-----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, TmT0xAty7wY0yTiECkiv44CwWpMEVx6Qh5eOa8Xaph91XrULn9pI2ltXgOCDYSYR 1UTXW9+BILUPXkKoh4Kxfg== 0000912057-96-015946.txt : 19960802 0000912057-96-015946.hdr.sgml : 19960802 ACCESSION NUMBER: 0000912057-96-015946 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960801 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BILLING INFORMATION CONCEPTS CORP CENTRAL INDEX KEY: 0001013706 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 742781950 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-28536 FILM NUMBER: 96602119 BUSINESS ADDRESS: STREET 1: 9311 SAN PEDRO STREET 2: STE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78216 BUSINESS PHONE: 2105256017 MAIL ADDRESS: STREET 1: 9311 SAN PEDRO STREET 2: STE 400 CITY: SAN ANTONIO STATE: TX ZIP: 78216 10-12G/A 1 FORM 10 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 1996 REGISTRATION NO. 0-28536 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10/A POST EFFECTIVE AMENDMENT NO. 2 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) 321-6900 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 Financial Statements"; "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 Financial Statements"; "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 pages R-5 and 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: July 31, 1996 R-4 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBITS PAGE - ---------- --------------------------------------------------------------------------------------- --------------- 3.1 -- Amended and Restated Certificate of Incorporation of Billing (previously filed) 3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (previously filed) 3.3 -- Bylaws of Billing (filed herewith)* 4.1 -- Form of Stock Certificate of Common Stock (previously filed) 4.2 -- Rights Agreement between Billing and U.S. Trust Company of Texas, N.A. (previously filed) 8.1 -- Tax Opinion of Arter & Hadden (filed herewith)* 10.1 -- Distribution Agreement between USLD and Billing (filed herewith)* 10.2 -- Tax Sharing Agreement between USLD and Billing (previously filed) 10.3 -- Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing (filed herewith)* 10.4 -- Transitional Services and Sublease Agreement between USLD and Billing (previously filed) 10.5 -- Zero Plus -- Zero Minus Billing and Information Management Services Agreement between USLD and Billing (previously filed) 10.6 -- Form of Stock Option Agreement for Non-Plan Options (previously filed) 10.7 -- Telecommunications Agreement between USLD and Billing (previously filed) 10.8 -- Billing's 1996 Employee Comprehensive Stock Plan (previously filed) 10.9 -- Billing's 1996 Non-Employee Director Plan (previously filed) 10.10 -- Billing's Employee Stock Purchase Plan (filed herewith)* 10.11 -- Billing's 401(k) Retirement Plan (incorporated by reference from Exhibit 4.5 to Billing's Registration Statement on Form S-8, File No. 333-08303, filed with the Securities and Exchange Commission on July 17, 1996) 10.12 -- Billing's Executive Compensation Deferral Plan (filed herewith)* 10.13 -- Billing's Director Compensation Deferral Plan (filed herewith)* 10.14 -- Billing's Executive Qualified Disability Plan (previously filed) 10.15 -- Employment Agreement to be entered into between Billing and Parris H. Holmes, Jr. (previously filed) 10.16 -- Employment Agreement to be entered into between Billing and Alan W. Saltzman (previously filed) 10.17 -- Employment Agreement to be entered into between Billing and Kelly E. Simmons (previously filed) 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,
R-5
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF EXHIBITS PAGE - ---------- --------------------------------------------------------------------------------------- --------------- 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. (previously filed) 10.19 -- Master Loan and Security Agreement dated December 31, 1993 between U.S. Long Distance, Inc. and BOT Financial Corporation, Continuing Corporate Guaranty dated December 31, 1993 executed by U.S. Long Distance Corp., Promissory Notes, dated December 31, 1993, March 31, 1994, April 28, 1994 and March 29, 1995, Supplemental Security Agreements dated December 31, 1993, April 28, 1994, March 24, 1995, Promissory Note dated June 28, 1995, Supplemental Security Agreement dated June 28, 1995, Promissory Note dated September 29, 1995, Supplemental Security Agreement dated September 29, 1995 and Form of Continuing Corporate Guaranty to be executed by Billing (previously filed). 10.20 -- Software License Agreement dated June 28, 1996 between Saville Systems U.S., Inc. and Billing Information Concepts, Inc. (filed herewith; confidential treatment is being sought for portions of Exhibit 10.20) 10.21 -- Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners, Ltd. and Billing Information Concepts, Inc. (previously filed) 21.1 -- Amended List of Subsidiaries (previously filed) 23.1 -- Consent of Arter & Hadden (included in their opinion filed as Exhibit 8.1) 27.1 -- Financial Data Schedule (previously filed) 99.1 -- Definitive Schedule 14C Information Statement of U.S. Long Distance Corp. (filed herewith)*
- ------------------------ * Amended Exhibit R-6 EX-3.3 2 EX 3.3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (A DELAWARE CORPORATION) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED 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 1 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. 2.8 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 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 are 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 3.16 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 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. 3.10 Notice of special meetings 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. 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 4 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. 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 5 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 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. 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 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 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. 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 record date shall not precede the date upon which the resolution fixing the record date is adopted shall not be less than ten days, nor more than sixty days prior to the date of the meeting or any other 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. 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 9 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. 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 10 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. 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 11 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) 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 12 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 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 3.2, 3.3, 3.16 and 3.17 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. 13 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: July 10, 1996 /s/ KELLY E. SIMMONS -------------------------------------- SECRETARY OF BILLING INFORMATION CONCEPTS CORP. (SEAL) 14 EX-8.1 3 EXHIBIT 8.1 July 10, 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 (i) 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"), (ii) the grant of options to acquire Billing Stock ("Billing Options") to holders of options to acquire USLD stock ("USLD Options") in connection with the Distribution, and (iii) the adjustment to the exercise price of the USLD Options (the "Formula Adjustment") in connection with the Distribution. Specifically, you have requested our opinions 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, and whether the grant of the Billing Options or the Formula Adjustment will result in the recognition of taxable income by USLD or Billing or the holders of the USLD Options or the Billing Options. 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 addition, based on the qualifications and limitations described below, it is our opinion that neither the grant of the Billing Options nor the Formula Adjustment will result in the recognition of taxable income to USLD or Billing or the holders of the USLD Options or the Billing Options. 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 May 14, 1996 as thereafter amended 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; U.S. Long Distance Corp. Billing Information Concepts Corp. July 10, 1996 Page 2 4. The Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing (the "Benefit Plans Allocation Agreement"); 5. 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"); 6. A "Best Interest of Shareholders" Opinion to the Board of Directors of USLD by Chicago Corporation; and 7. 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) (a) Neither USLD nor Billing is registered under the Investment Company Act of 1940, as amended, as a management company or an investment trust or has in effect an election under the Investment Company Act of 1940, as amended, to be treated as a business development company; (b) neither USLD nor Billing have filed with any federal tax return an election to be a regulated investment company or has made such an election for any taxable year; (c) USLD and Billing each derive less than ninety percent (90%) of their respective gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock or securities or foreign currencies or from other income derived with respect to investing in stock, securities or currency; (d) less than fifty percent (50%) of the value of the total assets of USLD and less than fifty percent (50%) of the value of the total assets of Billing are stocks and securities, provided that for such purposes total assets excludes (1) cash and cash items (including receivables), (2) government securities and (3) assets acquired (A) such that not more than twenty-five percent (25%) of the value of USLD's or Billing's total assets is invested in stock and securities of any one (1) issuer U.S. Long Distance Corp. Billing Information Concepts Corp. July 10, 1996 Page 3 and not more than fifty percent (50%) of the value of its total assets is invested in the stock and securities of five (5) or fewer issuers (treating members of a controlled group as a single issuer) or (B) to terminate classification as an investment company; and (e) less than eighty percent (80%) of the value of the total assets of USLD and less than eighty percent (80%) of the value of the total assets of Billing are assets held for investment, provided that for such purposes total assets excludes (1) cash and cash items (including receivables), (2) government securities and (3) assets acquired (A) such that not more than twenty-five percent (25%) of the value of USLD's or Billing's total assets is invested in stock and securities of any one (1) issuer and not more than fifty percent (50%) of the value of its total assets is invested in the stock and securities of five (5) or fewer issuers (treating members of a controlled group as a single issuer) or (B) to terminate classification as an investment company. (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 five percent (5%) 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 have a positive federal income tax basis in excess of $10,000,000 with respect to the Billing Stock that it then holds. In addition, the internal tax accounting staff of USLD and Billing, which staff is responsible for (a) maintaining the tax investment basis of USLD and its investment in its subsidiaries and (b) the preparation of the consolidated federal income tax returns for such consolidated group, is not aware of any transactions between or among USLD, Billing and/or the other corporate members of such consolidated group which would require 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. (16) None of the USLD Options were designated as incentive stock options, at the time of their grant. U.S. Long Distance Corp. Billing Information Concepts Corp. July 10, 1996 Page 4 (17) The USLD Options are not now and have never been actively traded on an established market. (18) None of the USLD Options are transferable by the holder thereof except pursuant to the laws of descent and distribution or a domestic relations order. (19) None of the USLD Options were immediately exercisable by the holder thereof at the time of its grant. 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 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 of June 30, 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 U.S. Long Distance Corp. Billing Information Concepts Corp. July 10, 1996 Page 5 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 June 30, 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) except as specifically addressed herein, 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 whatsoever, including the Distribution and the grant of the Billing Options or the Formula Adjustment to the USLD Options, 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-Certain Federal Tax Consequences", "Special Factors-Uncertainty of Tax Consequences," "The Distribution -- Certain Federal Income Tax Consequences of the Distribution" and "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement -- Tax Effect of Option Adjustment" 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 4 EXHIBIT 10.1 DISTRIBUTION AGREEMENT between U.S. LONG DISTANCE CORP. and BILLING INFORMATION CONCEPTS CORP. dated as of July 10, 1996 TABLE OF CONTENTS Page ---- ARTICLE I. DEFINITIONS..................................................... 1 Section 1.01. General.............................................. 1 Section 1.02. Terms Defined Elsewhere in Agreement................. 8 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 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. OBLIGATIONS FOR USLD WARRANTS Section 4.01. Sharing of Warrant Obligations....................... 13 Section 4.02. Issuance of Billing Common Stock Upon Exercise of Warrants........................................ 14 Section 4.03. Allocation of Exercise Price......................... 14 Section 4.04. Amendment to Warrants................................ 14 ARTICLE V. OBLIGATIONS FOR NON-PLAN OPTIONS................................ 15 Section 5.01. Grant of Non-Plan Option............................. 15 ARTICLE VI. THE DISTRIBUTION............................................... 15 Section 6.01. Cooperation Prior to the Distribution................ 15 Section 6.02. USLD Board Action; Conditions Precedent to the Distribution....................................... 16 Section 6.03. The Distribution..................................... 17 Section 6.04. Securities Filings................................... 17 ARTICLE VII. INDEMNIFICATION............................................... 17 Section 7.01. Indemnification by USLD.............................. 17 Section 7.02. Indemnification by Billing........................... 18 Section 7.03. Insurance Proceeds................................... 18 Section 7.04. Procedure for Indemnification........................ 18 Section 7.05. Remedies Cumulative.................................. 20 Section 7.06. Survival of Indemnities.............................. 20 (i) ARTICLE VIII. CERTAIN ADDITIONAL MATTERS................................... 20 Section 8.01. Billing Board........................................ 20 Section 8.02. Resignations; USLD Board............................. 21 Section 8.03. Certificate and Bylaws............................... 21 Section 8.04. Certain Post-Distribution Transactions............... 21 Section 8.05. Billing Rights Plan.................................. 22 Section 8.06. Use of the "USLD" Name and the USLD Logo............. 22 Section 8.07. Noncompetition Agreement............................. 22 ARTICLE IX. ACCESS TO INFORMATION AND SERVICES............................. 23 Section 9.01. Provision of Corporate Records....................... 23 Section 9.02. Access to Information................................ 24 Section 9.03. Production of Witnesses.............................. 24 Section 9.04. Reimbursement........................................ 24 Section 9.05. Retention of Records................................. 25 Section 9.06. Confidentiality...................................... 25 Section 9.07. Privileged Matters................................... 25 ARTICLE X. INSURANCE....................................................... 27 Section 10.01. Policies and Rights Included Within the Billing Group Assets....................................... 27 Section 10.02. Post-Distribution Date Claims........................ 27 Section 10.03. Administration and Reserves.......................... 28 Section 10.04. Agreement for Waiver of Conflict and Shared Defense.. 28 ARTICLE XI. MISCELLANEOUS.................................................. 29 Section 11.01. Complete Agreement; Construction..................... 29 Section 11.02. Expenses............................................. 29 Section 11.03. Governing Law........................................ 29 Section 11.04. Notices.............................................. 29 Section 11.05. Amendments........................................... 30 Section 11.06. Successors and Assigns............................... 30 Section 11.07. Termination.......................................... 30 Section 11.08. Subsidiaries......................................... 30 Section 11.09. No Third-Party Beneficiaries......................... 30 Section 11.10. Titles and Headings.................................. 30 Section 11.11. Exhibits and Schedules............................... 30 Section 11.12. Legal Enforceability................................. 30 Section 11.13. Arbitration of Disputes.............................. 30 Section 11.14. Prompt Action........................................ 31 Section 11.15. Applicability to Related Agreements.................. 31 INDEX OF EXHIBITS AND SCHEDULES............................................ 33 (ii) DISTRIBUTION AGREEMENT This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this 10th day of July, 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, for the Billing Group to transfer to USLD and/or the Telecommunications Group certain assets and liabilities not relating principally to the Billing Group and to engage in certain other transactions (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 June 30, 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 August 2, 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 July 29, 1996, subject to the fulfillment on or before August 2, 1996 of certain conditions to the Distribution as provided in Section 6.02. 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 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. 4 HOLDERS: The holders of record of USLD Common Stock as of the Distribution Record Date. INFORMATION STATEMENT: The definitive Information Statement 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. LEASING AGREEMENT: The Leasing Agreement between USLD and Billing, pursuant to which USLD agrees to pay certain usage charges and expenses relating to the leasing of an airplane owned by Billing, which agreement shall be entered into on or prior to the Distribution Date in substantially the form of EXHIBIT E attached hereto. 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. 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. 5 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. 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. 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 Leasing 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 WARRANT AGREEMENTS: The Amendments to the Warrant Certificates executed by USLD and Billing reflecting the adjustments to the Warrants necessary to implement the agreements set forth in Article IV. TAX OPINION: The Tax Opinion given by Arter & Hadden in connection with the Distribution. 