with a company, 9.25% at September 30, 1995 (prime rate (8.75%) plus .5%), due in varying amounts through December 1996................................................................... $ 25,235 $ 23,030 Fixed interest rate term notes................................................... 564 1,333 --------- --------- Total debt....................................................................... 25,799 24,363 Less -- Current portion.......................................................... 25,359 23,315 --------- --------- $ 440 $ 1,048 --------- --------- --------- ---------
The Company has a $45 million revolving line of credit with a company to finance the purchase of certain eligible accounts receivable. This line of credit matures December 31, 1996. Any amounts borrowed to purchase receivables under this revolving credit facility are due upon the Company's collection of the related receivables. At September 30, 1995, the Company had approximately $22.0 million available for borrowing under this facility. Any borrowings under this facility 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. Performance under the revolving credit facility has been guaranteed by the Company. The Company has various fixed rate notes with rates ranging from 6.75% to 11%, due in varying amounts through October 2000. The proceeds from the issuance of these notes were used to acquire certain computer equipment and office furniture. The loans are guaranteed by the Company and are secured by the assets acquired with the proceeds of such notes. The credit facilities discussed above contain various restrictions and financial ratio maintenance requirements. Under the most restrictive terms 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 at least 1.5 to 1.0 and is prohibited from paying dividends on its common stock. The Company also may be subject to certain limitations on its annual capital expenditures and on the issuance of additional secured debt, but can issue subordinated unsecured debt provided the ratio of total consolidated debt to total capitalization does not exceed 85%. Further, the Company is required F-11 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. DEBT (CONTINUED) to maintain a ratio of funded debt, as defined in the applicable loan agreement, to total capitalization not greater than 60%. 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, the Company has guaranteed the obligations of its subsidiaries. The Company was in compliance with all required covenants at September 30, 1994 and 1995. Historically, the Company has obtained financing for capital expenditures through term debt agreements that were guaranteed and cross-collateralized by USLD. These debt agreements were negotiated based on the strength of the consolidated financial statements, earnings and cash flow of the USLD consolidated group. Most of these debt agreements were secured by the assets of all the subsidiaries within the consolidated group. The Company expects to receive from certain lenders loan agreement amendments or separate loan agreements whereby the indebtedness will be secured by only the Company's or USLD's assets. In other cases, the Company expects to obtain waivers from its lenders, provided that the cross guarantees and existing security arrangements remain in place for the duration of the facility. In other cases, Billing and USLD intend to payoff existing indebtedness releasing applicable guarantees and security arrangements. Scheduled maturities for the years ending September 30, 1996 through 2000 are as follows:
(IN THOUSANDS) -------------- Year Ending September 30, 1996.................................................................................. $ 23,315 1997.................................................................................. 307 1998.................................................................................. 296 1999.................................................................................. 258 2000.................................................................................. 184 Thereafter............................................................................ 3 -------------- $ 24,363 -------------- --------------
NOTE 4. LEASES The Company leases equipment and office space under operating leases. Rental expense for fiscal 1993, 1994 and 1995 was $284,000, $304,000, and $555,000, respectively. Future minimum lease payments under non-cancelable leases at September 30, 1995 are shown below. These amounts do not include any future payments relating to office space for the Company's administrative support functions as the Company currently has not executed any agreements to lease such space.
(IN THOUSANDS) --------------- Year Ending September 30, 1996.................................................................................. $ 367 1997.................................................................................. 388 1998.................................................................................. 169 ----- Total minimum lease payments........................................................ $ 924 ----- -----
F-12 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. LEASES (CONTINUED) The Company also leases various computer 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, 1995, are as follows:
(IN THOUSANDS) -------------- Year Ending September 30, 1996.................................................................................. $ 524 1997.................................................................................. 533 1998.................................................................................. 498 1999.................................................................................. 308 ------- Total minimum lease payments.......................................................... 1,863 Less: Amount representing interest.................................................... (297) ------- Present value of net minimum lease payments........................................... $ 1,566 ------- -------
NOTE 5. SHARE CAPITAL Billing has, historically, operated as a wholly-owned subsidiary of USLD and, consequently, had no publicly owned common shares. NOTE 6. INCOME TAXES The provision for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1994 1995 --------- --------- --------- (IN THOUSANDS) Current.................................................................. $ 3,777 $ 5,034 $ 8,927 Deferred................................................................. (30) 4 (266) --------- --------- --------- $ 3,747 $ 5,038 $ 8,661 --------- --------- --------- --------- --------- ---------
The provision for income taxes for fiscal 1993, 1994 and 1995 differs from the amount computed by applying the statutory federal income tax rate of 34% for fiscal 1993 and 1994, and 35% for fiscal 1995 to income before taxes. The reasons for these differences were as follows:
YEAR ENDED SEPTEMBER 30, ------------------------------- 1993 1994 1995 --------- --------- --------- (IN THOUSANDS) Computed income tax provision at statutory rate.......................... $ 3,464 $ 4,625 $ 7,973 Increases (reductions) in taxes resulting from: State income taxes..................................................... 370 558 970 Amortization of asset valuations in excess of tax...................... 77 51 (97) Other, net............................................................. (164) (196) (185) --------- --------- --------- Provision for income taxes............................................... $ 3,747 $ 5,038 $ 8,661 --------- --------- --------- --------- --------- ---------
F-13 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. INCOME TAXES (CONTINUED) The tax effect of significant temporary differences, which comprise the deferred tax assets and liabilities, are as follows:
SEPTEMBER 30, -------------------- 1994 1995 --------- --------- (IN THOUSANDS) Deferred tax assets: Expense provisions.................................................................. $ 118 $ 530 Deferred tax liabilities: Tax depreciation and amortization in excess of book................................. (61) (325) Prepaid expenses.................................................................... (86) (21) Other............................................................................... (3) 0 --------- --------- Total gross deferred tax liabilities.................................................. (150) (346) --------- --------- Net deferred tax asset (liability).................................................... $ (32) $ 184 --------- --------- --------- ---------
The Company has been notified by the Internal Revenue Service ("IRS") that a fiscal 1992 transaction between a wholly owned foreign subsidiary of USLD (Mega Plus Dialing, Inc.) and the Company is proposed to be treated differently by the IRS than originally characterized by the Company. The Company understands that the IRS will issue a report that will propose an assessment of income tax and related excise taxes, interest and penalties. The Company and its tax counsel disagree with the IRS's position, and, therefore, no accrual for this potential liability or any associated taxes, interest or penalties has been made. NOTE 7. BENEFIT PLANS Employees and directors of the Company are eligible to participate in certain compensation and benefit plans provided by USLD. Participation in the U.S. Long Distance Corp. 401(k) Retirement Plan ("Retirement Plan") is offered to eligible employees of the Company. Generally, all employees of the Company who are 21 years of age or older and who have completed one year of service during which they worked at least 1,000 hours were eligible for participation in the Retirement Plan. The Retirement Plan is a defined contribution plan which provides that participants generally may make voluntary salary deferral contributions, on a pretax basis, of between 2% and 15% of their compensation in the form of voluntary payroll deductions up to a maximum amount as indexed for cost-of-living adjustments. The Company makes matching contributions as a percentage determined annually of the first 6% of a participant's compensation contributed as salary deferral. The Company may make additional discretionary contributions. During fiscal 1994, a discretionary contribution in the amount of $8,000 was made. No discretionary contributions were made in fiscal 1993 or 1995. During fiscal 1993, 1994 and 1995, the Company's contributions totaled approximately $14,000, $31,000 and $27,000, respectively. Participation in the U.S. Long Distance Corp. Executive Compensation Deferral Plan ("Executive Plan") is offered to selected employees occupying management positions who are determined by USLD's board of directors from time to time to be eligible to participate in the Executive Plan. Participation in the U.S. Long Distance Corp. Director Compensation Deferral Plan ("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 could make voluntary salary deferral 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 based on a formula established by the plan. Matching contributions under the Director Plan were 33% of the participant's contributions. The Company has F-14 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. BENEFIT PLANS (CONTINUED) the right to make matching contributions of a different amount or no contributions under both plans. During fiscal 1994 and 1995, the Company contributed $7,000 and $12,000 to the Executive Plan, respectively. Additionally, the U.S. Long Distance Corp. Executive Qualified Disability Plan ("Disability Plan") is provided to certain employees occupying management positions. The Disability Plan provides long-term disability benefits 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 applicable 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, is offered to eligible employees of the Company. The ESPP enables employees who have completed at least six months of continuous service with the Company to purchase shares of USLD's common stock at a 15% discount through voluntary payroll deductions. NOTE 8. COMMITMENTS AND CONTINGENCIES 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 will 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 certain local telephone companies a total of approximately $4,355,000 during fiscal 1996 for minimum usage charges under billing and collection agreements. The Company anticipates exceeding the minimum usage volumes with these vendors. The Distribution plan provides the Company will only assume liabilities and obligations for claims and litigation that arose from the ordinary course of the Company's business. The Company will not assume any liabilities arising prior to the date of Distribution that relate to the direct dial long distance and operator service businesses of USLD. NOTE 9. RELATED PARTIES The Company provides billing and information management services for USLD and purchases long distance and 800 services from USLD. Transactions under the agreements for these services have been reflected in the accompanying consolidated financial statements at market prices. Transactions between the Company and USLD are summarized as follows:
1993 1994 1995 --------- --------- --------- (IN THOUSANDS) Sales to USLD............................................................ $ 4,485 $ 5,308 $ 5,322 Purchases from USLD...................................................... 610 916 1,729
In addition, the Company's accounts receivable balance at September 30, 1994 and 1995 includes $1,053,000 and $1,127,000, respectively, related to billing services performed for USLD. F-15 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
THREE MONTHS ENDED --------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1994 1995 1995 1995 ------------ ----------- --------- ------------- (IN THOUSANDS) Revenues.......................................... $ 17,010 $ 17,932 $ 21,367 $ 24,538 Income from operations............................ 4,529 4,873 6,109 6,544 Net income........................................ 2,911 3,102 3,921 4,184
THREE MONTHS ENDED --------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1993 1994 1994 1994 ------------ ----------- --------- ------------- (IN THOUSANDS) Revenues.......................................... $ 11,842 $ 13,342 $ 15,622 $ 16,940 Income from operations............................ 1,537 2,983 3,990 4,882 Net income........................................ 1,022 1,846 2,547 3,150
F-16 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, 1995 ------------- MARCH 31, 1996 ----------- (UNAUDITED) Current assets: Cash and cash equivalents........................................................... $ 26,770 $ 32,582 Accounts receivable................................................................. 18,113 20,368 Purchased receivables............................................................... 55,228 62,381 Prepaids and other.................................................................. 624 731 ------------- ----------- Total current assets............................................................ 100,735 116,062 Property and equipment................................................................ 5,563 6,826 Less accumulated depreciation and amortization...................................... (2,334) (2,747) ------------- ----------- Net property and equipment...................................................... 3,229 4,079 Equipment held under capital leases, net of accumulated amortization of $305 (1995) and $492 (1996)...................................................................... 1,556 1,369 Other Assets: Other assets, net of accumulated amortization of $2,105 (1995) and $2,272 (1996).... 1,375 785 ------------- ----------- Total assets.................................................................... $ 106,895 $ 122,295 ------------- ----------- ------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade............................................................................. $ 12,604 $ 10,922 Billing customers................................................................. 34,756 32,730 Accrued liabilities................................................................. 12,362 17,921 Revolving line of credit for purchased receivables.................................. 23,030 23,686 Current portion of long-term debt................................................... 285 298 Current portion of obligations under capital leases................................. 398 421 ------------- ----------- Total current liabilities....................................................... 83,435 85,978 Long-term debt, less current portion.................................................. 1,048 880 Obligations under capital leases, less current portion................................ 1,168 925 Other liabilities..................................................................... 21 56 ------------- ----------- Total liabilities............................................................... 85,672 87,839 Commitments and contingencies (See Note 3) Stockholders' equity: Preferred shares, $10.00 par value, 10,000 shares authorized, 10,000 shares issued and outstanding.................................................................... 100 100 Common shares, no par value, 102,000 shares authorized, 102,000 shares issued and outstanding........................................................................ 1 1 U.S. Long Distance Corp.'s investment in and advances to Billing...................... 21,122 34,355 ------------- ----------- Total stockholders' equity...................................................... 21,223 34,456 ------------- ----------- Total liabilities and stockholders' equity...................................... $ 106,895 $ 122,295 ------------- ----------- ------------- -----------