6 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. TRANSITIONAL SERVICES AND SUBLEASE AGREEMENT: The Transitional Services and Sublease Agreement by and between USLD and Billing pursuant to which (a) such parties will provide to the other certain transitional services after consummation of the Distribution, (b) 7 Billing will agree to sublease certain space from USLD on a month-to-month basis and (c) Billing will assume all of the liabilities for certain other space from USLD until March 31, 1997, 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 PRO FORMA BALANCE SHEET: The Pro Forma Consolidated Balance Sheet of USLD as of June 30, 1996, attached hereto as EXHIBIT H. WARRANTS: The Warrants (i) dated February 22, 1996 by and between USLD and Paytel Northwest, Inc. to purchase an aggregate of 100,000 shares of USLD Common Stock and (ii) dated February 23, 1996, by and between USLD and Communications Central, Inc. to purchase an aggregate of 125,000 shares of USLD Common Stock. 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 Applicable Percentage......................... 4.03 Billing Group......................................... Recitals Billing Indemnifiable Loss............................ 7.01 Billing Indemnitees................................... 7.01 Billing Initial Trading Price......................... 4.03 Billing Non-Plan Option............................... 5.01 Billing Rights........................................ 8.05 Billing Rights Plan................................... 8.05 Billing Suspension Period............................. 4.05 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 Preliminary Transfers................................. Recitals Sales Price........................................... 4.03 Telecommunications Group.............................. Recitals Third-Party Claim..................................... 7.04 Trading Day........................................... 4.03 USLD.................................................. Recitals USLD Indemnifiable Loss............................... 7.02 USLD Indemnitees...................................... 7.02 USLD Initial Cash Balance............................. 2.07 USLD Initial Trading Price............................ 4.03 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 Corp. and U.S. Billing, Inc.) to Billing, (ii) to cause MegaPlus Dialing, Inc., its wholly owned subsidiary to sell to USLD for $8,785,000 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 repurchase all of the common shares previously sold by 9 MegaPlus Dialing, Inc. to USLD for $8,785,000, (iv) cause its two subsidiaries engaged in the Billing Group Business (Zero Plus Dialing, Inc. and Enhanced Services Billing, Inc.) to be merged with U.S. Billing Corp. and U.S. Billing, Inc., with Zero Plus Dialing, Inc. and Enhanced Services Billing, Inc. surviving, and Zero Plus Dialing, Inc. changing its name to Billing Information Concepts, Inc., (v) to cause the transfer, assignment, delivery and conveyance to Billing or any Billing Group Subsidiary of all of USLD's and its Subsidiaries' right, title and interest in the remaining Billing Group Assets and (vi) to effect the cash allocation set forth in Section 2.07 below. 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, if any. 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 10 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 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. Except as specifically provided in this Agreement or in any Related Agreement, 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 11 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. 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 hold Cash in an amount necessary for USLD's working capital to be approximately $21,500,000 after taking into account the payment by USLD of the direct costs of the Distribution and all Preliminary Transfers ("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 June 30, 1996. 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 12 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. 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 Leasing 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. 13 OBLIGATIONS FOR USLD WARRANTS Section 4.01. SHARING OF WARRANT OBLIGATIONS. USLD has issued certain Warrants, of which approximately 225,000 Warrants were outstanding and unexercised as of the date of this Agreement. USLD and Billing have agreed that, in connection with the Distribution, Billing will assume its proportionate share of the obligations represented by the Warrants, as set forth below in this Article IV. Section 4.02. ISSUANCE OF BILLING COMMON STOCK UPON EXERCISE OF WARRANTS. (a) Following the Distribution Record Date, upon exercise of a Warrant to purchase a share of USLD Common Stock and payment of the exercise price therefor, at USLD's option, the holder of the Warrant will be entitled to receive, in addition to each share of USLD Common Stock issuable upon exercise of the Warrant, one share of Billing Common Stock. Upon receipt of a notice of exercise of Warrants, USLD, if it so elects, will promptly provide notice thereof to Billing or a transfer agent designated by Billing to receive such notice (which notice will contain the number of shares of Billing Common Stock issuable by Billing in connection with such exercise, the person in whose name such shares are to be issued and the address for delivery of the share certificates issuable to such person); and in such event Billing shall promptly thereafter (and in any event within five Business Days after receipt of such notice) issue the shares of Billing Common Stock as set forth in such notice. Billing and USLD will, and will cause their respective transfer agents to, work together in good faith to establish procedures to ensure that such notices are received by Billing, and such shares are issued by Billing, as promptly as practicable. (b) Notwithstanding the provisions of Section 4.02(a) above, Billing shall not be required to issue any frational shares of Billing Common Stock upon exercise of any Warrant. If any fraction of a share of Billing Common Stock would, except for the provision of this Section 4.02(b), be issuable on the exercise of any Warrants, Billing shall pay to the exercising Warrant holder (in lieu of issuance of such fractional share) an amount in cash equal to such fraction multiplied by the Billing Warrant Exercise Amount, where the "Billing Warrant Exercise Amount" equals the Billing Applicable Percentage (as defined below) multiplied by the exercise price paid by the Warrant holder upon such exercise. Section 4.03. ALLOCATION OF EXERCISE PRICE. In the event Billing is required to issue shares of Billing Common Stock pursuant to Section 4.02 above, Billing shall be entitled to receive the Billing Applicable Percentage (as defined below) of the exercise price paid upon the exercise of any Warrants (which exercise price currently is $12.50 per share for the Warrants held by Paytel Northwest, Inc. and $12.50 per share for the Warrants held by Communications Central, Inc.). Such Billing Applicable Percentage shall be paid over to Billing by USLD as promptly as practicable following USLD's receipt of the exercise price for any Warrants. The term "Billing Applicable Percentage" shall mean the result of the following calculation, expressed as a percentage: (i) the Post Distribution Billing Closing Stock Price, DIVIDED BY (ii) the sum of (x) the Post Distribution Billing Closing Stock Price PLUS (y) the Post Distribution USLD Closing Stock Price. 14 Section 4.04. AMENDMENT TO WARRANTS. At USLD's option and request, Billing agrees to execute prior to the Supplemental Warrant Agreements reflecting any changes necessary to implement the agreements set forth in this Article IV. ARTICLE V. OBLIGATIONS FOR NON-PLAN OPTIONS Section 5.01. GRANT OF NON-PLAN 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 per share from the unvested USLD option to the Billing Non-Plan Option. The exercise price spread per share 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 day prior to the Record Date and (z) the exercise price of the former Director's USLD unvested option on the day prior to the Record 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 5.01(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. 15 (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. (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, Howard & Zukin, Inc. 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 and not be subject to further comment by the Staff of 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" 16 from the Commission with regard to exemptions from registration of the Distribution and related matters; (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 17 (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 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 18 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 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 19 the Indemnifying Party makes no response to such written notice from the Indemnitee, the Indemnifying Party shall be deemed to have elected option (ii). (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 20 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 of Billing: Parris H. Holmes, Jr., Alan W. Saltzman, Lee Cooke and James E. Sowell. 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 21 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 (other than Billing Group Assets in connection with the Distribution or transactions effected in contemplation thereof), (b) repurchase or issue 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. 22 (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 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 23 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. 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 24 furnish assistance (at cost), as may be reasonably incurred in providing such Information or witness services. 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 25 against or by USLD, whether or not the Privileged Information is in the possession of or under the control of USLD or Billing. (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 26 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 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, 27 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. 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. 28 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 29 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 30 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. 31 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: /s/ LARRY M. JAMES -------------------------------- Title: President ----------------------------- BILLING INFORMATION CONCEPTS CORP. By: /s/ ALAN W. SALTZMAN -------------------------------- Title: President ----------------------------- 32 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 Leasing Agreement................................................ 5 Exhibit F Tax Sharing Agreement............................................ 6 Exhibit G Transitional Services and Sublease Agreement..................... 7 Exhibit H USLD Pro Forma Consolidated Balance Sheet........................ 8 Exhibit I Opinion of The Chicago Corporation.............................. 16 Exhibit J Opinion of Houlihan Lokey....................................... 16 33 Exhibit K Opinion of Arter & Hadden....................................... 16 SCHEDULES 1.01(a) Billing Group Subsidiaries.................................... 7 1.01(b) Transferred Intellectual Property ............................ 7 34 SCHEDULE 1.01(a) BILLING GROUP SUBSIDIARIES Billing Information Concepts, Inc., a Delaware corporation (100%) Enhanced Services Billing, Inc. a Delaware corporation (100%) InterLata Aviation, Inc., a Texas corporation (100%) 35 SCHEDULE 1.01(b) TRANSFERRED INTELLECTUAL PROPERTY NONE 36 EX-10.3 5 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 July 10, 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 July 10, 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 July 10, 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 July 10, 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 July 10, 1996, but effective as of the date of effectiveness of Billing's Registration Statement on Form 10 filed under the Securities Exchange Act of 1934, as amended, 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 July 10, 1996, but effective as of the date of effectiveness of Billing's Registration Statement on Form 10 filed under the Securities Exchange Act of 1934, as amended, 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. Prior to the Distribution Date, 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 3,500,000 shares and 400,000 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 or will provide, and each relating Billing Stock Option agreement will provide, that (a) upon a change of control (as defined in the applicable stock option agreement) of USLD, all nonvested Existing USLD Stock Options, whether held by a Retained Employee or a Billing Employee, and all nonvested Billing Stock Options held by Retained Employees shall immediately vest, and (b) upon a change of control (as defined in the applicable stock option agreement) of Billing, all nonvested Billing Stock Options, whether held by a Retained Employee or a Billing Employee, and all nonvested Existing USLD Stock Options held by Billing Employees shall immediately vest. (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 July 10, 1996, but effective as of the date of effectiveness of Billing's Registration Statement on Form 10 filed under the Securities Exchange Act of 1934, as amended, 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 July 10, 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: Marshall N. Millard, Esq. -------------------------- 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: /s/ Larry M. James ---------------------------- Larry M. James President BILLING INFORMATION CONCEPTS CORP., a Delaware corporation By: /s/ Alan W. Saltzman ---------------------------- Alan W. Saltzman President -21- SCHEDULE 2.6(a) [Medical/Dental Plans to be Sponsored and Continued by USLD] SCHEDULE 2.6(b) [Medical/Dental Plans to be Sponsored and Established by Billing] EX-10.10 6 EXHIBIT 10.10 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. 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. 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; 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 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. 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 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 July 10, 1996. The Plan will become effective upon the effectiveness of the Company's Form 10 Registration Statement filed under the Securities Exchange Act of 1934, as amended. 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. 7 EX-10.12 7 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 the 10th day of July, 1996 effective on the Distribution Date as defined in the Distribution Agreement dated July 10, 1996 between U.S. Long Distance Corp. and Billing Information Concepts Corp. (the "Company") (the "Effective Date"). The Plan is established and maintained by 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 10th day of July, 1996. BILLING INFORMATION CONCEPTS CORP. ATTEST: Marshall N. Millard By: Alan W. Saltzman - --------------------------- ------------------------------------- Marshall N. Millard Name: Alan W. Saltzman ---------------------- Title: President ---------------------- 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 Deferral Election 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(s) indicated above: Monthly Deferral Amount _________ The deferral election I am choosing is effective beginning with my first payment of compensation from the Company. - ----------------------------------------------------------------------------- PAYMENT OF BENEFIT - ----------------------------------------------------------------------------- 1. As a Participant in the Billing Information Concepts Corp. Executive Compensation Deferral Plan, I understand that the manner of payment of my accumulated account balance will be made as a lump sum, except as provided below. For Participants with prior Plan accounts (from the USLD Executive Compensation Deferral Plan) who elected installment payments prior to December 12, 1995, and never revoked that election: Retirement benefits paid from my Prior Plan Account shall be paid as follows: ______ in installments as previously elected. ______ in a lump sum. I understand that if I choose payment in a lump sum, that election may never be changed and, furthermore, that the lump sum election will not take effect until 2 years after the date the election is made. 2. Additionally, I elect the choice checked below regarding the time of payment: _______Actual Retirement _______Age 65 if Later Than Actual Retirement I understand that this choice may be made ONLY on my first Enrollment Form filed under the Billing Information Concepts Corp. Executive Compensation Deferral Plan. I understand further that the foregoing election regarding time of payment 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 HAVE RECEIVED A COPY OF THE BILLING INFORMATION CONCEPTS CORP. EXECUTIVE COMPENSATION DEFERRAL PLAN AND I AGREE TO BE BOUND BY THE TERMS OF THIS ELECTION AND THE REQUIREMENTS, CONDITIONS, AND TERMS OF THE PLAN. EXECUTIVE SIGNATURE: _______________________________________________________ DATE: ______________________________ - ----------------------------------------------------------------------------- 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. Executive Signature ___________________________________Date:__________________ EX-10.13 8 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 the 10th day of July, 1996 effective on the Distribution Date as defined in the Distribution Agreement dated July 10, 1996 between U.S. Long Distance Corp. and Billing Information Concepts Corp. (the "Company") (the "Effective Date"). The Plan is established and maintained by 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 10th day of July, 1996. BILLING INFORMATION CONCEPTS CORP. ATTEST: Marshall N. Millard By Alan W. Saltzman - ------------------------ --------------------------------- Marshall N. Millard Name Alan W. Saltzman ------------------------------ Title President ----------------------------- -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 Deferral Election 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(s) indicated above: Deferral Percentage _________% The deferral election I am choosing is effective beginning with my first payment of Director's fees by the Company. - ----------------------------------------------------------------------------- PAYMENT OF BENEFIT - ----------------------------------------------------------------------------- 1. As a Participant in the Billing Information Concepts Corp. Executive Compensation Deferral Plan, I understand that the manner of payment of my accumulated account balance will be made as a lump sum, except as provided below. For Participants with prior Plan accounts (from the USLD Director Compensation Deferral Plan) who elected installment payments prior to December 19, 1995, and never revoked that election: Retirement benefits paid from my Prior Plan Account shall be paid as follows: ______ in installments as previously elected. ______ in a lump sum. I understand that if I choose payment in a lump sum, that election may never be changed and, furthermore, that the lump sum election will not take effect until 2 years after the date the election is made. 2. Additionally, I elect the choice checked below regarding the time of payment: _______Actual Retirement _______Age 65 if Later Than Actual Retirement I understand that this choice may be made ONLY on my first Enrollment Form filed under the Billing Information Concepts Corp. Director Compensation Deferral Plan. I understand further that the election regarding time of payment 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 HAVE RECEIVED A COPY OF THE BILLING INFORMATION CONCEPTS CORP. DIRECTOR COMPENSATION DEFERRAL PLAN AND I AGREE TO BE BOUND BY THE TERMS OF THIS ELECTION AND THE REQUIREMENTS, CONDITIONS, AND TERMS OF THE PLAN. Director Signature: _________________________________________________________ Date: ________________________________ - ----------------------------------------------------------------------------- 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-10.20 9 EXHIBIT 10.20 CONFIDENTIAL TREATMENT BILLING INFORMATION CONCEPTS CORP. AND BILLING INFORMATION CONCEPTS, INC. HAVE REQUESTED THAT THE MARKED PORTIONS OF THIS DOCUMENT BE ACCORDED CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. SAVILLE SYSTEMS U.S., INC. SOFTWARE LICENSE AGREEMENT TERMS AND CONDITIONS Billing Information Concepts, Inc. 9311 San Pedro, Suite 400 San Antonio, Texas 78216 Thank you for choosing Saville Systems U.S., Inc. ("Saville"). The terms appearing below and on the enclosed ordering schedule (Schedule A), which are incorporated by this reference, the Customization Services Agreement and the Technology Escrow Agreement form our Agreement for licensing software, documentation and development. Please read carefully, fill out Schedule A, and sign this Agreement in duplicate. Both copies (including Schedule A) should be returned to Saville for written acceptance. Once accepted, Saville will sign both copies and then return one of those copies to you. 1. LICENSE TERM: The license term starts on the date on which Saville executes this Agreement and shall continue until it is terminated in accordance with this Agreement. 