The accompanying notes are an integral part of these condensed consolidated financial statements. F-17 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, -------------------- 1995 1996 --------- --------- Operating revenues......................................................................... $ 34,942 $ 50,301 Cost of services........................................................................... 21,976 32,145 --------- --------- Gross profit............................................................................... 12,966 18,156 Selling, general and administrative expenses............................................... 4,319 5,356 Advance funding program income............................................................. (1,898) (2,968) Advance funding program expense............................................................ 624 598 Depreciation and amortization expense...................................................... 519 940 --------- --------- Income from operations..................................................................... 9,402 14,230 Other income (expense): Interest income.......................................................................... 441 486 Interest expense......................................................................... (72) (154) Other, net............................................................................... (68) (96) --------- --------- Total other income (expense)........................................................... 301 236 --------- --------- Income before provision for income taxes................................................... 9,703 14,466 Provision for income taxes................................................................. (3,690) (5,497) --------- --------- Net income................................................................................. $ 6,013 $ 8,969 --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. F-18 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, -------------------- 1995 1996 --------- --------- Cash flows from operating activities: Net income............................................................................. $ 6,013 $ 8,969 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................................................ 519 940 Deferred compensation................................................................ 9 7 Changes in current assets and liabilities: Decrease (increase) in accounts receivable......................................... 5,478 (2,255) Increase in prepaids and other..................................................... (135) (107) Decrease in trade accounts payable................................................. (163) (1,682) Increase (decrease) in accrued liabilities......................................... (632) 5,559 Increase (decrease) in other liabilities........................................... (26) 35 --------- --------- Net cash provided by operating activities................................................ 11,063 11,466 Cash flows from investing activities: Purchase of property and equipment..................................................... (398) (1,196) Payments for purchased receivables, net................................................ (1,118) (7,153) Payments made to customers, net........................................................ (6,949) (2,026) Other investing activities............................................................. (588) 424 --------- --------- Net cash used in investing activities.................................................... (9,053) (9,951) Cash flows from financing activities: Draws on revolving line of credit for purchased receivables, net....................... 1,083 656 Proceeds from issuance of debt......................................................... 182 0 Payments on long-term debt............................................................. (59) (155) Payments on capital leases............................................................. (78) (220) Transfers from (to) affiliates......................................................... (1,802) 4,016 --------- --------- Net cash provided by (used in) financing activities...................................... (674) 4,297 --------- --------- Net increase in cash and cash equivalents................................................ 1,336 5,812 Cash and cash equivalents, beginning of period........................................... 20,742 26,770 --------- --------- Cash and cash equivalents, end of period................................................. $ 22,078 $ 32,582 --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. F-19 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The interim condensed consolidated financial statements included herein have been prepared by Billing and subsidiaries (collectively referred to as the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). All adjustments have been made to the accompanying interim condensed consolidated financial statements which are, in the opinion of the Company's management, necessary for a fair presentation of the Company's operating results. All adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is recommended that these interim condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in this Information Statement for the year ended September 30, 1995. Certain prior period amounts have been reclassified for comparative purposes. NOTE 2. STATEMENT OF CASH FLOWS Cash payments and non-cash activities during the periods indicated were as follows:
SIX MONTHS ENDED MARCH 31, -------------------- 1995 1996 --------- --------- (IN THOUSANDS) Cash payments for income taxes............................................... $ 2,887 $ 4,999 Cash payments for interest................................................... 697 775
NOTE 3. COMMITMENTS AND CONTINGENCIES 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. NOTE 4. RELATED PARTY TRANSACTIONS The Company provides billing and information management services for USLD and purchases long distance and 800 services from USLD. Transactions under the agreements for these services have been reflected in the accompanying financial statements at market prices. Transactions between the Company and USLD are summarized as follows:
SIX MONTHS ENDED MARCH 31, -------------------- 1995 1996 --------- --------- (IN THOUSANDS) Sales to USLD............................................................ $ 2,476 $ 2,594 Purchases from USLD...................................................... 662 1,544
In addition, the Company's accounts receivable balance at September 30, 1995 and March 31, 1996 includes $1,127,000 and $885,000, respectively, related to billing services performed for USLD. NOTE 5. SUBSEQUENT EVENTS In connection with a plan of Distribution adopted by USLD's Board of Directors on May 13, 1996, USLD intends to distribute shares of the Company's common stock to the existing stockholders of USLD. At the Distribution Date, USLD stockholders on the record date for the Distribution will F-20 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SUBSEQUENT EVENTS (CONTINUED) receive one share of the Company's common stock for each share of USLD common stock held. If the Distribution had taken place on March 31, 1996, approximately 15.0 million shares of the Company's stock would have been issued to USLD stockholders. For purposes of governing certain ongoing relationships between the Company and USLD after the Distribution and to provide for an orderly transition, Billing and USLD will enter into certain agreements. Such proposed agreements include: (i) the Distribution Agreement, providing for, among other things, the Distribution and the division between the Company and USLD of certain assets and liabilities and material indemnification provisions; (ii) the Benefit 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 USLD will agree 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 USLD will provide certain services on a temporary basis and sublease certain office space to the Company and Billing will provide certain services to USLD on a temporary basis; (v) the Zero Plus -- Zero Minus Billing and Information Management Services Agreement pursuant to which the Company will provide billing clearinghouse and information management services to USLD for an initial period of three years; (vi) the Telecommunications Agreement pursuant to which USLD will provide long distance telecommunications services to the Company for an initial period of three years; and (vii) the Expense Sharing Agreement, whereby USLD and Billing agree to pay certain usage charges and share certain expenses relating to the operation of an airplane. It is the intention of USLD and Billing that the Transitional Services and Sublease Agreement, the Zero Plus -- Zero Minus Billing and Information Management Services Agreement, the Telecommunications Agreement and the Expense Sharing Agreement reflect terms and conditions similar to those that would have been arrived at by independent parties bargaining at arm's length. The Benefit Plans and Employment Matters Allocation Agreement ("Benefits Agreement") provides for the allocation of certain responsibilities with respect to employee compensation benefit and labor matters. The allocation of responsibility and adjustments to be made pursuant to the Benefits Agreement will be substantially consistent with the existing benefits provided to USLD employees under USLD's various compensation plans. Among other things, the Benefits Agreement will provide that, effective as of the Distribution Date, Billing will or will cause one or more of its subsidiaries to, assume or retain, as the case may be, all liabilities of USLD, to the extent unpaid as of the Distribution Date, under employee benefit plans, policies, arrangements, contracts and agreements, with respect to employees who, on or after the Distribution Date, will be employees of Billing or its subsidiaries. The Benefits Agreement will also provide that, effective as of the Distribution Date, USLD will, or will cause one or more of its subsidiaries to assume or retain, as the case may be, all liabilities of USLD, to the extent unpaid as of the Distribution Date, under employee benefit plans, policies, arrangements, contracts and agreements, with respect to employees who on or after the Distribution Date will be employees of USLD or its subsidiaries. In addition, Billing will assume, with respect to employees who, on or after the Distribution Date, will be employees of Billing or any of its subsidiaries, all responsibility for liabilities and obligations as of the Distribution Date for medical and dental plan coverage and for vacation and welfare plans. USLD will assume, with respect to the employees who, on or after the Distribution Date, will be employees of USLD or any of its subsidiaries, all responsibilities for all liabilities and obligations as of the Distribution Date for medical and dental plan coverage and for vacation and welfare plans. USLD currently provides additional compensation to its employees (including Billing employees) under one or more of the following employee benefit plans: USLD 401(k) Retirement Plan, the USLD F-21 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SUBSEQUENT EVENTS (CONTINUED) 1990 Employee Stock Option Plan, the 1993 Non-Employee Director Plan of USLD, the USLD Executive Compensation Deferral Plan, the USLD Director Compensation Deferral Plan, the USLD Executive Qualified Disability Plan, the USLD Employee Stock Option Purchase Plan and the USLD 1995 Employee Restricted Stock Plan. Pursuant to the Benefits Agreement, subject to certain conditions set forth in the Benefits Agreement in connection with the Distribution, USLD will adjust each existing USLD employee benefit plan and award outstanding thereunder in the manner described in "Benefit Plans and Employment Matters Allocation Agreement" in this Information Statement. Billing will adopt the 1996 Comprehensive Stock Plan and 1996 Non-Employee Director Plan under which officers and employees, and non-employee directors, respectively, of Billing and its affiliates will be eligible to receive stock option grants. Immediately prior to the Distribution, Billing intends to grant, under the Billing Comprehensive Stock Plan and Billing Director Plan, respectively, options to purchase Billing Common Stock to each holder of an outstanding option to purchase shares of USLD common stock under the USLD Employee Stock Option Plan and USLD Non-Employee Director Plan, respectively. The Billing options will be exercisable for Billing common stock on the basis of one share of Billing common stock for every one share of USLD common stock subject to the outstanding USLD options. Based on the number of USLD options outstanding on March 31, 1996, it is anticipated that Billing options to purchase a total of 1,686,000 shares of Billing common stock will be granted in connection with the grant to USLD option holders. In connection with the grant of the Billing options, the exercise price of the USLD options will be adjusted to preserve the economic value of the USLD options existing immediately prior to the Distribution after giving effect to the grant of the Billing options (see "Benefits Plans and Employment Matters Allocation Agreement" included elsewhere in this Information Statement). The Billing options will have vesting schedules mirroring the vesting schedules of the related USLD options. Each Billing option granted in connection with the Distribution and held by a USLD employee after the Distribution Date will terminate in accordance with the original USLD option grant. Each Billing option granted in connection with the Distribution and held by a Billing employee will terminate in accordance with the original USLD option grant. USLD, as sole stockholder of Billing, is expected to approve the adoption of the Billing 1996 Employee Comprehensive Stock Plan, the Billing 1996 Employee Stock Purchase Plan and the Billing 1996 Non-Employee Director Plan. F-22 ANNEX A The Board of Directors U.S. Long Distance Corp. 9311 San Pedro Avenue Suite 100 San Antonio, TX 78216 Gentlemen: We have acted as financial advisor to U.S. Long Distance Corp., a Delaware corporation ("USLD"), in connection with the proposed distribution (the "Distribution") to the holders of USLD common stock, par value $.01 per share (the "USLD Common Stock"), of 100% of the common stock, par value $.01 per share (the "Billing Common Stock") of Billing Information Concepts Corp., a Delaware corporation ("Billing"). Billing is a wholly owned subsidiary of USLD which, upon completion of the "Preliminary Transactions", as defined in the Information Statement, will own the billing clearinghouse and information management services businesses currently owned by USLD. We have been advised that the purposes of the Distribution are as set forth in the Information Statement proposed to be sent to stockholders of USLD, a copy of which has been furnished to us. The Distribution is described more fully in such Information Statement. You have requested our opinion as to whether the Distribution is in the best interests of the holders of USLD Common Stock from a financial point of view in comparison to other alternatives that would be available to USLD regarding Billing. We have assumed that the Distribution will not be a taxable transaction to USLD or to stockholders of USLD. We have not been asked to, and do not, express any opinion as to the valuation, future performance or long-term viability of Billing or USLD as an independent public company following the Distribution. This opinion does not opine on or give assurance of the prices at which the shares of USLD Common Stock or Billing Common Stock will actually trade after the Distribution. In connection with our review of the Distribution, and in arriving at our opinion, we have, among other things: (i) reviewed the publicly available consolidated financial statements of USLD for recent years and interim periods to date and certain other relevant financial and operating data of USLD made available to us from published sources and by officers of USLD; (ii) reviewed the financial statements of Billing contained in the Information Statement; (iii) reviewed certain internal financial and operating information, including certain projections, relating to USLD and Billing prepared by the managements of USLD and Billing, respectively; (iv) discussed the business, financial condition and prospects of USLD with certain officers of USLD; (v) discussed the business, financial condition and prospects of Billing with certain officers of USLD and Billing; (vi) reviewed the financial terms of the Distribution; (vii) reviewed the financial terms, to the extent publicly available, of certain transactions we deemed relevant; (viii) reviewed certain publicly available information relating to certain companies we deemed appropriate in analyzing USLD and Billing; (ix) reviewed the trading history of USLD Common Stock; A-1 (x) reviewed the Information Statement included in the Registration Statement on Form 10 for the Billing Common Stock filed with the Securities and Exchange Commission on May 14, 1996; (xi) reviewed the tax opinion of Arter & Hadden, Special Tax Counsel, that, among other things, the transaction will be tax-free to USLD and its stockholders; (xii) reviewed the solvency and sufficient surplus opinions provided by Houlihan, Lokey, Howard & Zukin; and (xiii) performed such other analyses and examinations and considered such other information, financial studies, analyses and investigations and financial, economic and market data as we deemed relevant. We have not independently verified any of the information concerning USLD or Billing considered in connection with our review of the Distribution and, for purposes of the opinion set forth herein, we have assumed and relied upon the accuracy and completeness of all such information. With respect to the financial forecasts and projections made available to us and used in our analysis, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of USLD and Billing as to the expected future financial performance of their respective companies. In our analysis we considered the financial aspects of certain alternatives available to USLD, including selling certain of USLD's subsidiaries to an unaffiliated purchaser, selling all or a portion of Billing to the public through an initial public offering, and maintaining Billing as a USLD subsidiary. Our opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this letter. Any change in such conditions would require a reevaluation of this opinion. The Chicago Corporation, as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, corporate restructurings, strategic alliances, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We have acted as financial advisor to the Board of Directors of USLD in connection with the Distribution and will receive a fee for our services, part of which is contingent upon the consummation of the Distribution. In the past, we have provided investment banking and other financial advisory services to USLD and have received fees for rendering these services. In the ordinary course of business, The Chicago Corporation acts as a market maker and broker in the USLD Common Stock and receives customary compensation in connection therewith. The Chicago Corporation expects to act as a market maker and broker in the Billing Common Stock following the Distribution. This letter and the opinion stated herein are solely for the use of USLD's Board of Directors and may not be reproduced, summarized, excerpted from or otherwise publicly referred to in any manner without our prior written consent. Based upon and subject to the foregoing and after considering such other matters as we deem relevant, we are of the opinion that as of the date hereof, in comparison to other alternatives that would be available to USLD regarding Billing, the Distribution