2. LICENSE GRANT: a. Saville grants you ("Customer") a perpetual license to use Saville's software in object code form, user documentation, and materials (collectively "Software Products") selected from Schedule A under the terms of this Agreement. This license is non-exclusive. Customer agrees to keep records of the number and location of copies in its possession. Customer shall not remove or alter any trademark, copyright, or other proprietary notice contained on or in any Software Product. Saville's copyright notice and other proprietary legends and labels affixed on the Software Products as delivered by Saville must also be affixed on and in all copies. The inclusion of a copyright notice on any software product or documentation shall not cause, or be construed to cause, it to be a published work. b. Use of the Software Products is restricted to residence and use on the equipment on Schedule A. Customer may use the Software Products in multi-processor environments. All Software Products may only be used with the operating environment specified in Schedule A. These restrictions are in addition to any set forth in the Schedule A. c. This license may not be transferred or sublicensed by Customer, except that Customer may sublicense the Software Products (without making any additional copies, except as permitted in this Agreement) to its majority-owned affiliates so long as: (i) each such affiliate acknowledges in writing that it will comply with all terms and conditions of this Agreement; (ii) Saville promptly receives a copy of that acknowledgment; and (iii) Customer remains fully liable for such affiliate's compliance. Any other attempted assignment, sublicense or transfer by Customer of this Agreement or the Software Products shall be void. Customer may use the Software Products: (i) to process its own data and for internal operations; and (ii) to provide, with the use of third-party software, billing processing services for Customer's clients for an unlimited number of telephony subscribers/CDRs; provided, however, that in connection with (ii) above, but without limitation of Customer's obligations with respect to trademark, copyright and other notices, Saville's trademarks, service marks, trade names and other commercial symbols shall not be associated in any way with Customer performing such services for its clients. 1 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. d. Saville may terminate Customer's license only in the event of a material breach by Customer not cured within 30 days after Saville gives notice of such breach to Customer. However, no notice will be required in the event of a material breach by Customer of Paragraph 8 below (Ownership and Confidentiality). Upon termination for any reason, Customer shall immediately return the Software Products, destroy all copies (including those in computer memory), and stop all usage. e. Customer agrees to allow Saville to monitor compliance with these conditions in a manner which does not interfere with normal business operations. 3. PRICING: a. For Customer's licensing of the Software Products pursuant to this Agreement, Customer agrees to pay a one-time license fee of [***REDACTED***]. This license fee shall be paid to Saville pursuant to the following schedule: (i) 33 1/3% upon execution of this Agreement; (ii) 33 1/3% on January 31, 1997; (iii) 33 1/3% upon delivery of Phase III as set forth in the Statement of Work or June 27, 1997, whichever occurs first. b. For (i) rendering the services described in a subsequent Statement of Work to this Agreement or (ii) enabling Customer to process data of its clients, related to the use of the Software Products in support of billing for non-telephony products or services, whichever shall first occur, Customer shall within thirty (30) days of such event pay Saville an additional amount of [***REDACTED***]. For the purposes of this provision, non-telephony products or services are defined as products and services other than local, long distance, paging, PCS, fax, data (such as packet) and cellular products and services. c. For providing annual software maintenance, Customer agrees to pay Saville an annual fee of [***REDACTED***] for each of the first five (5) years of the term of this Agreement. The first such fee shall be paid by Customer in the following percentages: 50% upon completion of the first full month of bill cycles, and the remaining 50% upon completion of the Statement of Work. The fee for each of second, third, fourth and fifth years shall thereafter be paid to Saville on or before January 31 of each successive year. If Customer notifies Saville of its intent to commit to an additional five (5)-year maintenance term before the expiration of this software maintenance Agreement, Saville shall extend such maintenance at an annual rate for not to exceed [***REDACTED***] each year of another five (5)-year term. 2 d. In addition, Customer agrees to pay all sales, use, personal property or other taxes associated with this Agreement or the Software Products and services, except taxes on Saville's net income. e. Saville shall submit monthly invoices to Customer for all services rendered pursuant to Paragraphs 5(b), (c) and (d) for the calendar month just completed. Saville's terms are 30 days net from date of invoice. Saville agrees to distribute invoices by first class mail on the date of invoice. f. Past due payments bear interest from the due date at the rate of the lesser of 1% per month or the highest rate permitted by applicable law. All amounts due shall be paid in U.S. Dollars. 4. DELIVERY AND INSTALLATION: a. Schedule A delivery dates are approximate; Saville may in certain situations need additional time. Replacement copies of the Software Products may be obtained at Saville's standard media and physical preparation charge if Customer's copies become lost or damaged while in Customer's possession. b. If Customer chooses to have Saville install the Software Products, Customer will let Saville use Customer's system and equipment in order to test and install the Software Products. Customer must provide the necessary operating environment, as specified on Schedule A. 5. MAINTENANCE AND TRAINING: a. Saville's annual software maintenance services referenced above shall consist of the following: (i) new standard releases of the Software Products from time to time specified by Saville as part of such its services; and (ii) problem solving as described below. New releases shall be deemed included as part of the Software Products. These annual software maintenance services specifically exclude new products. When a problem occurs which Customer determines is caused by the use of the Software Products, and the diagnosis by Saville's representative indicates a problem is caused by a defect in an unaltered current release of the Software Products or Software Products altered with approval of Saville, Saville's representative will: (1) promptly supply Customer with correction information to the extent available; and (2) promptly advise Customer concerning any planned resolution. Saville will use best efforts to correct software defects confirmed by Saville. In the case of a problem which causes or, in the reasonable opinion of Customer, threatens to cause a suspension of Customers production, in whole or in part, Saville shall upon notice given by Customer, immediately involve such knowledgeable representatives as may be necessary to correct the problem, and return the system to operating condition as soon as possible. Saville shall have the right to charge reasonable fees if Saville spends time investigating or fixing a problem which is not caused by a current standard release of a Software Product. Due to difficulties in 3 providing maintenance on a piecemeal or component basis, Saville reserves the right to refuse to provide maintenance for less than all systems and components under license. b. In addition to the annual maintenance services described in Paragraph 5(a) above, Saville shall provide to Customer a minimum of five (5) of its personnel on a Full Time Equivalents ("FTE") per year during the five year period commencing January 1, 1997, for the purposes of assisting Customer in utilizing the Software Products. Each of those individuals providing service shall be billed to Customer at an hourly rate which is 25% less than Saville's published rates for services rendered by such individuals or individuals of comparable skill and experience. The rate structure for these services is defined in Schedule D. These rates will be adjusted on a semi-annual basis at the lower of Saville then current rates or the Schedule D base rates adjusted by inflation as defined by the U.S. Consumer Price Index. "FTE" is defined as a minimum of 1,800 billable hours per year. Saville and the Customer will review, on a semi-annual basis, the total number of FTEs required, and may agree to add additional personnel as FTEs, or on a six month, 900 billable hours basis (a "Half-time Equivalent"). The discount will apply to the adjusted number, which shall not be less than five FTEs. Such personnel may be utilized by Customer for any work relating to the Software Products where the use of such personnel would be practical to Customer. Saville shall provide a quarterly true-up report of the hours utilized and unused hours of such personnel. Customer shall pay Saville for any hours in excess of 450 per person per quarter as determined in such true-up. c. Following Initial Implementation (as defined in the Customization Services Agreement), at Customer's request, Saville shall provide additional personnel for the purposes of assisting Customer in utilizing the Software Products. Each of those additional individuals shall be billed to Customer at an hourly rate which is 15% less than Saville's published rates for services rendered by such individuals or individuals of comparable skill and experience. d. All reasonable accommodation and subsistence expenses incurred by Saville will also be reimbursed by Customer.Such expenses must be expressly requested by Customer in relation with the Project and for the services provided by Saville. e. Saville will not charge Customer for travel time. f. All telecommunication expenses incurred by Saville other than routine long distance voice/fax charges in relation with the Project and for services provided by Saville will also be reimbursed by Customer upon presentation by Saville of sufficient written proof of reasonable expenses incurred. Saville will be provided telephone access while on Customer's premises. Representatives of Saville agree to accept the reasonable corporate requirements of Customer pertaining to lodging and related accommodations. g. Customer is exclusively contracting with Saville for all modifications to Software Products. Saville will make every effort to minimize modifications required for Future Software Developments (as defined in the Customization Services Agreement) in 4 subsequent maintenance releases, with the intent of minimizing time and effort spent to implement the release. b. Saville's assistance in association with the Specification Study currently being prepared by Saville will be provided as no charge to Customer, through June 20, 1996. 6. CUSTOMIZATION SERVICES: Customization services will be performed under a separate written Customization Services Agreement in the form which is attached as Schedule C attached hereto. As part of every customization activity, at specific Customer request, Saville will seek to identify any change that will ultimately be supported within the Base Product (as defined in the Customization Services Agreement). Any application produced as part of such customization services for Customer will be deemed included in the Software Products licensed under this Agreement. 7. WARRANTY AND REMEDY: a. Saville warrants that it has the right to grant Customer this license. Saville further warrants that the first release of each Software Product delivered to Customer will at time of delivery (or installation if Saville install it) perform substantially in accordance with Saville's user documentation as the same may change from time to time, provided that Customer supplies the operating environment specified in Schedule A. If Saville reasonably determines that the Software Product for which Customer's requested warranty service is not eligible for warranty service, for any valid reason, Customer shall pay or reimburse Saville for all reasonable direct costs of investigating and responding to such request at Saville's then prevailing time and material rates. Saville shall in good faith attempt to make repairs, replacements or corrections which result, in whole or in part, from problems associated with normal wear and tear, catastrophe, fault or negligence of Customer, improper or unauthorized use of the Software Products, causes external to the Software Products or use of the Software Products in a manner for which they were not designed, but in such event shall not be responsible for the result of such attempted repairs, replacements or corrections. Customer shall pay or reimburse Saville in accordance with the preceding sentence for any work done or expenses incurred by Saville pursuant to this sentence. b. THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE. THEY ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT, OR ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USAGE OF TRADE. 5 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 8. OWNERSHIP AND CONFIDENTIALITY: a. All Software Products and the media on which they are delivered to Customer remain the sole and exclusive property and trade secret of Saville and its licensors. Customer shall not modify, adapt, translate, reverse engineer, decompile, disassemble, or create derivative works based on the Software Products. Customer agrees to take reasonable security precautions to prevent disclosure of the Software Products to third parties and to protect and maintain confidentiality of the Software Products. Customer shall immediately notify Saville of any unauthorized disclosures. Saville will have the same confidentiality obligation to Customer for any specific confidential information Customer supplies to Saville, including but not limited to customer names, customer information of any kind, internal systems and processing information, Customer Local Exchange Company interface and protocol, agreed modifications to the Software Products as is specifically developed for Customer, intellectual property of Customer, and financial information relating to Customer or any of its customers. b. The recipient of confidential material or information will have no confidentiality obligations with regard to such material or information to the extent it is: (i) generally disclosed by the disclosing party without restrictions on confidentiality, (ii) rightfully supplied to the recipient by a third party without restrictions on confidentiality; or (iii) otherwise becomes generally publicly known without any fault on the part of the recipient. c. Injunctive relief, in addition to any other right or remedy, shall be an appropriate remedy to enforce the provisions of this Paragraph 8. 9. RESPONSIBILITY: a. Customer will be responsible for establishing reasonable backups, accuracy checks, and security precautions to guard against possible malfunctions, loss of data or unauthorized access. b. Customer agrees to indemnify and hold Saville harmless from any claim, loss or liability arising out of Customer's use of the Software Products or services, except to the extent caused by Saville's negligence or willful misconduct. 10. a. SAVILLE'S LIABILITY AND THAT OF ITS AGENTS, REPRESENTATIVES, AND EMPLOYEES TO CUSTOMER FOR DAMAGES (AS DEFINED BELOW) WITH RESPECT TO THIS AGREEMENT, THE SOFTWARE PRODUCTS, OR SERVCES SHALL NOT EXCEED IN THE AGGREGATE $[***REDACTED***]. IN NO EVENT SHALL SAVILLE HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES. THE LIMITATIONS AND EXCLUSIONS IN THIS PARAGRAPH SHALL APPLY TO ALL CLAIMS OF EVERY NATURE, KIND AND DESCRIPTION WHETHER ARISING FROM BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHER TORT, OR OTHERWISE. DAMAGES AS LIMITED BY THIS PARAGRAPH IS CUSTOMER'S SOLE AND EXCLUSIVE ALTERNATIVE REMEDY IN THE EVENT THAT ANY OTHER REMEDY PROVIDED IN THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE. FOR PURPOSES OF THIS AGREEMENT, "DAMAGES" SHALL MEAN AMOUNTS PAID BY CUSTOMER TO ANY THIRD PARTY PURSUANT TO A JUDGMENT OR ARBITRATION AWARD ENTERED AGAINST THE CUSTOMER AS A RESULT OF A FAILURE OF SAVILLE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, PROVIDED THAT DAMAGES SHALL NOT BE DEEMED TO EXIST UNLESS SUCH AMOUNT PAID TO A THIRD PARTY IS $[***REDACTED***] OR MORE, IN WHICH CASE SAVILLE SHALL BE RESPONSIBLE FOR THE FULL AMOUNT OF SUCH JUDGMENT, OR AWARD, SUBJECT TO THE $[***REDACTED***] LIMIT SET FORTH ABOVE. 6 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. b. Saville will not be responsible for any delay or failure in performance for causes beyond its reasonable control, including without limitation, acts of God, any government, or any other similar or dissimilar cause. c. IN THE EVENT OF A DEFECT OR FAILURE TO PERFORM WHICH DOES NOT CAUSE FINANCIAL DAMAGE TO CUSTOMER, SAVILLE'S SOLE OBLIGATION AND CUSTOMER'S EXCLUSIVE REMEDY FOR WARRANTY FAILURE IS THE TIMELY CORRECTION OR REPLACEMENT, AT SAVILLE'S OPTION, OF THE NONCONFORMING SOFTWARE PRODUCTS OR SERVICES. IN THE EVENT OF A DEFECT OR FAILURE TO PERFORM WHICH CAUSES FINANCIAL DAMAGE TO CUSTOMER, SAVILLE WILL COMPENSATE CUSTOMER FOR DIRECT DAMAGES CAUSED BY SUCH DEFECT. DIRECT DAMAGES SHALL INCLUDE LOSS OF PROFITS CAUSED BY THE DEFECT, BUT SHALL NOT INCLUDE INDIRECT, INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES. CUSTOMER SHALL HAVE THE RIGHT TO SET OFF ITS DIRECT DAMAGES AGAINST AMOUNTS OTHERWISE PAYABLE TO SAVILLE UNDER THIS AGREEMENT. SAVILLE'S LIABILITY IS FURTHER LIMITED AS SET FORTH IN PARAGRAPH 10. d. IN THE EVENT THAT A JUDGMENT OR ARBITRATION AWARD IN EXCESS OF $[***REDACTED***] IS ENTERED AGAINST SAVILLE BASED UPON SAVILLE'S FAILURE TO PERFORM THIS AGREEMENT OR IN THE CASE OF A DEFECT CAUSED BY SAVILLE, THEN SAVILLE SHALL, IN ADDITION TO PAYMENT OF THE JUDGMENT OR AWARD, FORTHWITH [***REDACTED***]. CUSTOMER SHALL THEREAFTER BE [***REDACTED***] UNDER THIS AGREEMENT BUT SHALL REMAIN RESPONSIBLE FOR COMPLIANCE WITH ALL OTHER NONFINANCIAL TERMS AND CONDITIONS OF THE AGREEMENT. 7 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 11. INSURANCE. Saville will maintain errors and omission insurance coverage from a reputable insurance company in the amount of at least $[***REDACTED***] for damages resulting from the malfunction of its product associated with Saville's performance of this Agreement. Customer shall have the right to review Saville's insurance policies and coverage to ensure continuing compliance with this provision. In the event Saville fails to procure or maintain such coverage, Customer may procure such coverage, if available, and Saville agrees to reimburse Customer for the costs of procuring and maintaining such coverage. 