is in the best interests of the holders of USLD Common Stock from a financial point of view. We hereby consent to the inclusion of the full extent of our opinion and a summary thereof in the Registration Statement on Form 10 for Billing and the Schedule 14C of USLD and to references to our name therein. Sincerely, THE CHICAGO CORPORATION A-2 ANNEX B May 13, 1996 To The Board of Directors U.S. Long Distance Corp. 9311 San Pedro, Suite 300 San Antonio, TX 78216 Dear Directors: We understand that U.S. Long Distance Corp. ("USLD") is considering a restructuring, including the distribution, on a tax-free basis, of the issued and outstanding shares of a to-be-formed wholly-owned subsidiary, Billing Information Concepts Corp. ("Billing") to holders of USLD's common stock (the "Distribution"). Billing will be a newly formed corporation which, upon completion of the Distribution, will be an independent, publicly held company that will own and operate substantially all of the assets of, and will assume substantially all of the liabilities associated with, USLD's billing clearinghouse and information management services business. This business is currently conducted through USLD's subsidiaries, Zero Plus Dialing, Inc., Enhanced Services Billing, Inc. and U.S. Billing, Inc. Prior to the Distribution, USLD will contribute the capital stock of U.S. Billing, Inc. and U.S. Billing Management Corp., another subsidiary of USLD, to Billing in exchange for the capital stock of Billing. Enhanced Services Billing, Inc. and Zero Plus Dialing, Inc. will be merged with U.S. Billing, Inc. and U.S. Billing Management Corp., respectively. Enhanced Services Billing, Inc. and Zero Plus Dialing, Inc. will be the surviving corporations in the mergers and will become wholly-owned subsidiaries of Billing. The Distribution and other related transactions disclosed to Houlihan Lokey are referred to collectively herein as the "Transaction." You have requested our written opinion (the "Opinion") as to the matters set forth below. This Opinion values each of USLD and Billing (each sometimes referred to hereinafter singularly as a "Company") as a going concern (including goodwill), on a pro forma basis, immediately after and giving effect to the Distribution. Nothing has come to our attention during the course of our investigation which would lead us to believe that each of USLD and Billing, after giving effect to the Distribution, is not a going concern. For purposes of this Opinion, "fair value" shall be defined as the amount at which the Company would change hands between a willing buyer and a willing seller, each having reasonable knowledge of the relevant facts, neither being under any compulsion to act, with equity to both; and "present fair saleable value" shall be defined as the amount that may be realized if the Company's aggregate assets (including goodwill) are sold as an entirety with reasonable promptness in an arm's length transaction under present conditions for the sale of comparable business enterprises, as such conditions can be reasonably evaluated by Houlihan Lokey. We have used the same valuation methodologies in determining fair value and present fair saleable value for purposes of rendering this Opinion. The term "identified contingent liabilities" shall mean the stated amount of contingent liabilities identified to us and valued by responsible officers of the Company, upon whom we have relied upon without independent verification; no other contingent liabilities will be considered. During the course of our investigation, nothing has come to our attention which would cause us to believe our reliance on such identified amounts and the value thereof to be unreasonable or that use of only such amounts was unreasonable. Being "able to pay its debts as they become absolute and mature or due" shall mean that, assuming the Transaction has been consummated as proposed, the Company's financial forecast for the period September 30, 1996 to 2000 indicate positive cash flow for such period. It is Houlihan Lokey's understanding, upon which it is relying, that USLD's Board of Directors and any other recipient of the Opinion will consult with and rely solely upon their own legal counsel with respect to said definitions. No representation is made herein, or directly or indirectly by the Opinion, as to any legal matter or as to the sufficiency of said definitions for any purpose other then setting forth the scope of Houlihan Lokey's Opinion hereunder. Notwithstanding the use of the defined terms "fair value" and "present fair saleable value," we have not been engaged to identify prospective purchasers or to ascertain the actual prices at which and terms on which either Company can currently be sold, and we know of no such efforts by others. Because the sale of any business enterprise involves numerous assumptions and uncertainties, not all B-1 of which can be quantified or ascertained prior to engaging in an actual selling effort, we express no opinion as to whether either Company would actually be sold for the amount we believe to be its respective fair value and present fair saleable value. In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have: 1. reviewed USLD's annual reports to shareholders and on Form 10-K for the five fiscal years ended September 30, 1995 and quarterly report on Form 10-Q for the quarter ended December 31, 1995, which USLD's management has identified as the most current information available; 2. reviewed Billing's proforma historical income statements for the three years ended September 30, 1995 and for the six months ended March 31, 1995 and March 31, 1996 and balance sheets as of December 31, 1995 and March 31, 1996; 3. reviewed USLD's proforma historical income statements for the three years ended September 30, 1995, and for the six months ended March 31, 1995 and March 31, 1996 and balance sheets as of December 31, 1995 and March 31, 1996; 4. review copies of the following agreements: a. Distribution Agreement and exhibits; b. Tax Sharing Agreement c. Transitional Services and Sublease Agreement; d. Zero Plus-Zero Minus Billing and Information Management Service Agreement; and e. Telecommunications Agreement. 5. reviewed drafts of USLD's Schedule 14C and Form 10 filings with the U.S. Securities and Exchange Commission, dated May 7, 1996; 6. met with certain members of the senior management of each Company to discuss the operations, financial condition, future prospects and projected operations and performance of the respective Company and to discuss certain other matters; 7. visited certain facilities and business offices of USLD; 8. reviewed forecasts and projections prepared by each Company's management with respect to the respective Company for the years ended September 30, 1996 through 2000; 9. reviewed the historical market prices and trading volume for USLD's publicly traded securities; 10. reviewed other publicly available financial data for each Company and certain companies that we deem comparable to each Company; 11. reviewed drafts of certain documents to be delivered at the closing of the Transaction, including, but not limited to, the reports of each Company's chief financial officer and of the respective Company's independent public accountants; and 12. conducted such other studies, analyses and investigations as we have deemed appropriate. We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of each Company, and that there has been no material adverse change in the assets, financial condition, business or prospects of either Company since the date of the most recent financial statements made available to us. Nothing has come to our attention during the course of our investigation which would lead us to believe that our acceptance and reliance upon such financial forecasts and projections was unreasonable. We have not independently verified the accuracy and completeness of the information supplied to us with respect to each Company and do not assume any responsibility with respect to it. Nothing has B-2 come to our attention during the course of our investigation which would lead us to believe that any information, when taken as a whole, reviewed by us or presented to us in connection with our rendering of the Opinion was unreasonable in any material respect or that is was unreasonable for us to utilize and rely upon the financial projections or forecasts, financial statements, assumptions, estimates, and judgments or statements, as the case may be, of the management of USLD and Billing and their outside counsel, accountants and financial advisors. We have not made any physical inspection or independent appraisal of any of the properties or assets of either Company. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter. Based upon the foregoing, and in reliance thereon, it is our opinion as of the date of this letter that: (i) with respect to USLD before the Distribution and with respect to each of USLD and Billing, assuming the Transaction had been consummated as proposed, immediately after and giving effect to the Distribution on a pro forma basis; (a) the fair value of the Company's aggregate assets would exceed the Company's total liabilities (including contingent liabilities); (b) the present fair saleable value for the Company's aggregate assets would be greater than the Company's probable liabilities on its debts (including contingent liabilities) as such debts become absolute and mature or due; (ii) with respect to each of USLD and Billing, assuming the Transaction had been consummated as proposed, immediately after and giving effect to the Distribution: (c) the Company would be able to pay its debts and other liabilities (including contingent liabilities) as they become absolute and mature or due; and (d) the capital remaining in the Company after the Distribution would not be unreasonably small for the business in which such company is engaged, as management has indicated it has now conducted and is proposed to be conducted following consummation of the Distribution, and (iii) the excess of the value of aggregate assets of USLD, before consummation of the Distribution, over the total identified liabilities (including contingent liabilities) of USLD would equal or exceed the value of the Distribution to USLD stockholders plus the stated capital of USLD. This Opinion is furnished solely for your benefit and may not be relied upon by any other person without our express, prior written consent. This Opinion is delivered to each recipient subject to the conditions, scope of engagement, limitations and understandings set forth in this Opinion and our engagement letter dated April 19, 1996, and subject to the understanding that the obligations of Houlihan Lokey in the Transaction are solely corporate obligations, and no officer, director, employee, agent, shareholder or controlling person of Houlihan Lokey shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates. We hereby ratify and confirm our consent to the inclusion of the full extent of our opinion and a summary thereof in the Registration Statement on Form 10 for Billing and the Schedule 14C of USLD and to references to our name therein which was given in our engagement letter dated April 19, 1996. HOULIHAN, LOKEY, HOWARD & ZUKIN, INC. B-3 ANNEX C AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BILLING INFORMATION CONCEPTS CORP. This document constitutes an amendment and restatement of the original Certificate of Incorporation of BILLING INFORMATION CONCEPTS CORP. which was filed with the Secretary of State of Delaware on April 26, 1996. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Section 245(c) of the Delaware General Corporation Law and shall become effective at midnight on , 1996. ARTICLE I. NAME The name of the corporation (the "corporation") is BILLING INFORMATION CONCEPTS CORP. ARTICLE II. ADDRESS OF REGISTERED OFFICE, NAME OF REGISTERED AGENT The address, including street, number, city and county, of the registered office of the corporation in the State of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle 19801; and the name of the registered agent of the corporation in the State of Delaware at such address is RL&F Service Corp. ARTICLE III. PURPOSE AND POWERS The purpose of the corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the Delaware General Corporation Law. It shall have all powers that may now or hereafter be lawful for a corporation to exercise under the Delaware General Corporation Law. ARTICLE IV. CAPITAL STOCK 4.1 TOTAL NUMBER OF SHARES OF STOCK. The total number of shares of all classes of stock which the corporation shall have authority to issue is seventy million (70,000,000). Of such shares, (i) sixty million (60,000,000) shall be common stock, par value $0.01 per share ("Common Stock"), and (ii) ten million (10,000,000) shall be preferred stock, par value $0.01 per share ("Preferred Stock"). 4.2 PREFERRED STOCK. 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; C-1 (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; and (h) any other relative rights, preferences and limitations of that series. 4.3 DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. There is hereby established from among the Preferred Stock authorized above Series A Junior Participating Preferred Stock ("Series A Preferred Stock"). The designation and number of shares, and the relative rights, preferences and limitations of the Series A Preferred Stock is as follows: (a) DESIGNATION AND AMOUNT. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 5,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the corporation convertible into Series A Preferred Stock. (b) DIVIDENDS AND DISTRIBUTIONS. (i) Subject to the rights of the holders of any shares of any other series of Preferred Stock (or any similar stock) of the corporation, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock of the corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, cumulative preferential dividends, payable in cash on the first day of January, April, July and October in each year (each such date, a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, at a rate per annum (rounded to the nearest cent) equal to the greater of (a) $1.00 per share, or (b) subject to the provision for adjustment hereinafter set forth, 10,000 times the aggregate per share amount of all cash dividends, and 10,000 times the aggregate per share amount (payable in kind) of all noncash dividends or other distributions (other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise)), declared on the Common Stock during the immediately preceding fiscal year. In the event the corporation shall at any time after , 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of C-2 Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. (c) VOTING RIGHTS. The holders of shares of Series A Preferred Stock shall have the following voting rights: (i) Each share of Series A Preferred Stock shall entitle the holder thereof to 10,000 votes on all matters submitted to a vote of the stockholders of the corporation. In the event the corporation shall at any time after , 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the number of votes to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Except as otherwise provided herein, in any other Certificate of Designation, Preferences and Rights in respect of a series of preferred stock (or any similar stock) of the corporation, in the Amended and Restated Certificate of Incorporation of the corporation, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the corporation. (iii) Except as set forth herein, in the Amended and Restated Certificate of Incorporation of the corporation or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (d) CERTAIN RESTRICTIONS. (i) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 4.3(b) are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the corporation shall not: C-3 (1) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (2) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (3) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the corporation ranking junior (both as to dividends and upon liquidation, dissolution or winding up) to the Series A Preferred Stock; or (4) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (ii) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of stock of the corporation unless the corporation could, under paragraph (e) of this Section 4.3, purchase or otherwise acquire such shares at such time and in such manner. (e) REACQUIRED SHARES. Any shares of Series A Preferred Stock redeemed, purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock without designation as to series and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Certificate of Incorporation, or in any other Certificate of Designation, Preferences and Rights in respect of a series of preferred stock (or any similar stock) of the corporation, or as otherwise required by law. (f) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the corporation, no distribution shall be made to (1) the holders of shares of Common Stock or any other stock ranking junior to the Series A Preferred Stock upon liquidation, distribution or winding up, unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment; provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity with the Series A Preferred Stock upon liquidation, dissolution or winding up, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the corporation shall at any time after , 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of C-4 Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (g) CONSOLIDATION, MERGER, ETC. In the event the corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or converted or changed into other stock or securities, cash and/or any other property, then in any such event proper provision shall be made so that each share of Series A Preferred Stock shall at the same time be similarly exchanged for or converted or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 10,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, for which or into which each share of Common Stock is exchanged for or converted or changed. In the event the corporation shall at any time after , 1996 declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) or combination or consolidation of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such event the amount set forth in the preceding sentence with respect to the exchange or conversion or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (h) NO REDEMPTION. Shares of the Series A Preferred Stock shall not be redeemable. (i) AMENDMENT. This Section 4.3 shall not be amended in any manner that would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. 