12. PATENTS AND COPYRIGHTS: a. Saville will defend and indemnify Customer, at Saville's expense, against any claim or suit against Customer based on alleged violation of a United States patent or copyright through Customer's use of the Software Products in accordance with this Agreement and will pay all costs, settlements, or judgments finally awarded, provided Saville has the right to control the defense of the litigation, Customer takes such actions as Saville may reasonably request at Saville's expense, and Customer gives Saville prompt and timely written notice of any claim. If a judgment is obtained against Customer's use of any part of the Software Products, or if Saville feels that there is a likelihood of a claim of infringement, Saville shall, at its option and expense: (i) modify or substitute the Software Products (but provide Customer with substantially the same functionality): (ii) obtain for Customer the right to continued use of the Software Products; or (iii) terminate the license and take back the Software Products. In the event of termination, Saville will refund Customer its license fees described in Paragraphs 3(a) and (b) above. Saville will have no obligation to defend and indemnify Customer to the extent that the claim or liability is based upon use of a noncurrent release of the Software Products and could have been avoided by use of a current release, or if the claim or liability is based upon modifications made by Customer, third-party software operated in conjunction with the Software Products, or work performed to Customer's specifications. b. THIS PARAGRAPH 11 STATES SAVILLE'S ENTIRE LIABILITY FOR PATENT AND COPYRIGHT INFRINGEMENT. 13. OPTION TO PURCHASE: Saville shall grant Customer the option to purchase the source code at any time within the term of this Agreement or for one (1) year after termination of this Agreement for any reason. The purchase price of the Source Code shall be cash in the amount of [***REDACTED***]. If the option to purchase is exercised, the parties will execute a definitive purchase agreement at such time. 14. EMPLOYEES: In the event that Customer directly or indirectly (other than through Saville) hires, whether as an employee, independent contractor, or in any other capacity, any person who was, within six (6) months prior to the hiring, an employee of Saville or any of its subsidiaries, Customer agrees to 8 pay Saville a finder's fee equal to 26 times that employee's bi-weekly gross compensation at the time he or she left the employment of Saville or its subsidiary, unless such hiring is agreed to by Saville. This provision shall apply only to those employees who either worked for Saville or its subsidiary on Customer's account in some capacity or worked with software or applications which were in some fashion generally similar to any offered or provided to Customer, by Saville. 15. THIRD PARTY AUDIT: Upon reasonable notice, Customer shall have the right to have an audit performed by a mutually agreed neutral third party once for each year of this Agreement. Such third-party auditor shall have the right to review and evaluate the Software Products and enhancements delivered and maintained under this Agreement, including the consulting and training components as described herein. The auditor shall have the right to review and evaluate Saville's performance of this Agreement and make recommendations for improved performance, and shall share the results of such audit with Saville. The cost of the audit shall be borne by Customer. 16. SUCCESSOR TO SAVILLE: In the event the Saville has a fifty-one percent (51%) or more change in ownership through merger, acquisition of stock or assets or other form of business combination, Customer shall have the right to retain and modify the source code and shall be relieved of any future maintenance fees under this Agreement. Customer shall thereafter remain responsible for compliance with all other nonfinancial terms and conditions of the Agreement. 17. GENERAL: a. This Agreement shall be governed by and construed under the laws of the Commonwealth of Massachusetts, exclusive of its choice of law rules. This is an integrated Agreement. It contains the full understanding of the parties and supersedes all other understandings, agreements, representations, or correspondence, written or oral, regarding its subject matter. This Agreement may be amended, modified, or waived only by another writing signed by the authorized representatives of both parties. Headings are for convenience; they shall not be used to construe this Agreement. In the event Customer issues a purchase order or other document covering the subject matter of this Agreement, it is agreed that in the event of a discrepancy between such purchase order and this Agreement, the terms and conditions of this Agreement shall prevail. No orders placed under this Agreement, including the initial order, shall be effective unless accepted in writing at Saville's headquarters. Paragraphs 7(c) through 13 shall survive termination of this Agreement. Any action against Saville or Customer under this Agreement or related to its subject matter must be brought within one year after the cause of action accrues. b. All notices shall be by personal delivery, by mail postage prepaid, or by facsimile with confirmed answerback. Notices to Customer shall be sent to Customer's billing address to the attention of the President of Customer. Notices to Saville shall be sent to the 9 attention of the President of Saville, at the address shown above. Notices are effective upon delivery in the case of personal delivery, on receipt in the case of facsimile, and five days after mailing in the case of posting. Current pricing schedules of Saville will be supplied to Customer upon request and on at least an annual basis. c. All disputes arising out of or relating to this Agreement shall be finally settled by arbitration conducted in Boston, Massachusetts, U.S.A. if a claim is brought by Customer, and in San Antonio, Texas, U.S.A. if brought by Saville, under the rules of commercial arbitration of the American Arbitration Association ("Rules"). Both parties shall bear equally the cost of the arbitration (exclusive of legal fees and expenses, all of which each party shall bear separately). All decisions of the arbitrator(s) shall be final and binding on both parties and enforceable in any court of competent jurisdiction. Notwithstanding the foregoing, in the event of breach by a party of its obligations hereunder, the non-breaching party may seek injunctive or other equitable relief in any court of competent jurisdiction. d. Nothing in this license shall be construed to constitute or create a joint venture, partnership, or formal business organization of any kind and the rights and obligations of each party shall be only those expressly set forth herein. Neither party shall have authority to bind the other, and neither party assumes any liabilities of the other party. THE ABOVE TERMS AND CONDITIONS ARE AGREED TO AND ACCEPTED AND ARE HEREBY EXECUTED BY THE PARTIES UNDER SEAL. (PLEASE SIGN AND RETURN TWO COPIES OF THIS AGREEMENT.) BILLING INFORMATION CONCEPTS, INC. ACCEPTED AT SAVILLE SYSTEMS U.S.,INC. By: /s/ ALAN W. SALTZMAN By: /s/ JOHN J. BOYLE III Name: Alan W. Saltzman Name: John J. Boyle III Title: President/Chief Operating Title: President & CEO Officer Date: Date: June 28, 1996 10 SCHEDULE A Acceptance of this contract provides to the Customer the following items: - - Saville CBP - AS/400 corporate-wide site license - - Software delivery: June 28, 1996. - - Installation locations at the current Customer locations in San Antonio, Texas. SCHEDULE B (INTENTIONALLY OMITTED) SCHEDULE C CUSTOMIZATION SERVICES AGREEMENT TERMS AND CONDITIONS Billing Information Concepts, Inc. 9311 San Pedro, Suite 400 San Antonio, Texas 78216 Thank you for choosing Saville Systems U.S., Inc. ("Saville") to provide you ("Customer") with customization services (the "Project"). The terms appearing below and on the enclosed appendices (Appendices 1 and 2), which are incorporated by this reference, form our Agreement for developing software and documentation. Please read carefully, and sign this Agreement in duplicate. Both copies (including Appendices) should be returned to Saville for written acceptance. Once accepted, Saville will sign both copies and then return one of those copies to you. Saville and Customer have also entered into a Software License Agreement (the "Software License"). 1. DEFINITIONS When used in this Agreement, the following terms shall have the meaning specified below: 1.1 "Base Software" means the Software Products, as that term is defined in the Software License Agreement, but excluding Software Developments and Future Software Developments. 1.2 "Billing System" means the Software Products, the Software Developments and the Saville utilities comprising the computer programs listed in Appendix 1, "Statement of Work" attached hereto. 1.3 "Documentation" means any printed material in the English language related to the Software Developments provided by Saville for use in connection with the Billing System. 1.4 "Future Software Developments" means any future developments to the Billing System specifically requested by Customer as defined in Section 2.2 hereof. They include the source code, the object code and the relevant documentation. 1.5 "Local Exchange Company" means any one of the local telephone companies providing intraLATA exchange telephone services or issuing calling cards and with whom Customer has entered into a billing and collection agreement. CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1.6 "Intellectual Property" means all intellectual and industrial property, including copyright, trademarks, patents, industrial designs, mask works and integrated circuit topographies, created, developed or reduced by practice by a Party under this Agreement. 1.7 "Project Plan" contained within the Specification Study means the timetable for accomplishing the Project, as set out in Appendix 1, "Statement of Work." 1.8 "Software Developments" means the enhancements and developments made by Saville in order to adapt the Base Software to the specific requirements of Customer, all as listed in Appendix 1, "Statement of Work" attached hereto. They include the source code, the object code and the relevant documentation. 1.9 "Technical Specifications" means the detailed design specifications for the Software Developments as listed in Appendix 1, "Statement of Work," as well as the detailed description of the other services provided by Saville under this Agreement. 2. SOFTWARE DEVELOPMENTS 2.1 INITIAL IMPLEMENTATION (a) Based on the Technical Specifications outlined in the Specification Study, Saville shall develop the Software Developments (the "Initial Implementation"). These will be done at Saville's premises and at Customer's premises as required. (b) This document shall supersede all other definitions or descriptions of the Software Developments, both written or oral, whether made by Customer or Saville. (c) For the Initial Implementation described herein Customer shall pay Saville an implementation fee of [***REDACTED***]. In the event that Saville's fees exceed [***REDACTED***] during the Initial Implementation phase, and such excess fees are not caused by written requests from Customer, Saville shall thereafter charge Customer its scheduled fees, as set forth in Schedule D to the Software License Agreement, at a 25% discount for the remainder of the Initial Implementation phase. (d) Each Party shall appoint a primary contact, a secondary contact and any other contacts required for any new products or services, who shall be the privileged contact point for every issue concerning the Project and who shall be informed of the progress of the Project. The names of the contacts will be exchanged in writing by the Parties. Using the contacts, the Parties shall report to each other as mutually agreed upon as to the progress being made by each of them in relation to their various responsibilities set out in the Project Plan, any delays being encountered and the actions being taken to recover from such delays. All Software Developments must be authorized by the primary contact - or the secondary contact in the absence of the primary contact. The authorization will initially be a verbal notification, with a written follow-up within 24 hours for sizable developments (I.E., in excess of $5,000). All production support work must be authorized by the primary contact - or the secondary contact in the absence of the primary contact. The authorization will initially be a verbal notification, with a written follow-up within 24 hours for sizable support request (I.E., in excess of $5,000). (e) Any additions, modifications or changes to the Technical Specifications requested by Customer shall first be submitted to Saville by Customer. Within fourteen (14) days, Saville shall reply setting forth the effect, if any, on the Project Plan, on the performance of the Billing System and on any additional fees payable by the Customer. If Customer notifies Saville within seven days of receipt from Saville of such reply of its desire that such additions, modifications or changes be implemented, this Agreement shall be deemed to be amended to reflect any change to the Project Plan and to the fees to be paid. (f) Saville will load into Customer's network all Software Projects as defined in the Software License Agreement and all Software Developments as defined by this Customization Services Agreement and assure that the loaded software performs with Customer's Equipment, as defined in Schedule A of the Software License Agreement, to allow Customer to test the software. Customer will certify full acceptance of all Software Developments no later than ninety (90) days after delivery of the Software Developments. In this respect, it is understood and agreed upon by both Parties that all Software Developments shall have been tested prior to delivery and that they will comply with Section 9.2 hereof. (g) Work to be performed by Saville on Software Developments during the Initial Implementation shall be charged to Customer at Saville's hourly rates as defined in the Software License Agreement, Schedule D, plus reimbursement for materials, travel, living and other related expenses incurred by Saville in performing such work and approved in advance by Customer. 2.2 FUTURE SOFTWARE DEVELOPMENTS (a) Customer may in the future determine that Future Software Developments should be made to the Billing System. Customer will initiate Future Software Developments by delivering a draft set of user requirements to Saville detailing the general functionality required of the Future Software Developments and any other general requirements to be met. (b) Saville shall respond within a reasonable timeframe to user requirements received by it under Section 2.2(a) above by providing Customer with a written best estimate of the days of effort required to carry out the Future Software Developments, together with any general comments on the user requirements that may be appropriate. The days of effort estimate shall be inclusive of the time required to produce Documentation as required under this Agreement, project management, consultancy work and all Saville internal testing. (c) Upon receipt of Saville's estimate under Section 2.2(b) above, Customer will review the user requirements for the Future Software Developments and shall make any changes that it deems necessary. Customer will then prepare a detailed functional specification and a project timetable specifying dates for completion of the relevant phases of the Future Software Developments based on Saville's days of effort estimate. Customer, may, at its discretion, request Saville to complete the project timetable on its behalf based on Customer's delivery requirements. (d) Upon receipt of the functional specification for the Future Software Developments (as prepared under Section 2.2(c) above) and upon completion of the project timetable, Saville shall review its days of effort estimate and shall advise Customer of the extent to which it can comply with the functional specification and the project timetable. The parties shall then agree upon any changes to the functional specification or to the project timetable which may be necessary to enable Saville to complete the Future Software Developments in accordance with both of those documents. (e) Upon completion and written agreement by the Parties of the documentation referred to in Section 2.2(d) above, Saville shall carry out and implement the Future Software Developments in accordance with the agreed functional specification and project timetable. (f) Work to be performed by Saville on Future Software Developments shall be charged to Customer in accordance with the provisions of the Software License Agreement, Schedule D. (g) The work carried out by Saville to produce a quote for Future Software Developments will be charged to Customer in accordance with the provisions of the Software License Agreement, Schedule D. (h) Customer will certify full acceptance of all Future Software Developments no later than sixty (60) days after the delivery of the Future Software Developments. In this respect, it is understood and agreed upon by both Parties that all Future Software Developments shall have been tested prior to delivery and shall comply with Section 9.2 hereof. 3. DEVELOPMENTS AND TESTING EQUIPMENT - SPACE Customer agrees to provide facilities for Saville, the equipment, Billing System and the Future Software Developments, at no charge, and Customer will ensure that Saville has sufficient access to such equipment, Billing System and Future Software Developments, so long as the security requirements of Customer are met. Each Party will also provide reasonable work space on the other Party's premises for its employees who require work space to furnish the services to be provided by Saville under this Agreement. 4. CUSTOMER ASSISTANCE Customer shall assist Saville in the performance of its services under this Agreement by making available all equipment, software, documentation, information and personnel required for the execution of this Agreement on a timely basis. Customer shall also ensure that those of its personnel who are assigned to assist Saville are familiar with Customer's requirements and have the expertise and capabilities necessary to permit Saville to undertake and complete the services under this Agreement. 5. OWNERSHIP OF SOFTWARE DEVELOPMENTS AND FUTURE SOFTWARE DEVELOPMENTS 5.1 Upon payment of the amounts specified in Section 7, the Software Developments and all Intellectual Property related to it and, in accordance with Section 2 of this Agreement, the Future Software Developments and all Intellectual Property related to it, shall belong and become the joint ownership of Customer and Saville. As defined in Section 8.a of the Software License Agreement, Software Developments, information, and intellect and property related to Customer Local Exchange Company Billing will not be shared with any customer of Saville other than Customer. 5.2 Other than as limited in Section 5.1 above, this ownership by both Parties shall imply that each party will be entitled to exercise all Intellectual Property rights on these Software Developments and Future Software Developments (including without limitation the rights to disclose, use, sell, license, and adapt) without any interference of the other Party or any duty to account to the other Party, except that Customer shall not license any third party to use any of the Software Developments, the Future Software Developments or the Intellectual Property rights related to them. 6. DELIVERY SCHEDULE 6.1 The Billing System shall be tested and implemented according to the time schedule provided in Appendix 1, "Statement of Work," and Appendix 2, "Proposed Development Plan for Initial Release" attached hereto, on the understanding that if any of the following time-frames are delayed, the other time-frames will be postponed by an equal number of days. The initial pricing milestones to be met by Saville are outlined and agreed to as defined by the Specification Study. Other milestones will be on a case-by-case basis. 