4.4 COMMON STOCK. The shares of Common Stock of the corporation shall be identical in all respects and shall have equal rights and privileges. The holders of Common Stock shall have one vote per share of Common Stock on all matters on which holders of Common Stock are entitled to vote. 4.5 NO PREEMPTIVE RIGHTS. No holder of stock of any class of the corporation, whether now or hereafter authorized or issued, shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any securities convertible into stock of any class, or any character or to which are attached or with which are issued warrants or rights to purchase any such stock, whether now or hereafter authorized, issued or sold, or whether issued for money, property or services, or by way of dividend or otherwise, or any right or subscription to any thereof, other than such, if any, as the board of directors in its direction may from time to time fix, pursuant to authority hereby conferred upon it; and any shares of stock or convertible obligations with warrants or rights to purchase any such stock, which the board of directors may determine to offer for subscription, may be sold without being first offered to any of the holders of the stock of the corporation of any class or classes or may, as such board of directors shall determine, be offered to holders of any class or classes of stock exclusively or to the holders of all classes of stock, and if offered to more than one class of stock, in such proportions as between such classes of stock as the board of directors, in its discretion, may determine. C-5 ARTICLE V. PLACE OF BOOKS AND RECORDS; STOCKHOLDER INSPECTION RIGHTS 5.1 PLACE OF BOOKS AND RECORDS. The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the corporation outside the State of Delaware, at such places as may be from time to time designated by the Bylaws or by resolution of the stockholders or directors. 5.2 STOCKHOLDER INSPECTION RIGHTS. The Bylaws shall determine whether and to what extent the accounts and books of this corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right of inspecting any account, book, or document of this corporation, except as conferred by law or the Bylaws, or by resolution of the stockholders or directors. ARTICLE VI. EXISTENCE The corporation is to have perpetual existence. ARTICLE VII. LIMITED LIABILITY OF SHAREHOLDERS The private property of the stockholders shall not be subject to the payment of the corporate debts to any extent whatsoever. ARTICLE VIII. BOARD OF DIRECTORS 8.1 NUMBER OF DIRECTORS. Except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the corporation shall be fixed from time to time by or pursuant to the Bylaws of the corporation. 8.2 CLASSIFIED BOARD OF DIRECTORS. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the Bylaws of the corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and another class to be originally elected for a term expiring at the annual meeting of stockholders in 1999, with each class to hold office until its successor is elected and qualified. At each annual meeting of the stockholders of the corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. 8.3 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in the Bylaws of the corporation. 8.4 INCREASE IN NUMBER OF DIRECTORS; VACANCIES. Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in C-6 the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any directors elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. 8.5 REMOVAL OF DIRECTORS. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, with or without cause and only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class. 8.6 AMENDMENT OF ARTICLE VIII. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent voting (66 2/3%) of the voting power of all the shares of the corporation generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provisions inconsistent with or repeal this Article VIII. 8.7 WRITTEN BALLOTS. Election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE IX. COMPROMISE Whenever a compromise or arrangement is proposed between this corporation or its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of the Delaware General Corporation Law, order a meeting of the creditors or class of creditors, and/or the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing seventy five percent (75%) in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agrees to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. ARTICLE X. TRANSACTIONS WITH OFFICERS AND DIRECTORS The corporation may enter into contracts or transact business with one or more of its officers or directors, or with any firms of which one or more of its directors is a member, or may invest its funds in the securities of and may enter into contracts, or transact business with any corporation or association in which any one or more of its officers or directors is a stockholder, officer or director, and in the absence of bad faith, or unfair dealing, such contract or transaction or investment shall not be invalidated or to any extent affected by the fact that any such officer or officers or any such director or directors has or may have interests that are or might be adverse to the interests of the corporation, provided that the remaining directors are sufficient in number to ratify and approve the transaction. C-7 ARTICLE XI. INDEMNIFICATION Every director, officer or employee of the corporation shall be indemnified by the corporation against all expenses and liabilities, including counsel fees, reasonably incurred by or imposed upon him in connection with any proceeding to which he may be made a party, or in which he may become involved, by reason of his being or having been a director, officer or employee of the corporation, or any settlement thereof, whether or not he is a director, officer or employee at the time such expenses are incurred or liability incurred, except in such cases where the director, officer or employee is adjudged guilty of willful misfeasance or malfeasance in the performance of his duties; provided that in the event of a settlement the indemnification herein shall apply only when the board of directors approves such settlement and reimbursement as being for the best interests of the corporation. The foregoing right of indemnification shall be in addition to and not exclusive of all other rights to which such director, officer or employee may be entitled. ARTICLE XII. REQUIRED VOTE FOR CERTAIN TRANSACTIONS The affirmative vote of the holders of shares representing not less than sixty-six and two-thirds percent (66 2/3%) of the voting power of the corporation shall be required for the approval of any proposal for the corporation to reorganize, merge, or consolidate with any other corporation, or sell, lease, or exchange substantially all of its assets or business. The amendment, alteration or repeal of this Article XII, or any portion hereof, shall require the approval of the holders of shares representing at least sixty-six and two-thirds percent (66 2/3%) of the voting power of the corporation. ARTICLE XIII. LIMITATION ON STOCKHOLDER ACTION BY WRITTEN CONSENT Notwithstanding the provisions of Article XII, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, except that an amendment to this Certificate of Incorporation in order to change the name of the corporation may be approved without a meeting, by consent in writing of the holders of the outstanding stock of the corporation having not less than the minimum number of votes that would be necessary to approve such amendment at a meeting at which all shares entitled to vote thereon were present and voted pursuant to the provisions of Section 228 of the Delaware General Corporation Law. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the corporation may be called only by the board of directors pursuant to a resolution approved by a majority of the entire board of directors. Notwithstanding anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent entitled to vote (66 2/3%) of the voting power of all the shares of the generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provision inconsistent with or repeal this Article XIII. ARTICLE XIV. AMENDMENTS 14.1 CERTIFICATE OF INCORPORATION. This corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter set forth herein or, in the absence of specific provision herein, in the manner prescribed in the statutes of the State of Delaware, and all rights conferred on officers, directors and stockholders herein are granted subject to this reservation. C-8 14.2 AMENDMENT OF BYLAWS. The board of directors shall have power to make, alter, amend and repeal the Bylaws of the corporation (except insofar as the Bylaws of the corporation adopted by the stockholders shall otherwise provide). Any Bylaws made by the directors under the powers conferred hereby may be altered, amended or repealed by the directors or by the stockholders. Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend or adopt any provision inconsistent with or repeal this Article XIV. ARTICLE XV. LIMITATION ON LIABILITY OF DIRECTORS No person shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended hereafter to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any amendment, repeal or modification of this Article XV shall not adversely affect any right or protection of a director of the corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. ARTICLE XVI. SEVERABILITY In the event that any of the provisions of this Amended and Restated Certificate of Incorporation (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the full extent permitted by law. THE UNDERSIGNED, being the Chairman of the Board of Directors of the corporation, for the purpose of amending and restating the Certificate of Incorporation of the corporation pursuant to the Delaware General Corporation Law, does make this Certificate, hereby declaring and certifying that this is the act and deed of the corporation and that the facts herein stated are true, and accordingly have hereunto set my hand as of this day of , 1996. -------------------------------------- Parris H. Holmes, Jr., Chairman ATTEST: -------------------------------------- , Secretary C-9 ANNEX D - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (A DELAWARE CORPORATION) - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (A DELAWARE CORPORATION) ------------------------ ARTICLE I. OFFICES 1.1 The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. 1.2 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. STOCKHOLDER MEETINGS 2.1 The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the Corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. 2.2 All meetings of the stockholders for the election of directors shall be held at such place 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 meetings or in a duly executed waiver of notice thereof. 2.3 Annual meetings may be called by the directors or by any officer instructed by the directors to call the meeting. Special meetings may be called only as provided by Section 10.1 of Article X of these Bylaws. 2.4 Written notice of all meetings shall be given, stating the place, date and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the Corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business that may properly come before the meeting, and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the Delaware General Corporation Law. Except as otherwise provided by the Delaware General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address that he may have furnished by request in writing to the Secretary of the Corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be D-1 given to any stockholder who submits a written waiver signed by him or her before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. 2.5 Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.6 The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, 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 days prior to the meeting, either at a place within the city or other municipality or community 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote at any meeting of stockholders. 2.7 Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairperson of the Board, if any, the Vice-Chairperson of the Board, if any, the Chief Executive Officer, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairperson to be chosen by the stockholders. The Secretary of the Corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the chairperson of the meeting shall appoint a secretary of the meeting. 2.8 Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it means that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. 2.9 The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to D-2 conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him, her or them and execute a certificate of any fact so found. 2.10 The holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. 2.11 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 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 of such question. ARTICLE III. DIRECTORS 3.1 The business of the Corporation shall be managed by 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 by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. The use of the phrase "whole board of directors" herein refers to the total number of directors that the Corporation would have if there were no vacancies. 3.2 A director need not be stockholder, a citizen of the United States, or a resident of the State of Delaware. Except as otherwise fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the number of the directors of the Corporation shall be fixed from time to time by the board of directors, but shall not be less than three. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the board of directors of the Corporation, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1998, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1999, with each class to hold office until its successors is elected and qualified. At each annual meeting of the stockholders of the Corporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Advance notice of stockholder nominations for the election of directors shall be given in the manner provided in Section 3.13 of this Article III of these Bylaws. 3.3 Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of the Certificate of Incorporation relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the board of directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors. Any directors elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been duly elected and qualified. No decrease in the number of directors D-3 constituting the board of directors shall shorten the term of any incumbent director. Subject to the rights of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect directors under specified circumstances, any director may be removed from office, with or without cause, only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. 3.4 The board of directors shall choose from among the directors a Chairperson of the Board and a Vice-Chairperson of the Board. Unless otherwise provided in the resolution choosing him or her, the Chairperson of the Board and the Vice-Chairperson of the Board shall be chosen for a term that shall continue until the meeting of the board of directors following the next annual meeting of stockholders and until his or her successor shall have been chosen and qualified. THE CHAIRPERSON OF THE BOARD 3.5 The Chairperson of the Board shall preside at all meetings of stockholders and directors. THE VICE-CHAIRPERSON OF THE BOARD 3.6 The Vice-Chairperson of the Board shall preside at meetings of stockholders and directors if the Chairperson of the Board is absent or unable to serve as chairperson at any such meeting. MEETINGS OF DIRECTORS 3.7 Meetings shall be held at such time as the board of directors shall fix, except that the first meeting of a newly elected board of directors shall be held as soon after its election as the directors may conveniently assemble. 3.8 Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the board of directors. 3.9 No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairperson of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of the Secretary on the written request of any two directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegraph not less than twenty-four (24) hours notice before the date of the meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. 3.10 No notice shall be required for regular meetings for which the time and place have been fixed. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any notice or written waiver of notice. 3.11 A majority of the whole board of directors shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one third of the whole board of directors. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as otherwise specifically provided herein or in the Certificate of Incorporation, and except as otherwise provided by the Delaware General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act D-4 of the board of directors. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the Delaware General Corporation Law or these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the board of directors or action of disinterested directors. Any member or members of the board of directors, or of any committee designated by the board of directors, may participate in a meeting of the board of directors, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 3.12 The Chairperson of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairperson of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the board of directors, shall preside. COMMITTEES 3.13 Any action required or permitted to be taken at any meeting of the board of directors or 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. 