6.2 From the date of delivery of each part of the Billing System and from the date of delivery of any Future Software Developments until the end of the Warranty Period, as defined under Section 9.2 hereof, Saville will immediately correct at Customer's request free of charge, all reported, reproducible errors, bugs or any other problems related to the Billing System and/or any Future Software Developments ("Problems") upon notification by Customer. 6.3 On the date of the delivery of the Billing System and on the date of delivery of any Future Software Developments, Customer will initiate acceptance testing. If Customer is satisfied with the results of the Billing System on the date which is thirty (30) days after such delivery, a statement of provisional receipt will be drawn up and signed by Customer and delivered to Saville. In any event, Customer will certify full acceptance of the Billing System no later than (60) days after delivery of the Billing System or the Future Software Development, as the case may be. 7. PRICES, PAYMENT AND PENALTIES 7.1 TAXES Prices in this Agreement are exclusive of all taxes and Customer shall pay any sales, use, goods and services, personal property, consumption, VAT or other tax and any duties or tariffs that may be assessed whether based upon the delivery, possession, sale or use of these customization services or otherwise, except for tax based on the net income of Saville. 7.2 INVOICING AND PAYMENT TERMS (a) Any payments due Saville from Customer will be invoiced and will be paid thirty (30) days after Customer's receipt of such invoice. If payment is delayed by Customer, other than in accordance with Section 7.5(b) below, Saville shall be entitled to charge interest at a rate equal to the lesser of: (i) twelve percent (12%) per annum; or (ii) the maximum lawful interest rate under applicable law. Each such invoice delivered to Customer will provide details of the charges to Customer, including Agreement reference numbers, applicable rates and hours of Saville personnel providing services to Customer and will be supported by proper invoices and vouchers in respect of all expenses for which reimbursement is claimed. (b) All payments under this Agreement shall be made in U.S. Dollars, and Customer shall have the right to withhold payments for any amounts under dispute by Customer, but shall pay any other amounts invoiced that are not in dispute. If such dispute is resolved in favor of Saville, Customer shall pay interest on such disputed amount from the date it originally became due until the date it is paid to Saville at a rate equal to the lesser of: (i) twelve percent (12%) per annum; or (ii) the maximum lawful interest rate under applicable law. 8. DURATION AND TERMINATION 8.1 This Agreement may be terminated forthwith by either Party on written notice if the other Party is in significant breach of its obligations and fails to remedy the breach within thirty (30) days of receipt of notice in writing thereof. In the event that the terminating Party can demonstrate that such breach has involved it in additional costs, then it shall have the right to recover such costs from the breaching Party. 8.2 Either Party may terminate this Agreement forthwith on written notice if the other Party shall become insolvent or bankrupt or make an arrangement with its creditors or go into liquidation. 8.3 Upon termination of this Agreement, howsoever occasioned, Saville shall forthwith deliver to Customer (without retaining copies of the same) all correspondence, drawings, specifications, accounts documents and papers of any description relating to affairs and business of Customer (or any subsidiary or associated company) whether or not the same were prepared by Saville, were supplied by Customer (or any subsidiary or associated company), and all other property of Customer or any subsidiary or associated company (other than property jointly owned of Saville or Customer) within its possession or under its control. 8.4 Termination of this Agreement shall not prejudice any rights of either Party which have arisen on or before the date of termination and shall not prejudice the Software License Agreement or any rights of either Party thereunder. 9. WARRANTY 9.1 Saville warrants and represents to Customer that it has full right and authority to enter into this Agreement. 9.2 Saville warrants that the Software Improvements and the Future Software Improvements will perform the facilities and functions on an integrated basis set out in their respective functional specifications as of the date of acceptance, and shall continue to provide such facilities and functions on an integrated basis in conjunction with the original installed version of the Base Software and shall be free from programming errors for a period of twelve months from the date of acceptance (the "Warranty Period"). Notwithstanding anything contained in this Agreement to the contrary, Saville shall not be liable for any correction of programming errors or non-conformity of the Billing System and/or the Future Software Developments required because of: (a) any changes made to the Billing System and/or the Future Software Developments which were not authorized by Saville nor carried out under the supervision and control of Saville; or (b) any computer program created by Customer or any third party retained by Customer, which computer program adversely affects the performance of the Billing System and/or the Future Software Developments; or (c) accident, neglect, misuse of the Billing System and/or the Future Software Developments by Customer. During the Warranty Period, Saville shall, at its own cost, immediately seek to correct and remedy any problem caused by Saville ("Problem") and any programming errors notified to it by Customer and shall carry out modification to and/or correction of the Billing System and/or any Future Software Developments, such that these will be able to provide the facilities and functions set out in the functional specifications. CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 9.3 THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE IN LIEU OF ANY OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT, AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USAGE OF TRADE. 10. LIABILITY SAVILLE'S LIABILITY AND THAT OF ITS AGENTS, REPRESENTATIVES, AND EMPLOYEES TO CUSTOMER FOR DAMAGES (AS DEFINED BELOW) WITH RESPECT OT THIS AGREEMENT, THE SOFTWARE PRODUCTS, OR SERVICES SHALL NOT EXCEED IN THE AGGREGATE $[***REDACTED***]. IN NO EVENT SHALL SAVILLE HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL OR SPECIAL DAMAGES. THE LIMITATIONS AND EXCLUSIONS IN THIS PARAGRAPH SHALL APPLY TO ALL CLAIMS OF EVERY NATURE, KIND AND DESCRIPTION WHETHER ARISING FROM BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE OR OTHER TORT, OR OTHERWISE. DAMAGES AS LIMITED BY THIS PARAGRAPH IS CUSTOMER'S SOLE AND EXCLUSIVE ALTERNATIVE REMEDY IN THE EVENT THAT ANY OTHER REMEDY PROVIDED IN THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE. FOR PURPOSES OF THIS AGREEMENT, "DAMAGES" SHALL MEAN AMOUNTS PAID BY CUSTOMER TO ANY THIRD PARTY PURSUANT TO A JUDGMENT OR ARBITRATION AWARD ENTERED AGAINST THE CUSTOMER AS A RESULT OF A FAILURE OF SAVILLE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, PROVIDED THAT DAMAGES SHALL NOT BE DEEMED TO EXIST UNLESS SUCH AMOUNT PAID TO A THIRD PARTY IS $[***REDACTED***] OR MORE, IN WHICH CASE SAVILLE SHALL BE RESPONSIBLE FOR THE FULL AMOUNT OF SUCH JUDGMENT, OR AWARD, SUBJECT TO THE $[***REDACTED***] LIMIT SET FORTH ABOVE. 11. GENERAL 11.1 Paragraph 2(c) (assignments and sublicenses) and 8(b) and (c) (confidentiality) of the Software License Agreement shall also apply to this Agreement. 11.2 This Agreement shall be governed by and constructed under the laws of the Commonwealth of Massachusetts, exclusive of its choice of law rules. This is an integrated Agreement. It contains the full understanding of the parties and supersedes all other understandings, agreements, representations, or correspondence, written or oral, regarding its subject matter. This Agreement may be amended, modified, or waived only by another writing signed by the authorized representatives of both parties. Headings are for convenience; they shall not be used to construe this Agreement. Any action against Saville under this Agreement or related to its subject matter must be brought within one year after the cause of action accrues. 11.3 All notices shall be by personal delivery, by mail postage prepaid, or by facsimile with confirmed answerback. Notices to Customer shall be sent to Customer's billing address. Notices to Saville shall be sent to the attention of the President of Saville, at the address shown above. Notices are effective upon delivery in the case of personal delivery, on receipt in the case of facsimile, and five days after mailing in the case of posting. 11.4 All disputes arising out of or relating to this Agreement shall be finally settled by arbitration conducted in Boston, Massachusetts, U.S.A. if a claim is brought by Customer, and in San Antonio, Texas, U.S.A. if brought by Saville under the rules of commercial arbitration of the American Arbitration Association ("Rules"). Both parties shall bear equally the cost of the arbitration (exclusive of legal fees and expenses, all of which each party shall bear separately). All decisions of the arbitrator(s) shall be final and binding on both parties and enforceable in any court of competent jurisdiction. Notwithstanding the foregoing, in the event of breach by a party of its obligations hereunder, the non-breaching party may seek injunctive or other equitable relief in any court of competent jurisdiction. 11.5 Saville employees shall be deemed not to be at any time employees or servants of Customer and Saville and is and shall remain an independent contractor for all purposes. Unless otherwise agreed to in a written agreement, Saville does not undertake to perform any obligation of Customer, whether regulatory or contractual, or to assume any responsibility for Customer's business or operations. 11.6 Nothing in this license shall be construed to constitute or create a joint venture, partnership, or formal business organization of any kind and the rights and obligations of each Party shall be only those expressly set forth herein. Neither Party shall have the authority to bind the other Party, and neither Party assumes any liability of the other Party. 11.7 Neither Party shall be liable for any delay or failure to perform its obligations, other than payment obligations, due to any case of "force majeure". 11.8 The Parties have requested that this Agreement and all communications and documents relating hereto be expressed in the English language. IN WITNESS WHEREOF Customer and Saville have executed this Agreement under seal. BILLING INFORMATION CONCEPTS, INC. ACCEPTED AT SAVILLE SYSTEMS U.S., INC. By: /s/ ALAN W. SALTZMAN By: /s/ JOHN J. BOYLE III Name: Alan W. Saltzman Name: Jon J. Boyle III Title: President/Chief Operating Title: President & CEO Officer Date: Date: June 28, 1996 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. SCHEDULE D RESOURCES RATES TITLE DESCRIPTION HOURLY DAILY Executive $[***REDACTED***] $[***REDACTED***] Manager $[***REDACTED***] $[***REDACTED***] Project Leader $[***REDACTED***] $[***REDACTED***] Sr. Systems Analyst $[***REDACTED***] $[***REDACTED***] Sr. Business Systems Analyst $[***REDACTED***] $[***REDACTED***] Sr. Technical Consultant $[***REDACTED***] $[***REDACTED***] Sr. Telecommunications Analyst $[***REDACTED***] $[***REDACTED***] Sr. Programmer Analyst $[***REDACTED***] $[***REDACTED***] Programmer Analyst $[***REDACTED***] $[***REDACTED***] Technical Consultant $[***REDACTED***] $[***REDACTED***] Programmer $[***REDACTED***] $[***REDACTED***] Documentation $[***REDACTED***] $[***REDACTED***] Computer operator $[***REDACTED***] $[***REDACTED***] Project Coordinator $[***REDACTED***] $[***REDACTED***] Administrative Assistant $[***REDACTED***] $[***REDACTED***] Daily rates are based on a 7.5 hour day. 1/1/96 - ------------------------------------------------------------------------------- **all dollar values represent United States dollars. All information contained on this page is to be considered proprietary and confidential in nature. Saville Systems reserves the right to make changes to this information without prior written notice. EX-99.1 10 EXHIBIT 99.1 ANNEX 1 SCHEDULE 14C INFORMATION Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 (Amendment No. 3) Check the appropriate box: / / Preliminary Information Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) /X/ 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 ------------------------------------------------------------------------ /X/ 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] July 29, 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 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 July 29, 1996, you will receive as a dividend one share of Billing Common Stock for each share of USLD Common Stock you hold. We expect to mail the Billing Common Stock certificates on or about August 2, 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. 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 assists a competitor and 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 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. The separation will permit investors, customers, lenders and other constituencies to evaluate the respective businesses of USLD and Billing on a stand-alone basis. 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 certificates 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] July 29, 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 is a 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 July 29, 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 July 10, 1996. This Information Statement will first be mailed to USLD Stockholders on or about July 30, 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 August 2, 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 July 26, 1996. TABLE OF CONTENTS
PAGE ----- INCORPORATION BY REFERENCE................................................................................. 3 SUMMARY.................................................................................................... 4 THE COMPANY................................................................................................ 10 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 Advisors........................................................................... 16 Distribution Agent....................................................................................... 19 Manner of Effecting the Distribution..................................................................... 19 Results of Distribution.................................................................................. 19 Listing and Trading of the Billing Common Stock.......................................................... 20 Certain Federal Income Tax Consequences of the Distribution.............................................. 20 Conditions; Termination.................................................................................. 23 Reasons for Furnishing the Information Statement......................................................... 24 RELATIONSHIP BETWEEN BILLING AND USLD AFTER THE DISTRIBUTION............................................... 24 Distribution Agreement................................................................................... 24 Benefit Plans and Employment Matters Allocation Agreement................................................ 26 Tax Sharing Agreement.................................................................................... 31 Transitional Services and Sublease Agreement............................................................. 32 Billing Agreement........................................................................................ 32 Telecommunications Agreement............................................................................. 32 Leasing Agreement........................................................................................ 33 Policies and Procedures for Addressing Conflicts......................................................... 33 PRELIMINARY TRANSACTIONS................................................................................... 33 ACCOUNTING TREATMENT....................................................................................... 34 DIVIDEND POLICY............................................................................................ 34 CAPITALIZATION............................................................................................. 35 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................................................... 36 SELECTED HISTORICAL FINANCIAL DATA......................................................................... 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 42 Results of Operations.................................................................................... 42 Liquidity and Capital Resources.......................................................................... 45 Advance Funding Program and Receivable Financing Facility................................................ 47 Seasonality.............................................................................................. 48 Effect of Inflation...................................................................................... 48 New Accounting Standards................................................................................. 48 U.S. Long Distance Corp.................................................................................. 48
2
PAGE ----- BUSINESS................................................................................................... 49 General.................................................................................................. 49 Industry Background...................................................................................... 49 Development of Business.................................................................................. 50 Billing Clearinghouse and Information Management Services................................................ 51 Billing Process.......................................................................................... 51 Operations............................................................................................... 53 Customers................................................................................................ 53 Competition.............................................................................................. 54 Business Strategy........................................................................................ 54 Employees................................................................................................ 56 Properties............................................................................................... 56 Litigation............................................................................................... 56 U.S. Long Distance Corp.................................................................................. 57 MANAGEMENT................................................................................................. 58 Board of Directors and Committees of the Board........................................................... 58 Compensation of Directors................................................................................ 58 Board of Directors and Executive Officers................................................................ 62 EXECUTIVE COMPENSATION..................................................................................... 63 Stock Option Grants in Fiscal 1995....................................................................... 64 Aggregated Option Exercises in Fiscal 1995 and Fiscal Year-End Option Values............................. 65 Employee Benefit Plans................................................................................... 66 Employment Agreements and Change-of-Control Arrangements................................................. 72 Compensation Committee Interlocks and Insider Participation.............................................. 74 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 75 DESCRIPTION OF CAPITAL STOCK............................................................................... 77 General.................................................................................................. 77 Common Stock............................................................................................. 77 Billing Stockholder Rights Plan and Junior Preferred Stock............................................... 77 Preferred Stock.......................................................................................... 78 No Preemptive Rights..................................................................................... 78 Transfer Agent and Registrar............................................................................. 78 PURPOSES AND ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF BILLING'S CERTIFICATE AND BYLAWS AND DELAWARE LAW....................................................................................................... 78 Billing's Certificate and Bylaws......................................................................... 78 Stockholder Rights Plan.................................................................................. 82 Business Combinations with Interested Stockholders....................................................... 84 LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS.................................................... 84 INDEPENDENT ACCOUNTANTS.................................................................................... 85 ADDITIONAL INFORMATION..................................................................................... 86 INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1 Annex I - Opinion of The Chicago Corporation Annex II - Opinion of Houlihan Lokey Howard & Zukin Annex III - Opinion of Arter & Hadden Annex IV - Amended and Restated Certificate of Incorporation of Billing Information Concepts Corp. Annex V - Bylaws of Billing Information Concepts Corp. Annex VI - Billing Information Concepts Corp. 1996 Employee Comprehensive Stock Plan Annex VII - Billing Information Concepts Corp. 1996 Non-Employee Director Plan Annex VIII - Billing Information Concepts Corp. 1996 Employee Stock Purchase Plan