3.14 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 of directors 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 the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she 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 the powers and authority of the board of directors in the management of the business and affairs of the Corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the Delaware General Corporation Law, and may authorize the seal of the Corporation to be affixed to all papers that may require it. COMPENSATION 3.15 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 and/ or a stated salary or other compensation 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. NOMINATION 3.16 Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of directors may be made by the board of directors or a proxy committee appointed by the board of directors or by any stockholder entitled to vote in the election of directors. However, any stockholder entitled to vote in the election of directors at a meeting may nominate a director only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety days in advance of the date established by the Bylaws for the holding of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the D-5 seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at each meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or person (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated or intended to be nominated, by the board of directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairperson of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. STOCKHOLDER PROPOSAL 3.17 Any stockholder entitled to vote in the election of directors and who/which meets the requirements of the proxy rules under the Securities Exchange Act of 1934, as amended, may submit to the directors proposals to be considered for submission to the stockholders of the Corporation for their vote. The introduction of any stockholder proposal that the directors decide should be voted on by the stockholders of the Corporation shall be made by notice in writing delivered or mailed by first-class United States mail, postage prepaid, to the Secretary of the Corporation, and received by the Secretary not less than (i) with respect to any proposal to be introduced at an annual meeting of stockholders, one hundred and twenty days in advance of the date of the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting, and (ii) with respect to any proposal to be introduced at a special meeting of stockholders, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the proposal and the text of the proposal to be introduced; (b) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such notice; and (c) a representation that the stockholder intends to appear in person or by proxy at the meeting to introduce the proposal or proposals, specified in the notice. The Chairperson of the meeting may refuse to acknowledge the introduction of any stockholder proposal not made in compliance with the foregoing procedure. ARTICLE IV. NOTICES 4.1 Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, 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. 4.2 Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. D-6 ARTICLE V. OFFICERS 5.1 The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the board of directors, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the board of directors choosing them shall designate. Any number of offices may be held by the same person, as the directors may determine. 5.2 Unless otherwise provided in the resolution choosing him or her, each officer shall be chosen for a term that shall continue until the meeting of the board of directors following the next annual meeting of stockholders and until his or her successor shall have been chosen and qualified. 5.3 All officers of the Corporation shall have such authority and perform such duties in the management and operation of the Corporation as shall be prescribed in the resolutions of the board of directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the Corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors and committees of directors, and shall exercise such additional authority and perform such additional duties as the board of directors shall assign to him or her. Any officer may be removed, with or without cause, by the board of directors. Any vacancy in any office may be filled by the board of directors. CHIEF EXECUTIVE OFFICER 5.4 The Chief Executive Officer shall be the head of the Corporation and shall have general and active supervision of the business of the Corporation and shall see that all orders and resolutions of the board of directors are carried into effect and shall be responsible to the board of directors for the execution of such duties and powers. The Chief Executive Officer shall, in the absence or inability to act of the Chairperson of the Board and Vice-Chairperson of the Board, assume and carry out all responsibilities set forth with respect to such Chairperson of the Board and Vice-Chairperson of the Board. THE PRESIDENT 5.5 The President shall be the chief operating officer of the Corporation. The President shall, in the absence or inability to act of the Chief Executive Officer, assume and carry out all responsibilities set forth with respect to such Chief Executive Officer. 5.6 The Chief Executive Officer or the President shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the Corporation. THE VICE PRESIDENTS 5.7 Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, and Assistant Vice Presidents shall have duties and powers as the board of directors may designate. THE SECRETARY AND ASSISTANT SECRETARIES 5.8 The Secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing D-7 committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or President, under whose supervision the Secretary shall be. The Secretary shall have custody of the corporate seal of the Corporation and the Secretary, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant. The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. 5.9 The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the board of directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other person as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURER 5.10 The Treasurer shall have the custody of the corporate funds and securities and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. 5.11 The Treasurer shall have the authority to invest the normal funds of the Corporation in the purchase and acquisition and to sell and otherwise dispose of these investments upon such terms as the Treasurer may deem desirable and advantageous, and shall, upon request, render to the President and the directors an accounting of all such normal investment transactions. 5.12 The Treasurer shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the President and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. 5.13 If required by the board of directors, the Treasurer shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the Corporation. 5.14 The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the board of directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.15 The controller shall keep the Corporation's accounting records and shall prepare accounting reports of the operating results as required by the board of directors and governmental authorities. The controller shall establish systems of internal control and accounting procedures for the protection of the Corporation's assets and funds. ARTICLE VI. CERTIFICATES OF STOCK 6.1 Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation by, the Chief Executive Officer, or the President or a Vice-President, and by the Secretary or an Assistant Secretary, or by the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of shares owned by him in the Corporation. All certificates shall also be signed by a transfer agent and by a registrar. D-8 6.2 All signatures that appear on the certificate may be facsimile including, without limitation, signatures of officers of the Corporation or the signatures of the stock transfer agent or registrar. 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 such person were such officer, transfer agent or registrar at the date of issue. 6.3 If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the 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 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, however, that except as otherwise provided in Section 202 of the Delaware General Corporation Law, 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 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. LOST CERTIFICATES 6.4 The board of directors may direct a new certificate or certificates 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, 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 legal 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. TRANSFERS OF STOCK 6.5 Transfers of stock shall be made on the books of the Corporation only by direction of the person named in the certificate or such person's attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby, which certificate shall be cancelled before the new certificate is issued. FIXING RECORD DATE 6.6 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, in advance, a record date, which shall not be less than ten days before the date of such meeting, nor more than sixty days prior to any other action. 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. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record D-9 date for determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by the Delaware General Corporation 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 by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by the Delaware General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days nor less than ten days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. REGISTERED STOCKHOLDERS 6.7 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 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 notice thereof, except as otherwise provided by the laws of the State of Delaware. MEANING OF CERTAIN TERMS 6.8 As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term "share" or "shares" or "share of stock" or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the Corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the Certificate of Incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the Delaware General Corporation Law confers such rights notwithstanding that the Certificate of Incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the Certificate of Incorporation, except as any provision of law may otherwise require. D-10 ARTICLE VII. GENERAL PROVISIONS DIVIDENDS 7.1 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. 7.2 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 7.3 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 7.4 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. CORPORATE SEAL 7.5 The corporate seal shall be in such form as the board of directors shall prescribe. FISCAL YEAR 7.6 The fiscal year of the Corporation shall end on September 30. ARTICLE VIII. INDEMNIFICATION OF OFFICERS AND DIRECTORS 8.1 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner that such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. D-11 8.2 The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. 8.3 To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 8.1 and 8.2 of this Article VIII, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. For purposes of determining the reasonableness of any such expenses, a certification to such effect by any member of the Bar of the State of Delaware, which member of the Bar may have acted as counsel to any such director, officer or employee, shall be binding upon the Corporation unless the Corporation establishes that the certification was made in bad faith. 8.4 Any indemnification under Sections 8.1 and 8.2 of this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because any such person has met the applicable standard of conduct set forth in Sections 8.1 and 8.2 of this Article VIII. Such determination shall be made (1) by the board of directors, by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. 8.5 Expenses (including attorneys' fees) incurred by an officer, director, employee or agent of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director, officer, employee or agent to repay such amount if it shall ultimately be determined that any such person is not entitled to be indemnified by the Corporation as authorized by this Article VIII. 8.6 The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VIII shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. 8.7 The Corporation may but shall not be required to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under this Article VIII. 8.8 For purposes of this Article VIII, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) D-12 absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. 8.9 For purposes of this Article VIII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries, and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VIII. 8.10 The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 8.11 This Article VIII shall be interpreted and construed to accord, as a matter of right, to any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, the full measure of indemnification and advancement of expenses permitted by Section 145 of the Delaware General Corporation Law. 8.12 Any person seeking indemnification or advancement of expenses by virtue of such person being or having been a director, officer, employee or agent of the Corporation may seek to enforce the provisions of this Article VIII by an action in law or equity in any court of the United States or any state or political subdivision thereof having jurisdiction of the parties. Without limitation of the foregoing, it is specifically recognized that remedies available at law may not be adequate if the effect thereof is to impose delay on the immediate realization by any such person of the rights conferred by this Article VIII. Any costs incurred by any person in enforcing the provisions of this Article VIII shall be an indemnifiable expense in the same manner and to the same extent as other indemnifiable expenses under this Article VIII. 8.13 No amendment, modification or repeal of this Article VIII shall have the effect of or be construed to limit or adversely affect any claim to indemnification or advancement of expenses made by any person who is or was a director, officer, employee or agent of the Corporation with respect to any statement of facts that existed prior to the date of such amendment, modification or repeal. Accordingly, any amendment, modification or repeal of this Article VIII shall be deemed to have prospective application only and shall not be applied retroactively. ARTICLE IX. BYLAW AMENDMENTS 9.1 Subject to the provisions of the Certificate of Incorporation, these Bylaws may be altered, amended or repealed at any regular meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority vote of the shares represented and entitled to vote at such meeting; provided that in the notice of such special meeting notice of such purpose shall be given. Subject to the laws of the State of Delaware, the Certificate of Incorporation and these Bylaws, the board of directors may by majority vote of those present at any meeting at which a quorum is present D-13 amend these Bylaws, or enact such other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation, except that Sections 3.3 and 3.13 of Article III and Articles IX and X of the Bylaws may be amended only by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE X. STOCKHOLDER ACTION 10.1 Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders, except that an amendment to the Certificate of Incorporation of the Corporation in order to change the name of the Corporation may be approved without a meeting, by consent in writing of the holders of the outstanding stock of the Corporation having not less than the minimum number of votes that would be necessary to approve such amendment at a meeting at which all shares entitled to vote thereon were present and voted pursuant to the provisions of Section 228 of the Delaware General Corporation Law. Except as otherwise required by law and subject to the rights of the holders of any class or series of stock having a preferences over the Common Stock as to dividends or upon liquidation, special meetings of stockholders of the Corporation may be called only by the board of directors pursuant to a resolution approved by a majority of the entire board of directors. I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of the Bylaws of BILLING INFORMATION CONCEPTS CORP., a Delaware corporation, as in effect on the date hereof. WITNESS my hand and seal of the Corporation. Dated: , 1996 -------------------------------------- SECRETARY OF BILLING INFORMATION CONCEPTS CORP. (SEAL) D-14 ANNEX E BILLING INFORMATION CONCEPTS CORP. 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN 1. PURPOSE. The purpose of this 1996 Employee Comprehensive Stock Plan (the "Plan") is to further the success of Billing Information Concepts Corp., a Delaware corporation (the "Company"), and certain of its affiliates by making available Common Stock of the Company to 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 stockholders in the success of the Company. Subject to compliance with the provisions of the Plan and the Code, Incentive Stock Options as authorized by Section 422 of the Code and stock options which do not qualify under Section 422 of the Code are authorized and may be granted under the Plan. Further, the Company may grant Restricted Stock, as defined below. 2. DEFINITIONS. As used in this Plan the following terms shall have the meanings indicated as follows: (a) "Award" means an award of stock options (including Incentive Stock Options) or Restricted Stock, on a stand alone, combination or tandem basis, as described in or granted under this Plan. (b) "Award Agreement" means a written agreement setting forth the terms of an Award, in the form prescribed by the Committee. (c) "Board" means the Board of Directors of the Company. (d) "Cause" shall mean, in the context of the termination of a Participant, as determined by the Board, in the reasonable exercise of its business judgment the occurrence of one of the following events: (i) conviction of or a plea of NOLO CONTENDERE to a charge of a felony (which, through lapse of time or otherwise, is not subject to appeal); (ii) willful refusal without proper legal cause to perform, or gross negligence in performing, Participant's duties and responsibilities; (iii) material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise; or (iv) the unauthorized absence of Participant from work (other than for sick leave or disability) for a period of thirty working days or more during any period of forty-five working days; provided, further, within one year 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 an appeal), or a material breach of fiduciary duty to the Company through the misappropriation of Company funds or property or otherwise. (e) "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 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 voting 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 Board 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 70% of the total voting power represented by the voting securities of the E-1 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) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Committee administering the Plan described in Section 3 hereof. (h) "Common Stock" means the Company's common stock, par value $.01 per share. (i) "Continuous Status as an Employee" means that the employment relationship with any one or more of (i) the Company, (ii) any Parent, (iii) any Subsidiary or (iv) USLD has not been terminated or interrupted. (j) "Date of Grant" means the date on which an Award is granted under an Award Agreement executed by the Company and a Participant pursuant to the Plan. (k) "Disinterested Person" means a "disinterested person" as such term is defined in Rule 16b-3 promulgated under the Exchange Act or any successor provision. (l) "Effective Date" means the effective date of this Plan specified in Section 14 hereof. (m) "Exchange Act" means the Securities Exchange Act of 1934, as it may be amended from time to time. (n) "Good Reason" shall mean the occurrence of any of the following events: (a) removal from the principal office held by the Participant on the date of the most recent Award, or a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, but not including termination of the Participant for Cause; or (b) the Company otherwise commits a material breach of this Plan, or the Participant's employment agreement, if applicable; provided, however, that within one year following a Change of Control, "Good Reason" shall mean (i) removal from the principal office held by the Participant on the date of the most recent Award, (ii) a material reduction in the Participant's authority or responsibility, including, without limitation, involuntary removal from the Board, (iii) relocation of the Company's headquarters from the San Antonio, Texas metropolitan area but not including termination of the Participant for cause, (iv) a material reduction in the Participant's compensation, or (v) the Company otherwise commits a material breach of this Plan, or the Participant's employment agreement, if applicable. (o) "Incentive Stock Option" means an option qualifying under Section 422 of the Code. (p) "Parent" means a parent corporation of the Company as defined in Section 424(e) of the Code. (q) "Participants" means the employees and officers of the Company, its Subsidiaries and its Parent (including those directors of the Company who are also employees of the Company, its Parent or one or more of its Subsidiaries). "Participants" includes the USLD Participants. (r) "Restricted Period" shall mean the period designated by the Committee during which Restricted Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered, which period shall not be less than one year nor more than two years from the Date of Grant. (s) "Restricted Stock" shall mean those shares of Common Stock issued pursuant to an Award that remain subject to the Restricted Period. (t) "Retained Distributions" shall mean any securities or other property (other than cash dividends) distributed by the Company or otherwise received by the holder in respect of Restricted Stock during any Restricted Period. E-2 (u) "Retirement" shall mean retirement of a Participant from the employ of the Company, its Parent, its Subsidiaries or USLD, as the case may be, in accordance with the then existing employment policies of any such employer. (v) "Subsidiary" means a subsidiary corporation of the Company as defined in Section 424(f) of the Code. (w) "USLD" means U.S. Long Distance Corp. and its Subsidiaries and any Parent of USLD. (x) "USLD Participants" means the employees and officers of USLD who are or were employees and officers of USLD prior to and immediately following the distribution of the Company Common Stock by USLD to the stockholders of USLD. 3. ADMINISTRATION OF THE PLAN. The Board shall appoint a committee (the "Committee") comprised of two or more 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 make determinations with respect to the participation of Participants in this Plan, to prescribe the form of Award Agreements embodying Awards made under the Plan, and, except as otherwise required by law or this Plan, to set the size and terms of Awards (which need not be identical or consistent with respect to each Participant) including vesting schedules, price, whether stock options granted hereunder shall constitute an Incentive Stock Option, restriction or option period, post-retirement and termination rights, payment alternatives such as cash, stock or other means of payment consistent with the purposes of this Plan, and such other terms and conditions as the Committee deems appropriate. Except as otherwise required by this Plan, the Committee shall have authority to interpret and construe the provisions of this Plan and the Award Agreements, to correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner the Committee deems advisable for the administration of the Plan and make determinations pursuant to any Plan provision or Award Agreement, which shall be final and binding on all persons. The Committee may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee. 4. COMMON STOCK SUBJECT TO PROVISIONS OF THIS PLAN. The Common Stock subject to the provisions of this Plan shall either be shares of authorized but unissued Common Stock, shares of Common Stock held as treasury stock or previously issued shares of Common Stock reacquired by the Company, including shares purchased in the open market. Subject to adjustment in accordance with the provisions of Section 11, the aggregate number of shares of Common Stock available for grant of Awards (including, without limitation, Awards of Restricted Stock) shall not exceed Three Millon Five Hundred Thousand (3,500,000). If any part of an Award under this Plan shall be forfeited, the shares of Common Stock subject to the forfeited portion of such Award shall again be available for grant under the Plan. 5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to any Participant as the Committee shall determine from time to time. In determining the Participants to whom options shall be granted and the number of shares to be covered by each 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 sole 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 sole discretion. 6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may make Awards of stock options (including Incentive Stock Options and stock options that do not qualify as Incentive Stock Options) as described in Sections 7 and 8 hereof, and of Restrictive Stock, as described in Section 10 hereof. E-3 7. OPTIONS AUTHORIZED. The options subject to Award 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 (i) determine which options shall be nonqualified stock options and which shall be Incentive Stock Options, (ii) grant only Incentive Stock Options or, alternatively, only nonqualified stock options, and (iii) 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/or 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 8(a) of the Plan as of the time the option is granted) of the Common Stock with respect 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. 8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan shall be evidenced by an Award 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 exercise 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 exercise 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 8(a), fair market value shall be, where applicable, the closing price of the Common Stock on the Date of Grant of such option as reported on any national securities exchange on which the Common Stock may be listed. If the Common Stock is not listed on a national securities exchange but is publicly traded on the Nasdaq Stock Market's National Market or on another automated quotation system, the fair market value shall be the closing price of the Common Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq Over-The-Counter market, the fair market value shall be the mean between the bid and ask prices on any such system or market. If the Common Stock was not traded on the Date of Grant of such option, 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 422(b)(4) or any successor provisions. The Committee may permit the option exercise 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 exercise 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 of the option. (c) VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his successor in interest shall have any of the rights of a stockholder 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 E-4 unless the remaining shares that 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 Section 9(c) hereof. (e) DISQUALIFYING DISPOSITION. The Award Agreement evidencing any Incentive Stock Options granted under this Plan shall provide that if the optionee makes a disposition, within the meaning of Section 424(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. (f) LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. 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 Section 424, stock possessing more than ten percent (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 one hundred ten percent (110%) of the fair market value (as defined in Section 8(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. (g) RESTRICTION ON 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. (h) CONSISTENCY WITH CODE. Notwithstanding any other provision in this Plan to the contrary, the provisions of all Award Agreements relating to Incentive Stock Options pursuant to the Plan shall not violate the requirements of the Code applicable to the Incentive Stock Options authorized hereunder. 9. EXERCISE OF OPTION. (a) Any option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Award Agreement, (ii) full payment of the aggregate option exercise 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 Participant'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. (b) Upon Retirement or other termination of the Participant's Continuous Status as an Employee, other than (a) a termination that is either (i) for Cause or (ii) voluntary on the part of a Participant and without the written consent of the Company, a Parent, any Subsidiary or USLD or (b) a termination by reason of death, the Participant may (unless otherwise provided in his Award Agreement) exercise his option at any time within three (3) months after such termination of the E-5 Participant's Continuous Status as an Employee (or within one (1) year after termination of the Participant's Continuous Status as an Employee due to permanent and total disability within the meaning of Code Section 22(e)(3)), or within such other time as the Committee shall authorize, but in no event may the Participant exercise his Option after ten (10) years from the Date of Grant thereof (or such lesser period as may be specified in the Award Agreement), and only to the extent of the number of shares for which his options were exercisable by him at the date of the termination of the Participant's Continuous Status as an Employee. In the event of the termination of the Continuous Status as an Employee of a Participant to whom an option has been granted under the Plan that is either (i) for Cause or (ii) voluntary on the part of the Participant and without written consent, any option held by him under the Plan, to the extent not previously exercised, shall forthwith terminate on the date of such termination of the Participant's Continuous Status as an Employee. 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, or with respect to a USLD Participant, USLD. The Award Agreement may contain such provisions as the Committee shall approve with respect to the effect of approved leaves of absence. (c) In the event a Participant to whom an option has been granted under the Plan dies during, or within three (3) months after the Retirement or other termination of, the Participant's Continuous Status as an Employee, such option (unless it shall have been previously terminated pursuant to the provisions of the Plan or unless otherwise provided in his Award Agreement) may be exercised (to the extent of the entire number of shares covered by the option whether or not purchasable by the Participant 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 Award Agreement. (d) If as of the date of termination of the Participant's Continuous Status as an Employee (other than as a result of the Participant's death) the Participant is not entitled to exercise his or her entire options, the shares of Common Stock covered by the unexercisable portion of the option shall revert to the Plan. If the Participant (or his or her designee or estate as provided in Section 9(c) above) does not exercise his or her options within the time specified in the Plan and the Award Agreement, the unexercised options shall terminate and the shares of Common Stock covered by such options shall revert to the Plan. 10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. (a) GENERAL. The Committee, in its sole discretion, may make Awards of Restricted Stock to selected Participants, which Awards shall be evidenced by an Award Agreement that contains such terms and conditions, including vesting, as the Committee may determine. As a condition to any Award of Restricted Stock hereunder, the Committee may require a Participant to pay to the Company the amount (such as the par value of such shares) required to be received by the Company in order to assure compliance with applicable state law. Any Award of Restricted Stock for which such requirement is established shall automatically expire if not purchased in accordance with the Committee's requirements within sixty (60) days after the Date of Grant. Subject to the terms and conditions of the respective Award Agreement, the Participant, as the owner of the Common Stock issued as Restricted Stock and any Retained Distributions with respect thereto, shall have the rights of a stockholder, including, but not limited to, voting rights as to such Common Stock and the right to receive cash dividends or distributions thereon when, as and if paid. Within the limits set forth in the Plan, an Award of Restricted Stock may be subject to such vesting requirements as may be fixed by the Committee. Vesting may be accelerated by a Change of Control. Vesting may also be accelerated upon death, permanent disability or Retirement. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Stock is made to a Participant whose employment or service is subsequently terminated by reason of E-6 death, permanent disability or Retirement or for such other reason as the Committee may provide, such Participant (or his or her estate or beneficiary) will be entitled to receive such additional portion of his or her Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, Subsidiary or USLD, as applicable, through the date on which the next portion of the shares of unvested Restricted Stock subject to the Award of Restricted Shares would have vested. Unless otherwise provided in the Award Agreement, in the event an Award of Restricted Shares is made to a Participant whose employment with the Company, Parent, Subsidiary or USLD, as applicable, is subsequently terminated by the Participant for Good Reason or by the Company, Parent, Subsidiary or USLD, as applicable, other than for Cause, then in any such event, the Participant will be entitled to receive such additional portion of his or her shares of Restricted Stock and any Retained Distributions with respect thereto that the Participant would have received had the Participant remained in the employment of the Company, Parent, Subsidiary or USLD, as applicable, through the date on which the next portion of the shares of unvested Restricted Stock subject to the Award of Restricted Shares would have vested. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Shares is made to a Participant who subsequently voluntarily resigns or whose employment is terminated for Cause, then all such Restricted Stock and any Retained Distributions with respect thereto as to which the Restricted Period still applies shall be forfeited by such Participant and shall again become available for grant under the Plan. (b) TRANSFERABILITY. Restricted Stock and any Retained Distributions with respect thereto may not be sold, assigned, transferred, pledged, or otherwise encumbered during the Restricted Period, which shall be determined by the Committee and shall not be less than one year nor more than two years from the date such Restricted Stock was awarded. The Committee may, at any time, reduce the Restricted Period with respect to any outstanding shares of Restricted Stock and any Retained Distributions with respect thereto awarded under the Plan. Shares of Restricted Stock, when issued, will be represented by a stock certificate or certificates registered in the name of the Participant to whom such Restricted Stock shall have been granted and shall bear a restrictive legend to the effect that ownership of such Restricted Stock (and any related Retained Distributions), and the enjoyment of all rights appurtenant thereto are subject to the restrictions, terms, and conditions provided in the Plan and the applicable Award Agreement. Each certificate shall be deposited by the Participant with the Company, together with stock powers or other instruments of assignment, each endorsed in blank, which will permit transfer to the Company of all or any portion of the Restricted Stock and any securities constituting Retained Distributions that shall be forfeited or that shall not become vested in accordance with the respective Award Agreement. The certificate or certificates issued for the Restricted Stock may bear such legend or legends as the Committee may, from time to time, deem appropriate to reflect the restrictions under the Plan for such Restricted Stock. (c) STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted Stock shall constitute issued and outstanding shares of Common Stock for all corporate purposes. Each Participant will have the right to vote the Restricted Stock held by such Participant, to receive and retain all cash dividends and distributions thereon and exercise all other rights, powers and privileges of a holder of Common Stock with respect to such Restricted Stock, with the exception that: (i) the Participant will not be entitled to delivery of the stock certificate or certificates representing such Restricted Stock until the Restricted Period applicable to such shares or portion thereof shall have expired and unless all other vesting requirements with respect thereto shall have been fulfilled; (ii) other than cash dividends and distributions and rights to purchase stock which might be distributed to stockholders of the Company, the Company will retain custody of all Retained E-7 Distributions made, paid, declared or otherwise received by the holder thereof with respect to Restricted Stock (and such Retained Distributions will be subject to the same restrictions, terms and conditions as are applicable to the Restricted Stock with respect to which they were made, paid or declared) until such time, if ever, as the Restricted Period applicable to the shares with respect to which such Retained Distributions shall have been made, paid, declared or received shall have expired, and such Retained Distributions shall not bear interest or be segregated in separate accounts; and (iii) upon the breach of any restrictions, terms or conditions provided in the Plan or the respective Award Agreement or otherwise established by the Committee with respect to any Restricted Stock or Retained Distributions, such Restricted Stock and any related Retained Distributions shall thereupon be automatically forfeited. (d) MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in the Award Agreement, upon the occurrence of a Change of Control, all restrictions imposed on the Participant's Restricted Stock and any Retained Distributions shall automatically terminate and lapse and the Restricted Period shall automatically terminate; provided, however, that if the Change of Control occurs within six months of the Date of Grant the restrictions and Restricted Period shall terminate on the six month anniversary of the Date of Grant. 