INCORPORATION BY REFERENCE USLD's Form 10-K for the year ended September 30, 1995 and USLD's Forms 10-Q for the quarters ended December 31, 1995 and March 31, 1996 are hereby incorporated by reference into this Information Statement. 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 14,930,422 shares of Billing Common Stock (based on 14,930,422 shares of USLD Common Stock out- standing on June 30, 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 July 29, 1996. Distribution Date................. August 2, 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 on a stand-alone basis. See "The Distribution -- Reasons for the Distribution." Certain Federal Tax Consequences.. As a condition to the Distribution, USLD has received 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..................... BILL 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 and One Plus 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 Leasing Agreement, whereby USLD will have the right to lease an airplane owned by Billing in consideration for certain usage charges and expenses. 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 One Plus Billing and Information Management Services Agreement, the Telecommunications Agreement and the Leasing Agreement reflect terms and conditions similar to those that would have been arrived at by independent parties bargaining at arm's length. 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 7 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 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 MONTH PERIOD 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......... 278 7,572 10,416 13,392 22,055 9,402 14,230 Net income..................... 163 5,807 6,441 8,565 14,118 6,013 8,969
SEPTEMBER 30, -------------------- MARCH 31, 1994 1995 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)....................... $ 949 $ 8,169 $ 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)... 71 115 143 168 272 218 305
8 SUMMARY PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS) (UNAUDITED)
SIX MONTH PERIOD FISCAL YEAR ENDED ENDED SEPTEMBER 30, 1995(5) MARCH 31, 1996(5) --------------------- ----------------- INCOME STATEMENT DATA: Operating revenues..................................................... $ 80,847 $ 50,301 Income from operations................................................. 20,111 13,288 Net income............................................................. 12,913 8,385 Net income per weighted average common share........................... $ 0.89 $ 0.56
MARCH 31, (5) 1996 ------------- BALANCE SHEET DATA: Working capital.................................................................................... $ 6,523 Total assets....................................................................................... 98,734 Long-term obligations, less current portion........................................................ 1,805 U.S. Long Distance Corp.'s investment in and advances to Billing................................... 0 Paid-in capital.................................................................................... 10,745
- ------------------------ (1) "EBITDA" represents earnings before interest, taxes, depreciation and amortization. EBITDA is a profitability/cash flow measurement that is commonly used in the telecommunications industry. EBITDA is not a financial measure pursuant to generally accepted accounting principles ("GAAP"), nor is it acceptable or considered an alternative measure of cash flows from operations under GAAP or funds available for dividends, reinvestments, or other discretionary uses. For a presentation of cash flows, including cash flows related to operating activities, investing activities and financing activities, see the Statements of Cash Flows included in the Company's financial statements. (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 that have their own billing and collection agreements with the local telephone companies. Revenue per record for billing management customers is significantly less than revenue per record for Billing's other 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 are presented giving effect to the Distribution, the Preliminary Transactions and related adjustments as if they were consummated on March 31, 1996 with respect to the balance sheet data and at the beginning of the periods presented with respect to the income statement data. The adjustments include a cash transfer from Billing to USLD in an amount necessary for USLD's working capital to be approximately $21,500,000 after taking into account the payment by USLD of the direct costs associated with the Distribution estimated to be approximately $10,000,000 and the receipt by USLD of $8,785,000 in connection with the dissolution of Mega Plus Dialing, Inc. ("MPDI"). Had the Distribution, the Preliminary Transactions and related adjustments been consummated on March 31, 1996, Billing would have been required to make a cash transfer to USLD of $23,561,000, including the cash transfer of $10,000,000 for payment of the estimated direct costs of the Distribution. See "Preliminary Transactions" and "Pro Forma Condensed Consolidated Financial Statements." 9 THE COMPANY The Company is a 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 Corp. ("USBC") 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 USBC 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 Financial Statements." 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 ("FINOVA"), secured by substantially all of Billing's assets except for capital equipment and software that is security for equipment financing indebtedness, 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 IV and V, 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 the third party 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 their respective abilities 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 their respective 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, related staffing and additional local telephone company agreements. Recently, the Company has entered into a software license and related services and equipment agreements for the provision of certain of these items. The Company is in the process of negotiating additional local telephone company agreements for the implementation of "invoice ready" billing services. 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. 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 14 Company. Billing's 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 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, for the reasons set forth in the following four paragraphs, it is in the best interests of USLD and its stockholders 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, as a result of the benefits to USLD and Billing discussed below, 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. Specifically, the Company believes that it will achieve a more favorable valuation from the investment community as a result of the Distribution and, therefore, will have access to equity capital on more favorable terms. Billing is anticipated to be valued more favorably than USLD has been historically because of what management of USLD believe are Billing's attractive profitability and growth prospects. The Company believes that it will also have improved access to debt markets as a stand-alone entity due to its strong equity base, consistent operating results and cash flow position. Billing has had preliminary discussions with certain lenders regarding its post-Distribution financing needs including those currently met by FINOVA, but does not expect to pursue any financing commitments until the Distribution has been completed. 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 assists a competitor and 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. The prospect of any 15 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 customers and 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 for long distance services outside the RBOC's telephone operating regions and for "incidental" long distance services in-region. In addition, the RBOCs may be authorized to provide all long distance services in-region in a state upon the entry of a facilities-based local competitor and satisfaction of a checklist of local interconnection requirements overseen by the FCC. In-region long distance services will require the structural separation between an RBOC local service provider and the RBOC's long distance entity. This structural separation was deemed necessary for several reasons, including 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 or are expected to become 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 be increased 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 on a stand-alone basis. 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 I, 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 16 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 I. 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, including primarily line of business operating data, financial data and projections, of USLD and Billing 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 primarily 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 Parris H. Holmes, Jr., Chairman of the Board of USLD and Chairman of the Board and Chief Executive Officer of Billing, Larry M. James, President and Chief Operating Officer of USLD, W. Audie Long, Senior Vice President, General Counsel and Corporate Secretary of USLD, Michael E. Higgins, Senior Vice President and Chief Financial Officer of USLD, Alan W. Saltzman, Executive Vice President of USLD and President and Chief Operating Officer of Billing, Kelly E. Simmons, Senior Vice President and Corporate Treasurer of USLD, and Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary of Billing, and Phillip J. Storin, Vice President -- Accounting and Corporate Controller of USLD; (v) discussed the business, financial condition and prospects of Billing with the same executive officers of USLD and Billing; (vi) reviewed the financial terms of the Distribution; (vii) reviewed the financial terms, to the extent publicly available, of eight spinoff transactions it deemed relevant to the Distribution and ten merger transactions it deemed relevant to the potential sale of certain of USLD's subsidiaries to an unaffiliated purchaser, of which no one transaction was given any greater weight than any other transaction; (viii) reviewed certain publicly available financial data and stock trading activity relating to certain telecommunications and transaction processing companies it deemed appropriate in analyzing USLD and Billing, including ACC Corp., Excel Communications, Inc., Frontier Corp., LCI International Inc. and WorldCom Inc. (telecommunications) and Affiliated Computer Services Inc., Saville Systems PLC, Automatic Data Processing Inc., BISYS Group Inc., National Data Corp., Transaction Network Services, Inc. and SPS Transaction Services, Inc. (transaction processing); (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; (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; and (xii) reviewed the solvency and sufficient surplus opinions provided by Houlihan, Lokey, Howard & Zukin, Inc. The analyses performed by The Chicago Corporation related to the potential valuation of USLD and the alternatives available to USLD to maximize the value of USLD stock. In making its analyses, 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 as to or give assurances of the price at which the shares of USLD Common Stock or Billing Common Stock will trade after the Distribution. The Chicago Corporation was engaged by USLD on November 8, 1995 to provide general financial advisory and investment banking services. In connection with the services performed and to be 17 performed by The Chicago Corporation regarding the Distribution, including the rendering of its written opinion and updates thereto, 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, Inc. ("Houlihan Lokey"), who was engaged on April 19, 1996. 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 II, 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 II. 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, 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 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, information searches on public data bases, discussions with Company advisors including The Chicago Corporation, Arthur Andersen LLP and Arter & Hadden and awareness of current general and industry specific business, economic and market activities and 18 climate through the use of economic reports and business news publishing. Houlihan Lokey also conducted discussions with Larry M. James, President and Chief Operating Officer of USLD, Michael E. Higgins, Senior Vice President and Chief Financial Officer of USLD, Alan W. Saltzman, Executive Vice President of USLD and President and Chief Operating Officer of Billing, W. Audie Long, Senior Vice President, General Counsel and Corporate Secretary of USLD, Kelly E. Simmons, Senior Vice President and Corporate Treasurer of USLD and Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary of Billing, Phillip J. Storin, Vice President, Accounting and Corporate Controller of USLD, John Welsh, Vice President, Sales and Customer Service of USLD and Michael Hynes, Assistant Treasurer of USLD with respect to the business and prospects of USLD and Billing. 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 and updates thereto. 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 July 10, 1996 (the "Distribution Agreement"), between USLD and Billing. USLD will effect the Distribution on the Distribution Date by delivering certificates evidencing 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 Agent 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. 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 608 holders of record of Billing Common Stock and approximately 14,930,422 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 June 30, 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 19 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"). USLD has received a response from the Commission Staff to such request in which the Commission Staff stated that, based upon the facts set forth in the no action letter, it would not recommend enforcement action to the Commission if the Billing Common Stock is distributed to USLD stockholders without registration under the Securities Act. The Staff also concluded that the Billing Common Stock issued in the Distribution would not constitute "restricted securities." As a result, such Billing Common Stock 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 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 20 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 have received 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 full text of the Arter & Hadden tax opinion is attached hereto as Annex III, and this summary is qualified in its entirety by reference to the text of such opinion. 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 relied 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 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 for USLD to pay Billing certain usage charges and expenses relating to USLD's leasing of an airplane owned by Billing, 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 21 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. 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. 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 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 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 22 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. See "Preliminary Transactions." 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 $2.3 million and to the provincial government of British Columbia of approximately $1.1 million. USLD (parent company) will recognize "sub-part F" income, but USLD will be entitled to 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. The Arter & Hadden tax opinion does not consider or address the foregoing tax issues related to MPDI. 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, (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"), and not being subject to further comment by the Staff of the Commission; (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 I; (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 II; (vi) Arter & Hadden having delivered an updated opinion to the USLD Board, dated as of the Distribution Date, to the effect as described herein under "Certain Federal Income Tax Consequences of the Distribution;" (vii) Billing and USLD shall have entered into the agreements, instruments, understandings, assignments or other arrangements set forth in writing, in connection with the transactions contemplated by the Distribution Agreement, including without limitation, the transfers of assets and liabilities referred to in subpart (i) above of this paragraph, the Benefit Plans and Employment Matters Allocation Agreement, the Tax Sharing Agreement and the Transitional Services and Sublease Agreement (see "Relationship Between Billing and USLD after the Distribution -- Distribution Agreement," "-- Benefit Plans and Employment Matters Allocation Agreement," "-- Tax Sharing Agreement" and " - -- Transitional Services and Sublease Agreement"), (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 by the Distribution Agreement 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 exemption from registration of the Distribution and related matters; (x) 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; (xi) no legal proceeding affecting or otherwise arising out of the transactions contemplated by the Distribution Agreement 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 23 securities market or general economic or financial conditions which shall, in the reasonable judgment of USLD and Billing, make the transactions contemplated by the Distribution Agreement inadvisable. 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 waivers and consents under USLD's and/or Billing's, or their respective subsidiaries', debt agreements require that, after the Distribution, USLD or Billing, or their respective subsidiaries, each remain liable as a guarantor and continue to pledge security with respect to certain indebtedness that cannot be economically separated under existing arrangements and 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 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 (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; (iv) the sharing of the obligations under certain warrants previously issued by USLD; (v) the issuance by Billing of a stock option to a former USLD director who has agreed to join the Board of Directors of Billing in consideration of his joining the Board of Directors of Billing and to replace an expiring, unvested option to acquire shares of USLD Common Stock and (vi) certain other agreements governing the relationship between Billing and USLD following the Distribution. 24 Subject to certain exceptions, the Distribution Agreement provides for 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 the payment by USLD of the direct costs of the Distribution estimated to be approximately $10,000,000 and the receipt by USLD of $8,785,000 in connection with the dissolution of MPDI. The calculation of this cash amount will be based upon current assets and current liabilities as reported on the USLD balance sheet at June 30, 1996 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 "Preliminary Transactions" and "Pro Forma Condensed Consolidated Financial Statements." USLD has issued and outstanding warrants to purchase an aggregate of 225,000 shares of USLD Common Stock. USLD and Billing have agreed that, in connection with the Distribution, if so elected by USLD, Billing will assume its proportionate share of obligations represented by such warrants such that, after the Distribution and at USLD's option, each warrant will be exercisable for one share of USLD Common Stock and one share of Billing Common Stock. The Distribution Agreement provides that, upon notice to USLD of the exercise of such warrants, USLD, if it so elects, will promptly provide notice thereof to Billing and Billing shall promptly thereafter issue to the exercising holder of the warrant the appropriate number of shares of Billing Common Stock and Billing will be entitled to receive a pro rata portion of the exercise price (such pro rata portion to be established by allocating the exercise price of the warrants between the Billing Common Stock and the USLD Common Stock issuable upon exercise of the warrants in accordance with their average per share price for each of the ten consecutive trading days beginning on and including the Distribution Date). The Distribution Agreement also provides that Billing will 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 shares of USLD Common Stock, a non-qualified stock option of Billing to purchase 5,000 shares of Billing Common Stock at an exercise price that preserves the spread between the exercise price of such unvested USLD option and the price of the USLD Common Stock as of the day immediately preceding the Record Date. 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 IV and V, respectively, and that Billing and USLD will take all actions which may be required to elect or otherwise appoint, as 25 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 USLD and Billing agrees that for a period of one (1) year after the Distribution Date, whether a breach of the Distribution 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 such noncompetition agreement shall not 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. Each of USLD and Billing further agrees for a period of six (6) months after the Distribution Date, notwithstanding any allegation of breach of the Distribution Agreement or any related agreement, not, without the prior written consent of the other, to solicit, influence or attempt to influence any of the other's employees 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. 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 waivers and consents under USLD's and/or Billing's, or their respective subsidiaries', debt agreements require that, after the Distribution, USLD or Billing, and/or their respective subsidiaries, each remain liable as a guarantor and continue to pledge security with respect to certain indebtedness that cannot be economically separated under existing arrangements and 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 26 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, 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 up to 15% of their base compensation and commissions, if any, 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 June 30, 1996, three outside directors and 25 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 27 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. U.S. LONG DISTANCE CORP. 1995 EMPLOYEE RESTRICTED STOCK PLAN As of June 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 June 30, 1996, there were outstanding options to purchase (i) 1,539,547 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 610,225 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 June 30, 1996, it is anticipated that Billing Options to purchase a total of 1,609,547 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 28 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. 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 29 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 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 or will provide, and each Billing Option agreement will provide, that (a) upon a change of control (as defined in the applicable stock option agreement) of USLD, all nonvested USLD Adjusted Options, whether held by a USLD employee or a Billing employee, and all nonvested Billing Options held by USLD employees shall immediately vest, and shall be exercisable for the time periods specified above and (b) upon a change of control (as defined in the applicable stock option agreement) of Billing, all nonvested Billing Options, whether held by a USLD employee or a Billing employee, and all nonvested USLD Adjusted Options held by Billing employees shall immediately vest and shall be exercisable for the time periods specified above. USLD and Billing have also agreed to give effect in its corresponding 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. USLD has received the opinion of Arten & Hadden, Special Tax Counsel, that 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. However, each holder of an outstanding option is urged to consult with his or her own tax advisors. 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 30 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, vesting 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. 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 requested by Billing for the conduct of Billing's business, (ii) USLD will sublease to Billing certain office space on a month-to-month basis and certain other office space through March 31, 1997, with Billing to share equally USLD's out-of-pocket costs on this space should USLD be unable to sublease this space for the remainder of the term ending in January 1998, and (iii) Billing will provide to USLD for six months after the Distribution Date certain services requested by USLD for the conduct of USLD's business. The fee for USLD's services will be based on a cost-plus basis or other negotiated arms-length basis. The fee for Billing's services will be based on a cost-plus basis or other negotiated 31 arms-length basis. The subleases are on the same terms and conditions as the terms and conditions of the lease agreements pursuant to which USLD leases such space from its landlord. 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 may include accounting, tax, finance and legal services office services, employee benefit services, 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 may include accounting, tax, finance and legal services, office services, employee benefit services, information services, management information systems and software consulting with respect to the direct billing function to be retained by USLD and may include any other similar services that USLD may require. BILLING AGREEMENTS USLD and Billing will enter into a Zero Plus - Zero Minus Billing and Information Management Services Agreement (the "Zero Plus -- Zero Minus Billing Agreement") and a One Plus Billing and Information Management Services Agreement (the "One Plus Billing Agreement"). Under these agreements, Billing will provide to USLD billing through local telephone companies for certain qualifying "zero plus," "zero minus" and "one plus" 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. Each agreement has 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. LEASING AGREEMENT USLD and Billing will enter into a Leasing Agreement (the "Leasing Agreement") whereby USLD may elect to lease an airplane owned by Billing on an hourly or volume usage basis. 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 material conflict of interest between the companies. Whether or not a material 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 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 disinterested directors will control. Billing and USLD believe such conflicts will be minimal. 32 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 (after the Preliminary Transactions contemplated in (d), (e) and (f) below and after the payment by USLD of the direct costs of the Distribution estimated to be approximately $10,000,000) to be approximately $21,500,000; (c) USLD will contribute the stock of U.S. Billing Corp. ("USBC") and U.S. Billing, Inc. ("USBI"), also wholly owned subsidiaries of USLD, to Billing in exchange for shares of Billing Common Stock; (d) 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 $8,785,000 in cash; (e) ZPDI will redeem from USLD all of its shares of preferred stock and repurchase the ZPDI common stock previously held by MPDI for $8,785,000 cash; (f) MPDI will dissolve with USLD receiving $8,785,000 in cash; 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 USBC and USBI, whereby (i) ZPDI and ESBI will be merged with USBC 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 USBC and USBI will be converted into shares of common stock of BICI and ESBI, respectively, and the stock of ZPDI and ESBI 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 Financial Statements." 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 June 30, 1996 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 $23,561,000 of cash would have been required to be transferred by Billing to USLD, including the transfer of cash for payment of direct costs of the Distribution estimated to be approximately $10,000,000 and the receipt of $8,785,000 in cash by USLD upon the dissolution of MPDI. 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. 33 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 captions "Preliminary Transactions" and "Pro Forma Condensed Consolidated Financial Statements." The capitalization of Billing should be read in conjunction with Billing's Consolidated Financial Statements and the notes thereto, the "Pro Forma Condensed Consolidated Financial Statements," "Preliminary Transactions" 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 10,895 --------- ------------- Total Capitalization......................................................... $ 60,666 $ 37,105 --------- ------------- --------- -------------
- ------------------------ (1) The pro forma capitalization assumes the Distribution, the Preliminary Transactions and the related adjustments were consummated as of March 31, 1996. The pro forma capitalization for the consummation of the Distribution includes the cash transfer by Billing to USLD in the amount of $23,561,000, including a cash transfer from Billing to USLD of $10,000,000 for payment of the estimated direct costs of the Distribution and receipt of $8,785,000 in cash by USLD upon the dissolution of MPDI. See "Preliminary Transactions" and "Pro Forma Condensed Consolidated Financial Statements." 34 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The unaudited Pro Forma Condensed Consolidated Balance Sheet of Billing gives effect to the Distribution, the Preliminary Transactions and related adjustments as of March 31, 1996. The adjustments include a cash transfer from Billing to USLD of $23,561,000, including a cash transfer of $10,000,000 for payment of the estimated direct costs of the Distribution, pursuant to the working capital formula set forth in the Distribution Agreement as if such transactions occurred as of such date. The cash transfer from Billing to USLD pursuant to such working capital formula is calculated as follows: Required working capital of USLD per Distribution Agreement... $21,500,000 Less: Working capital of USLD at March 31, 1996............... 7,939,000 Payment by USLD of estimated direct costs of the Distribution................................................. 10,000,000 ----------- Required cash transfer from Billing (including $8,785,000 of cash received upon dissolution of MPDI)...................... $23,561,000 ----------- -----------
With regard to the manner in which the Preliminary Transactions were given effect in the unaudited Pro Forma Condensed Consolidated Balance Sheet of Billing, the contribution of certain Billing Group assets to ZPDI by USLD has been reflected in Billing's historical balances as of March 31, 1996. The redemption of all of ZPDI's shares of preferred stock and common stock previously held by MPDI from USLD and the resulting dissolution of MPDI has been reflected as a pro forma adjustment. The other Preliminary Transactions were not given effect in the unaudited Pro Forma Condensed Consolidated Balance Sheet of Billing as they did not have an impact on the financial position of Billing. The unaudited Pro Forma Condensed Consolidated Statements of Income of Billing give effect to the Distribution as if it had occurred at the beginning of fiscal 1995 and 1996, including the impact of adjustments for increased interest expense as a result of the cash transfer to USLD and the related income tax effects. The number of shares used in the calculation of the pro forma per share data is based on the weighted average number of shares outstanding during the period after giving effect to the shares assumed to be issued had the Distribution occurred at the beginning of each period presented. The Pro Forma Condensed Consolidated Financial Statements of Billing are 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 Financial Statements 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. 35 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 $ (23,561)(A) $ 9,021 Accounts receivable................................................. 20,368 20,368 Purchased receivables............................................... 62,381 62,381 Prepaids and other.................................................. 731 731 ---------- ----------------- ----------- Total current assets.............................................. 116,062 (23,561)(A) 92,501 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 $ (23,561)(A) $ 98,734 ---------- ----------------- ----------- ---------- ----------------- ----------- 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 10,745(E) 10,745 ---------- ----------------- ----------- Total stockholders' equity........................................ 34,456 (23,561) 10,895 ---------- ----------------- ----------- Total liabilities and stockholders' equity........................ $ 122,295 $ (23,561) $ 98,734 ---------- ----------------- ----------- ---------- ----------------- -----------
37 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED SEPTEMBER 30, 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA --------- ------------- ----------- Operating revenues......................................................... $ 80,847 $ 80,847 Cost of services........................................................... 51,337 51,337 --------- ------------- ----------- Gross profit............................................................... 29,510 29,510 Selling, general and administrative expenses............................... 9,272 9,272 Advance funding program income............................................. (4,384) (4,384) Advance funding program expense............................................ 1,351 1,944(F) 3,295 Depreciation and amortization expense...................................... 1,216 1,216 --------- ------------- ----------- Income from operations..................................................... 22,055 (1,944) 20,111 Other income (expense)..................................................... 724 724 --------- ------------- ----------- Income before provision for income taxes................................... 22,779 (1,944) 20,835 Provision for income taxes................................................. (8,661) 739 (7,922) --------- ------------- ----------- Net income................................................................. $ 14,118 $ (1,205) $ 12,913 --------- ------------- ----------- --------- ------------- ----------- Net income per weighted average common share............................... $ 0.89 Weighted average common shares outstanding................................. 14,587
38 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA --------- -------------- ----------- Operating revenues.......................................................... $ 50,301 $ 50,301 Cost of services............................................................ 32,145 32,145 --------- ------ ----------- Gross profit................................................................ 18,156 18,156 Selling, general and administrative expenses................................ 5,356 5,356 Advance funding program income.............................................. (2,968) (2,968) Advance funding program expense............................................. 598 942(F) 1,540 Depreciation and amortization expense....................................... 940 940 --------- ------ ----------- Income from operations...................................................... 14,230 (942) 13,288 Other income (expense)...................................................... 236 236 --------- ------ ----------- Income before provision for income taxes.................................... 14,466 (942) 13,524 Provision for income taxes.................................................. (5,497) 358 (5,139) --------- ------ ----------- Net income.................................................................. $ 8,969 $ (584) $ 8,385 --------- ------ ----------- --------- ------ ----------- Net income per weighted average common share................................ $ 0.60 $ 0.56 Weighted average common shares outstanding.................................. 15,021 15,021
- ------------------------ Notes to unaudited Pro Forma Condensed Consolidated Financial Statements: (A) Cash transfer made to USLD pursuant to working capital formula set forth in the Distribution Agreement ($23,561,000), including a cash transfer for the direct costs incurred in connection with the Distribution estimated to be $10,000,000, and for cash received upon the dissolution of MPDI ($8,785,000). (B) The redemption of ZPDI preferred stock and repurchase of ZPDI common stock. (C) Issuance of Billing Common Stock in connection with certain Preliminary Transactions. (D) Reclassified to paid-in capital. (E) Reflects cash transfers in note (A) and stock transactions in notes (B) and (C) above. (F) Increase in interest expense due to assumed borrowings for the cash transfer made to USLD of $13,561,000 and cash payments for direct costs incurred in connection with the Distribution that are estimated to be approximately $10,000,000. Interest expense was calculated at a rate of 8.25% per annum and 8.0% per annum for 1995 and the six-month period ended March 31, 1996, respectively. 39 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 reflect 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.