11. ADJUSTMENTS. The Committee, in its discretion, may make such adjustments in the option price, the number or kind of shares and other appropriate provisions covered by outstanding Awards 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 and class of shares that may be the subject of Awards which are appropriate to reflect any transaction or event described in the preceding sentence. 12. AMENDMENT, SUSPENSION AND TERMINATION OF THE 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 Awards 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 stockholders of the Company voting the proper percentage of its voting power, no such amendment shall make any change in the Plan for which stockholder approval is required in order to comply with (i) Rule 16b-3, as amended, 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 Common 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 amendment, suspension, or termination of the Plan shall, without a Participant's consent, impair or negate any of the rights or obligations under any Award theretofore granted to such Participant under the Plan. 13. TAX WITHHOLDING. The Company shall have the right to withhold from any payments made under this Plan, or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a Participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of shares of Common Stock pursuant to this Plan, the Participant may satisfy this obligation in whole or in part by electing to have the Company withhold from such distribution shares of Common Stock having a value equal to the amount required to be withheld. The value of the shares of Common Stock to be withheld shall be based on the fair market value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the date that the amount of tax to be withheld shall be determined (the "Tax Date"). Any such election is subject to the following restrictions: (i) the election must be made on or prior to the Tax Date; (ii) the election must be irrevocable; and (iii) the election must be subject to the disapproval of the Committee. To the extent required to comply with rules promulgated under Section 16 of the E-8 Exchange Act, elections by Participants who are subject to Section 16 of the Exchange Act are subject to the following additional restrictions: (i) no election shall be effective for a Tax Date which occurs within six months of the grant of the Award; and (ii) the election must be made either (a) six months or more prior to the Tax Date or (b) during the period beginning on the third business day following the date of release for publication for the Company's quarterly or annual summary statements of sales and earnings and ending on the twelfth business day following such date. 14. EFFECTIVE DATE OF THE 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 or by written stockholder consent. 15. SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the Committee may, from time to time, make special provisions for one or more Participants respecting a possible Change of Control of the Company, a Subsidiary, Parent or USLD, and, to the extent that any such special provisions made with the consent of the affected employee may have the effect of accelerating vesting of stock options granted under the Plan or removal of restrictions on Restricted Stock allotted under the Plan or the effect of preventing a termination or dilution of benefits, such special provisions shall be controlling over and shall be deemed to be an amendment of any inconsistent terms of the applicable Award Agreement. 16. MISCELLANEOUS PROVISIONS. (a) 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 continue to hold 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. (b) This Plan is intended and has been drafted to comply in all respects with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If any provision of this Plan does not comply with Rule 16b-3, this Plan shall be automatically amended to comply with Rule 16b-3. (c) No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company, a Parent, a Subsidiary or USLD. Nothing in this Plan shall interfere with or limit in any way the right of the Company, a Parent, any Subsidiary or USLD to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company, a Parent, any Subsidiary or USLD. (d) To the extent that federal laws do not otherwise control, this Plan shall be construed in accordance with and governed by the laws of the State of Delaware or the property laws of any particular state. (e) In case any one or more of the provisions of this Plan shall be held invalid, illegal or unenforceable in any respect under applicable law and regulation (including Rule 16b-3), the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and the invalid, illegal or unenforceable provisions shall be deemed null and void; however, to the extent permissible by law, any provision which could be deemed null and void shall first be construed, interpreted or revised retroactively to permit this Plan to be construed in compliance with all applicable laws (including Rule 16b-3) so as to foster the intent of this Plan. Notwithstanding anything in this Plan to the contrary, the Committee, in its sole and absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to Participants who are subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning this Plan with respect to other Participants. E-9 (f) None of a Participant's rights or interests under the Plan may be assigned or transferred in whole or in part, either directly or by operation of law or otherwise (except pursuant to a qualified domestic relations order or, in the event of a Participant's death, by will or the laws of descent and distribution), including, but not by way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy or in any other manner, and no such right or interest of any Participant in the Plan shall be subject to any obligation or liability of such individual. (g) No Restricted Stock or any Retained Distributions shall be issued hereunder unless counsel for the Company shall be satisfied that such issuance will be in compliance with applicable federal, state, or other securities laws. (h) The expenses of the Plan shall be borne by the Company. (i) By accepting any Award under the Plan, each Participant or beneficiary claiming under or through him or her shall be conclusively deemed to have indicated his or her acceptance and ratification of, and consent to, any action taken under the Plan by the Company, the Committee or the Board. (j) Awards granted under the Plan shall be binding upon the Company, its successors and assigns. (k) The appropriate officers of the Company shall cause to be filed any reports, returns, or other information regarding Awards hereunder or any Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the Exchange Act, or any other applicable statute, rule, or regulation. (l) Nothing contained in this Plan shall prevent the Board of Directors from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required. E-10 ANNEX F 1996 NON-EMPLOYEE DIRECTOR PLAN OF BILLING INFORMATION CONCEPTS CORP. 1. PURPOSE. The purpose of this Plan is to advance the interests of Billing Information Concepts 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 Billing Information Concepts 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 or Section 5 hereof. (e) "Director" shall mean a member of the Board or a member of the board of directors of a Parent on the date of adoption of the Plan. (f) "Eligible Person(s)" shall mean those persons who are Directors of the Company or a Parent other than U.S. Long Distance Corp. 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 Nasdaq National Market or are reported on a consolidated transaction reporting system, the closing sales price of the Shares on such system, (iii) if Shares are otherwise quoted on the Nasdaq system, 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 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" shall mean any option granted under Section 4 or 5 of this Plan. (k) "Optionee" shall mean a person to whom an 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) "Parent" shall mean a parent corporation of the Company as defined in Section 424(e) of the Code and U.S. Long Distance Corp. F-1 (m) "Payment Date" shall have the meaning set forth in Section 2(a). (n) "Plan" shall mean this 1996 Non-Employee Director Plan of Billing Information Concepts Corp. (o) "Prior Plan" shall mean the 1993 Non-Employee Director Plan of U.S. Long Distance Corp. (p) "Share(s)" shall mean a share or shares of the common stock, par value one cent ($0.01) per share, of the Company. (q) "Subsidiary" shall mean a subsidiary corporation of the Company as defined in Section 424(f) of the Code. 3. SHARES AND OPTIONS. The maximum number of Shares to be issued pursuant to Options under this Plan shall be FOUR HUNDRED THOUSAND (400,000) 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 Directors 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 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 and 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 holds one or more unexercised options under the Prior Plan (an "Unexercised Option") will automatically receive an Option for such number of Shares as is equal to the number of shares of U.S. Long Distance Corp. common stock, $.01 per share, subject to his Unexercised Options. Such Option will vest at the same time that his Unexercised Options vest (assuming that his Unexercised Options remain outstanding and exercisable); (ii) 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 (iii) 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 Option previously granted under this Section 4, 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. For purposes of Section 4(c)(i), a Director's service with a Parent shall be considered service with the Company. (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) F-2 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 elect to receive the Annual Director Fee in cash or in 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 not later than June 15, 1996, even if prior to the effective date of the Plan, for Options to be granted for 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 earliest to occur of the following: F-3 (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 (including for this purpose a Director of a Parent) 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 (including for this purpose a Director of a Parent) 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, combination of shares, merger, consolidation, issuance of rights, spin-off 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. (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 F-4 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 two (2) 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 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 LAWS OF THE STATE OF DELAWARE EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY LAWS OF ANY STATE. (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 F-5 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 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. This Plan is adopted as of June , 1996, but shall only become effective on the Distribution Date as defined in the Distribution Agreement between the Company and U.S. Long Distance Corp. dated , 1996. The effective date of any amendment to the Plan is the date on which the Board adopted 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 , 2001, and any Option outstanding on such date will remain outstanding until it has either expired or has been exercised. F-6 ANNEX G BILLING INFORMATION CONCEPTS CORP. EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE The Billing Information Concepts Corp. Employee Stock Purchase Plan (the "Plan") is designed to encourage employees of Billing Information Concepts Corp. ("Billing") and its participating Subsidiaries (collectively, the "Company"), where permitted by applicable laws and regulations, to acquire an equity interest in Billing through the purchase of shares of the common stock, par value $0.01 per share, of Billing ("Common Stock"). These purchases are intended to establish a closer identification of employee, Company and stockholder interests and to provide employees with a direct means of participating in the Company's growth and earnings. It is anticipated that Plan participation will motivate employees to remain in the employ of the Company and give greater efforts on behalf of the Company. This Plan is intended to constitute an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). 2. DEFINITIONS The following words or terms, when used herein, shall have the following respective meanings: "Closing Market Price" refers to the reported closing sales price for shares of the Common Stock as so reported in The Wall Street Journal for that day. "Committee" shall refer to the committee appointed by the Billing Board of Directors to administer this Plan. "Designated Broker" refers to the securities brokerage company that will assist Billing in administering the Plan and which may be designated from time to time by the Committee. Initially the Designated Broker is Merrill Lynch & Co. "Effective Date" means August 1, 1996, the first Enrollment Date under the Plan. "Employee" refers to all full-time and part-time employees, employed by Billing or a Subsidiary on a continuous basis. "Employee Contribution Amounts" refers to the amounts contributed by employees via payroll deduction. "Enrollment Date" refers to August 1, 1996, the first Enrollment Date under the Plan, the first day of the initial six-month Participation Period ending January 31, 1997, and after that latter date, refers to February 1 and August 1, the first day of the succeeding six-month Participation Periods which continue thereafter. "Enrollment Period" refers to the designated period that precedes each Enrollment Date during which employees eligible to participate are provided the opportunity to enroll in the Plan. The Enrollment Period is approximately two weeks in duration and, generally, will expire approximately 10 to 14 days prior to the Enrollment Date. The exact dates for each Enrollment Period will be communicated to all eligible employees prior to the Enrollment Period. "Exercise Date" refers to the last stock trading day in a Participation Period. "Fair Market Value" refers to the Closing Market Price on either the first or last stock trading day in the Participation Period as determined in accordance with Section 9. "Participant" refers to any employee meeting the eligibility requirements specified in Section 5 who has enrolled in the Plan. G-1 "Participation Period" refers to the six-month period from the Effective Date through January 31, 1997, and after that latter date refers to periods of February 1 through July 31 and August 1 through January 31, during which periods payroll deductions will be made to purchase stock under the Plan, or such other period as the Committee may at any time prescribe. "Plan" shall refer to this Billing Information Concepts Corp. Employee Stock Purchase Plan. "Prior Plan" refers to the U.S. Long Distance Corp. Stock Purchase Plan, the stock purchase plan of Billing's former parent. "Subsidiary" refers to any present or future corporation that is a "subsidiary corporation" of the Company within the meaning of Section 424 of the Code. 3. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Employee Stock Purchase Plan Committee (the "Committee") appointed by the Board of Directors of Billing (the "Board"), which Committee shall consist of at least three (3) persons, who need not be members of the Board. The members of the Committee shall supervise the administration and enforcement of the Plan according to its terms and provisions and shall have all powers necessary to accomplish these purposes and discharge its duties hereunder including, but not limited to, the power to interpret the Plan, to make factual determinations and resolve issues of eligibility, stock price determination, or any other issues arising under the Plan or as a result of participation of Participants in the Plan. The Committee may act by majority decision of its members at a regular or special meeting of the Committee or by decision reduced to writing and signed by all members of the Committee without holding a formal meeting. Vacancies in the membership of the Committee arising from death, resignation or other inability to serve shall be filled by appointment by the Board as soon as possible. All decisions by the Committee shall be final and conclusive and binding upon all Participants and the Company. 4. NATURE AND NUMBER OF SHARES The Common Stock subject to issuance under the terms of the Plan shall be shares of Billing's authorized but unissued shares. The aggregate number of shares that may be issued under the Plan shall not exceed one million (1,000,000) shares of Common Stock. If the total number of shares that Employees elect to purchase under the Plan exceeds the shares available, the Committee will allot shares among Employees. In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, spin-off, combination of shares, merger, consolidation, offering of rights or other similar change in the capital structure of Billing, the Committee may make such adjustment, if any, as it deems appropriate in the number, kind and purchase price of the shares available for purchase under the Plan, in the maximum number of shares that may be issued under the Plan and in the Participation Periods, subject to the approval of the Board and in accordance with Section 20 of the Plan. If Billing is acquired in a transaction whereby it is not the surviving entity or all or substantially all of Billing's assets are acquired, the Committee shall determine a Plan termination date. This date shall precede the expected effective date of such acquisition by not more than sixty (60) days. Employee Contribution Amounts accumulated during the period between the most recent Enrollment Date and Plan termination date shall be used to purchase shares for Participants in the manner provided in Section 9 utilizing the Plan termination date as the Exercise Date for determining the purchase price for shares of Common Stock. In the event the Plan is terminated and the acquisition transaction is not consummated, the Plan may be reactivated on a date determined by the Committee. 5. ELIGIBILITY REQUIREMENTS Each Employee, except as described in the next following paragraph, shall become eligible to participate in the Plan in accordance with this Section 5 on the first Enrollment Date following employment by the Company. Participation in the Plan is voluntary. G-2 The following Employees are not eligible to Participate in the Plan: i) Employees who have not completed at least six (6) months of continuous service with the Company as of the Enrollment Date; and ii) Employees who would, immediately upon enrollment in the Plan, own directly or indirectly, or hold options or rights to acquire, an aggregate of five percent (5%) or more of the total combined voting power or value of all outstanding shares of all classes of Billing or any Subsidiary. Employees of any corporation that may become a Subsidiary after the Effective Date shall automatically be deemed to be eligible for participation under this Plan effective as of the Enrollment Date following the date (1) the corporation became a Subsidiary and (2) the Employees satisfied the continuous service requirements described above. All service with the former parent corporation of Billing or a subsidiary of such former parent will be taken into account as continuous service for purposes of this Section 5. 6. ENROLLMENT Each eligible Employee of the Company as of the Effective Date will become an eligible Employee in the Plan on the Effective Date if immediately prior to the Effective Date he or she was eligible to participate in the Prior Plan. Each other Employee of the Company who thereafter becomes eligible to participate may enroll in the Plan on the February 1 and August 1 Enrollment Dates following the date he or she first meets the eligibility requirements of Section 5 of the Plan. Any eligible Employee not enrolling in the Plan when first eligible may enroll in the Plan on the next succeeding February 1 or August 1 Enrollment Date. In order to enroll, an eligible Employee must complete, sign and submit the appropriate forms during the Enrollment Period to Billing's Human Resources Department. Continued enrollment in subsequent periods shall be automatic and no additional documentation is required, unless a Participant desires to revise the Employee Contribution Amount for the subsequent Participation Period. Employee Contribution Amounts shall remain constant if not changed at the Employee's request during an Enrollment Period. In order to terminate Plan participation, at any time, or change Employee Contribution Amounts during an Enrollment Period, the participant must complete, sign and submit the appropriate forms to Billing's Human Resources Department. 7. GRANT OF RIGHT TO PURCHASE SHARES ON ENROLLMENT Enrollment in the Plan by an Employee on an Enrollment Date will constitute the grant by Billing to the Participant of the right to purchase shares of Common Stock under the Plan. Re-enrollment or continued enrollment by a Participant in the Plan will constitute a grant, on the Enrollment Date on which such re-enrollment or continued enrollment occurs, by Billing to the Participant of a new right to purchase shares of Common Stock. A Participant who has not terminated employment shall have shares of Common Stock automatically purchased for him or her on the applicable Exercise Date. The participant shall automatically be re-enrolled in the Plan for subsequent Participation Periods at the same Employee Contribution Amount, unless the Participant notifies Billing's Human Resources Department on the appropriate forms that he or she elects not to re-enroll or desires to change his or her Employee Contribution Amount. A Participant who has suspended payroll deductions during any Participation Period must re-enroll on the appropriate forms to participate in the Plan in any future Participation Periods. Each right to purchase shares of Common Stock under the Plan during any participation Period shall have the following terms: i) the right to purchase shares of Common Stock during any Participation Period shall expire on the earlier of (a) the completion of the purchase of shares on the Exercise Date or (b) the date on which the Participant terminates employment; ii) in no event shall the right to purchase shares of Common Stock during any Participation Period extend beyond twenty-seven (27) months from the Enrollment Date; G-3 iii) payment for shares purchased shall be made only with amounts contributed through payroll deductions; iv) purchase of shares shall be accomplished only in accordance with Section 9; v) the price per share shall be determined as provided in Section 9; vi) the right to purchase shares of Common Stock (taken together with all other such rights then outstanding under this Plan and under all other similar stock purchase plans of Billing or any Subsidiary) will in no event give the Participant the right to purchase a number of shares of Common Stock during a Participation Period in excess of the number of shares of Common Stock derived by dividing $12,500.00 by the Fair Market Value of the Common Stock on the applicable Grant Date, as defined in Section 9, determined in accordance with Section 9; and vii) the right to purchase shares of Common Stock shall in all respects be subject to the terms and conditions of the Plan, as interpreted by the Committee from time to time. 8. METHOD OF PAYMENT Payment of shares of Common Stock shall be made as of the applicable Exercise Date with amounts contributed through payroll deductions collected over the Plan's designated Participation Period, with the first such deduction commencing with the payroll period ending after the Enrollment Date. Each Participant will authorize such deductions from his or her pay for each month during the Participation Period. No changes in monthly deduction amounts are permitted subsequent to the Enrollment Period other than ceasing ongoing payroll deductions for the remainder of the Participation Period. Payroll deductions will be made in equal installments on each of the first two payrolls of each month during the Participation Period. No lump sum or prepayments are permitted. Employees may select any monthly Employee Contribution Amount as long as the following requirements are met: i) at least $10.00 is deducted each month; ii) amount selected is a multiple of $5.00; iii) total amount deducted does not exceed Employee's net pay of their base salary; and iv) the aggregate of monthly deduction amounts does not exceed $10,625.00 in any Participation Period (under this Plan and under all other similar stock purchase plans of Billing or any Subsidiary). If for any reason a Participants's contributions to the Plan exceed $10,625.00 during any Participation Period, such excess amounts shall be refunded to the Participant as soon as practicable after such excess has been determined to exist. A Participant may suspend payroll deductions at any time during a Participation Period by given written notice to Billing's Human Resources Department on the appropriate forms, which will be processed effective for the first payroll period that is administratively feasible. In such case, the Participant's account balance shall still be used to purchase Common Stock at the end of the Participation Period. Any Participant who suspends payroll deductions during any Participation Period cannot resume payroll deductions during such period and must re-enroll in the Plan during a subsequent Enrollment Period in order to participate in any future Participation Periods. Except in the case of termination of employment, the amount in a Participant's account at the end of any Participation Period shall be applied to the purchase of shares, as provided in Section 9. 9. PURCHASE OF SHARES The right to purchase shares of Common Stock granted by the Company under the Plan is for the term of a Participation Period. The price to be paid for the Common Stock to be purchased at the expiration of such Participation Period shall be determined as the lower of: (a) 85% of the Closing G-4 Market Price on the first trading day of the Participation Period (Grant Date) or (b) 85% of the Closing Market Price on the last trading day in the Participation Period (Exercise Date). These dates constitute the date of grant and the date of exercise for valuation purposes under Section 423 of the Code. The number of shares of Common Stock, including fractional shares, purchased on behalf of a Participant shall be recorded in the Designated Broker stock trading account established for each Participant as soon as administratively feasible, but no later than five (5) business days following the last business day of the preceding Participation Period. The number of shares purchased shall be computed by dividing the aggregate Employee Contribution Amount by the price for the Common Stock determined in the manner described in the preceding paragraph. Participants shall be treated as the record owners of the shares, with all rights of a stockholder, effective as of the date the shares are posted to the Participant's stock trading account. Any fees associated with maintaining these stock trading accounts shall be the obligation of the Company. 10. WITHDRAWAL OF SHARES The record of shares of Common Stock purchased shall be maintained in an individual stock trading account established at the Designated Broker on behalf of the Participant until the shares are either withdrawn or sold. A Participant may elect to withdraw all shares held in his or her account at any time (without withdrawing from the Plan) by giving notice to the Designated Broker. Upon receipt of such notice, the Designated Broker will arrange for either (a) the issuance and delivery of all shares held in the Participant's account as soon as administratively feasible or (b) the sale of the shares, as described by the Participant. Certificates shall be issued only in the following situations: i) if the Participant requests a certificate; or ii) if the Participant terminates employment with the Company and requests a certificate. In both of these cases, the Participant will be required to notify the Designated Broker and pay an issuance fee. The share certificate will be issued to the Participant as soon as administratively feasible after the receipt by the Designated Broker of the required form and payment of the issuance fee. Fractional shares shall be handled as follows: For share withdrawals, only whole shares will be certified and issued to Participants. A payment will be made to the Participant for any fractional shares owned by the Participant. This payment shall be computed using the Closing Market Price of a share of Common Stock on the date the withdrawal is processed by the Designated Broker. For shares sold, Participants shall receive credit for all whole and fractional shares at the actual price for which the shares were sold. 11. INCOME TAX OBLIGATIONS Participants shall be responsible for all personal income tax obligations associated with selling shares of Common Stock purchased through this Plan. The Committee recommends that each Participant seek competent, professional tax advice prior to enrolling in the Plan to ensure he or she fully understands the tax consequences resulting from stock sales. 12. TERMINATION OF PARTICIPATION The right to participate in the Plan terminates immediately when a Participant ceases to be employed by Billing or any Subsidiary. Employee Contribution Amounts collected prior to the date of termination of employment shall be paid in cash. The cash shall be delivered to the Participant as soon as administratively feasible following the end of the Participation Period in which the Participant's employment terminates. Employee Contribution Amounts for Participants who are on a Leave of Absence will be used to purchase Common Stock at the conclusion of the Participation Period in accordance with Section 9. G-5 13. DEATH OF A PARTICIPANT As soon as administratively feasible after receiving notification of the death of a Participant, Employee Contribution Amounts collected prior to the date of termination of employment shall be paid in cash to the Participant's estate. No additional shares of Common Stock may be purchased on behalf of a Participant after notification of death is received. All assets in a Participant's stock trading account will remain in the Participant's account until the person whom the Participant has elected a joint tenant, with or without right of survivorship, or the representative of the Participant's estate requests delivery thereof from the Designated Broker and submits such documentation as the Designated Broker may require to show proof of entitlement thereto. 14. ASSIGNMENT The rights of a Participant under the Plan shall not be assignable or otherwise transferable by the Participant except by will or the laws of descent and distribution or pursuant to a qualified domestic relations order . No purported assignment or transfer of any rights of a Participant under the Plan, whether voluntary or involuntary, by operation of law or otherwise, shall vest in the purported assignee or transferee any interest or right therein whatsoever, but immediately upon such assignment or transfer, or any attempt to make the same, such rights shall terminate and become of no further effect. If the foregoing provisions of this Section 14 are violated, the Participant's election to purchase Common Stock shall terminate and the only obligation of the Company remaining under the Plan shall be to pay the person entitled thereto the Employee Contribution Amount then credited to the Participant's account. No Participant may create a lien on any funds, securities, rights or other property held for the account of the Participant under the Plan, except to the extent permitted by will or the laws of descent and distribution if beneficiaries have not been designated. A Participant's right to purchase shares of Common Stock under the Plan shall be exercisable only during the Participant's lifetime and only by him or her. 15. COSTS Billing will pay all expenses incident to establishing and administering the Plan. Expenses to be incurred by Participants shall be limited to brokerage fees relating to sales of stock from the Participant's account (as described herein), issuance fees (as described in Section 10) and any personal income tax obligations. 16. REPORTS At least annually, the Company shall provide or cause to be provided to each Participant a report of their Employee Contribution Amounts and the shares of Common Stock purchased with such Employee Contribution Amounts by that Participant on each Exercise Date. 17. EQUAL RIGHTS AND PRIVILEGES All eligible Employees shall have equal rights and privileges with respect to the Plan so that the Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and related regulations. Any provision of the Plan that is inconsistent with Section 423 or any successor provision of the Code shall without further act or amendment by the Company be reformed to comply with the requirements of Section 423. This Section 17 shall take precedence over all other provisions in the Plan. 18. RIGHTS AS A STOCKHOLDER A Participant shall have no rights as a stockholder under his or her rights to purchase Common Stock until he or she becomes a stockholder as herein provided. A Participant will become a stockholder with respect to shares for which payment has been completed as provided in Section 9 effective as of the date the shares are posted to the Participant's stock trading account. 19. MODIFICATION AND TERMINATION The Board may amend or terminate the Plan at any time as permitted by law, with the exception that the provisions of the Plan (including, without limitation, the provisions of Sections 8 and 9) that G-6 constitute a formula award for purposes of Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), may not be amended more than once every six (6) months, other than to comply with changes in the Code, or the rules thereunder. No amendment shall be effective unless within one (1) year after the change is adopted by the Board it is approved by the holders of a majority of the voting power of Billing's outstanding shares: i) if and to the extent such amendment is required to be approved by stockholders to continue the exemption provided for in Rule 16b-3 (or any successor provision); or ii) if such amendment would cause the rights granted under the Plan to purchase shares of Common Stock to fail to meet the requirements of Section 423 of the Code (or any successor provision). 20. BOARD AND STOCKHOLDER APPROVAL; EFFECTIVE DATE The Plan was approved by the Board and by the sole stockholder of Billing on , 1996. The Plan will become effective as of August 1, 1996. 21. GOVERNMENTAL APPROVALS OR CONSENTS The Plan and any offering or sale made to Employees under the Plan are subject to any governmental approvals or consents that may be or become applicable in connection therewith. Subject to the provisions of Section 19, the Board may make such changes in the Plan and include such terms in any offering under the Plan as may be desirable to comply with the rules or regulations of any governmental authority. 22. USE OF FUNDS All Employee Contribution Amounts received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such amounts. 23. NO ADDITIONAL PURCHASE RIGHTS OR EMPLOYMENT RIGHTS Other than for rights to purchase Common Stock under the Plan, the Plan does not, directly or indirectly, create any right for the benefit of any Employee or class of Employee to purchase any shares under the Plan, or create in any Employee or class of Employee any right with respect to continuance of employment with the Company, and it shall not be deemed to interfere in any way with the Company's right to terminate, or otherwise modify, any Employee's employment at any time. 24. EFFECT OF PLAN The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each Employee participating in the Plan, including, without limitation, such Employee's estate and the executors, administrators or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such Employee. 25. GOVERNING LAW The laws of the State of Delaware will govern all matters relating to the Plan except to the extent superseded by the laws of the United States or the property laws of any particular state. 26. NO PAYMENT OF INTEREST No interest will be paid or allowed on any Employee Contribution Amounts or amounts credited to the account of any Participant. 27. OTHER PROVISIONS The agreement to purchase shares of Common Stock under the Plan shall contain such other provisions as the Committee and the Board shall deem advisable, provided that no such provision shall in any way conflict with the terms of the Plan. G-7 -----END PRIVACY-ENHANCED MESSAGE-----