PRO FORMA (1) ------------------------ SIX MONTHS FISCAL SIX MOS. FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, YEAR ENDED ENDED ----------------------------------------------------- -------------------- SEPT. 30, MAR. 31, 1991 1992 1993 1994 1995 1995 1996 1995 1996 --------- --------- --------- --------- --------- --------- --------- ----------- ----------- (IN THOUSANDS) CONSOLIDATED INCOME STATEMENT DATA: Operating revenues.. $ 16,327 $ 33,162 $ 46,451 $ 57,746 $ 80,847 $ 34,942 $ 50,301 $ 80,847 $ 50,301 Gross profit........ 7,040 12,891 16,458 20,158 29,510 12,966 18,156 29,510 18,156 Advance funding program income..... 1,896 2,435 3,299 3,467 4,384 1,898 2,968 4,384 2,968 Advance funding program expense.... (1,552) (1,794) (2,581) (1,858) (1,351) (624) (598) (3,295) (1,540) Income from operations......... 278 7,572 10,416 13,392 22,055 9,402 14,230 20,111 13,288 Net income.......... 163 5,807 6,441 8,565 14,118 6,013 8,969 12,913 8,385 Net income per weighted average common share....... $ 0.89 $ 0.56
SEPTEMBER 30, PRO FORMA (1) ----------------------------------------------------- MARCH 31, MARCH 31, 1991 1992 1993 1994 1995 1996 1996 --------- --------- --------- --------- --------- ----------- ------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital................ 81 2,808 3,704 $ 11,132 $ 17,300 $ 30,084 $ 6,523 Total assets................... 38,712 63,604 74,660 89,710 106,895 122,295 98,734 Long-term obligations, less current portion............... 210 269 434 853 2,216 1,805 1,805 U.S. Long Distance Corp.'s investment in and advances to Billing (2)................... 1,859 4,484 5,032 13,001 21,122 34,355 0 Paid-in capital................ 0 0 0 0 0 0 10,745
40
SEPTEMBER 30, MARCH 31, ----------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS) OPERATING DATA: EBITDA(3)........................... $ 949 $ 8,169 $ 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)...... 71 115 143 168 272 218 305
- ------------------------ (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 are presented giving effect to the Distribution, the Preliminary Transactions and related adjustments as if such transactions were consummated March 31, 1996 with respect to the balance sheet data and at the beginning of the periods presented with respect to the income statement data. The adjustments include a cash transfer from Billing to USLD in an amount necessary for USLD's working capital to be approximately $21,500,000 after taking into account the payment by USLD of the direct costs associated with the Distribution estimated to be approximately $10,000,000 and the receipt by USLD of $8,785,000 in connection with the dissolution of MPDI. Had the Distribution, the Preliminary Transactions and related adjustments been consummated on March 31, 1996, Billing would have been required to make a cash transfer to USLD of $23,561,000, including the cash transfer of $10,000,000 for payment of the estimated direct costs of the Distribution. See "Preliminary Transactions" and "Pro Forma Condensed Consolidated Financial Statements." (2) The Company has never declared cash dividends on its Common Stock, nor does it anticipate doing so in the foreseeable future. (3) EBITDA is a profitability/cash flow measurement that is commonly used in the telecommunications industry. EBITDA is not a financial measure pursuant to GAAP, nor is it acceptable or considered an alternative measure of cash flows from operations under GAAP or funds available for dividends, reinvestments or other discretionary uses. For a presentation of cash flows, including cash flows related to operating activities, investing activities and financing activities, see the Statements of Cash Flows included in the Company's financial statements. (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 that have their own billing and collection agreements with the local telephone companies. Revenue per record for billing management customers is significantly less than revenue per record for Billing's other customers. (6) At end of the period. 41 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 42 number of regulatory agencies that impose guidelines or rules on operator services providers, such as 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 43 from 1993 to 1994 was primarily attributable to higher legal and accounting costs allocated to the Company in connection with USLD's Securities and Exchange Commission investigations and subsequent 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 the Company operated as a subsidiary within the USLD consolidated group, the cash management function was centralized with the Company, and the Company 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. 44 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 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 with the Company 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 with FINOVA will be adequate to meet the Company's operating cash requirements in the future. At March 31, 1996, the amount available under the Company's receivable financing facility was $21.3 million. Net cash provided by operating activities was $11.5 million and $11.1 million in the first six months of 1996 and 1995, respectively. 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, related staffing and local telephone company agreements. Recently, the Company has entered into a 45 non-exclusive, perpetual software license and related services agreements with Saville Systems US, Inc. ("Saville") for the provision of certain of these items. For payment of a one time fee, the Company may use the software to provide billing processing services for the Company's customers for an unlimited number of telephoning subscribers. The Company will pay additional fees to process data in support of billing non-telephoning products or services and for annual software maintenance, which includes new standard releases of software products. For additional fees, Saville shall also provide personnel for implementation of the software, for initial customization and for assisting the Company in utilizing the software products. Pursuant to a separate agreement, the Company may determine to work with and engage Saville for additional customization of the software for its future needs and, in such case, may acquire proprietary rights in the software. The Company is currently discussing additional local telephone company agreements with the local telephone companies for the implementation of "invoice ready" billing services. The Company believes that it will be able to fund expenditures for the new billing services 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. 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 has received 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, as the case may be. In other cases, the Company has obtained waivers from its lenders, provided that the existing cross guarantees and security arrangements remain in place for the duration of the facility. In this regard, USLD and Billing have agreed to pay each other a credit support fee. See "Relationship between Billing and USLD after the Distribution -- Distribution Agreement." In other cases, Billing intends 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. In addition to the revolving line of credit facility provided to the Company by FINOVA described below, the Company will, after the Distribution, be a guarantor of USLD's equipment financing agreements with BOT Financial Corporation, General Electric Capital Corporation and MetLife Capital Corporation. The aggregate unpaid principal amount of indebtedness under such agreements at March 31, 1996 was approximately $10,000,000. The Company is also obligated under its own equipment financing agreements, which are not material in amount. Under the FINOVA credit agreements, the Company is prohibited from paying dividends on its common stock, is required to comply with certain financial covenants and is subject to certain limitations on the issuance of additional secured debt. Cross default provisions of the Company's FINOVA credit facility may place the Company in default of such facility in the event that USLD defaults under the equipment finance agreements that the Company will guarantee after the Distribution. Defaults under these equipment finance agreements include the failure of USLD to maintain or insure the equipment financed through such agreements or the failure to use such equipment as provided in those agreements, the failure to furnish financial and other information to the lender on a timely basis or any change of ownership or corporate reorganization of USLD without the consent of the lender, and customary events of default such as the failure to make payments of principal and interest when due, the filing of a bankruptcy petition by or against USLD or the entry of a judgment against the USLD. In addition, 46 the equipment finance agreements with BOT Financial Corporation and General Electric Capital Corporation require USLD to maintain a required ratio of total liabilities to tangible net worth. The Company and USLD were 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. At March 31, 1996, the amount available under the Company's receivable financing facility was $21.3 million. 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) 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. 47 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. U.S. LONG DISTANCE CORP. USLD's Form 10-Q for the quarter and six-month period ended March 31, 1996, which is incorporated herein by reference, should be read for information concerning the effect of the Distribution on USLD. 48 BUSINESS GENERAL The Company is a 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. The Company is obligated to pay certain local telephone companies a total of approximately $10,654,000, $6,992,000, $2,756,000 and $678,000 during fiscal 1996, fiscal 1997, fiscal 1998 and fiscal 1999, respectively, for minimum usage charges under approximately 30 billing and collection agreements, that, unless automatically renewed, expire at varying dates through the end of fiscal 1999. The billing and collection agreements do not provide for any penalties other than payment of the obligation should the usage levels not be met. The Company has met all such volume commitments in the past and anticipates exceeding the minimum usage volumes with all of these vendors. 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 49 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, the Company believes that 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 telephone call records for operator services providers and second and third tier long distance carriers, thereby becoming "third-party clearinghouses." Today, Billing provides billing and information management services to approximately 300 customers in the telecommunications industry. 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"). 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 50 revolving receivable financing facility with FINOVA (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 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 51 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 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 has a bad debt allowance for customer receivables but not for trade receivables because an allowance is not deemed necessary on trade receivables. See the first paragraph under the caption "Business -- Billing Process" for a discussion of the collection cycle, which may take up to 18 months before a final true-up of customer accounts receivable. Accordingly, a customer's net account balance with the Company may change and could result in a negative true-up. At this point the Company would be in a receivable position with the customer. Such receivables are subject to credit risk, and the exposure to this credit risk is greater with the customers participating in the Company's Advance Payment program. The allowance for uncollectible accounts is included in the "accounts payable to customers" caption on the Company's balance sheet. In the last three years, the Company wrote off an aggregate of $175,000 of these accounts and provided an aggregate allowance for doubtful accounts of $860,000 on accounts it deemed uncollectible and an allowance of $300,000 on accounts it deemed partially collectible. The Company reviews the activity of its customer base to detect potential bad debt situations. If there is uncertainty with an account, the Company can discontinue paying the customer in order to hold funds to cover future bad debt true-ups. If a customer discontinues doing business with the Company and there are insufficient funds being held to cover future bad debt true-ups, the Company's only recourse is through legal action. 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 52 purchase of records by the Company and the time the local telephone company submits payment to Billing for the subject records. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Advance Funding Program and Receivable Financing Facility." 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. Detail of records older than 12 months is stored on CD Rom and magnetic tape for seven years. 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 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 53 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. Billing competes primarily with OAN Services, Inc., a subsidiary of Electronic Data Systems, Inc. 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. 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 large 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 54 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 believes it 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 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- 55 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 June 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 June 30, 1996, Billing also employed 181 part-time customer service representatives and support personnel. None of Billing's employees are represented by a union. Billing believes that its employee relations are good. PROPERTIES At June 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 sub-leased from USLD pursuant to a lease agreement that expires in March 1997. Thereafter, USLD and Billing will attempt to sublease this space or to relinquish the space to the landlord. If USLD and Billing are unsuccessful in this regard, they will share the lease expense on this space on a 50:50 basis through the termination of the lease in January 1998. 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 June 30, 1996, Billing also occupied an additional 50,000 square feet located at 10500 Highway 281, also in San Antonio, Texas under a lease that expires in March 1998. Billing has also entered a lease for an aggregate of approximately 200,000 square feet at 7411 John Smith Drive in San Antonio, Texas, which space it shall acquire in three different phases beginning November 1, 1996 through March 1, 1998. The primary term of the lease runs through November 1, 2006. The lease has certain expansion options, renewal options, and rights of first refusal. Billing believes that its current facilities are, and its future facilities will be, adequate to meet its current and future 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, 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 56 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. The Staff of the Commission is conducting an investigation relating to trading in the securities of Value-Added Communications, Inc. ("VAC"), an operator services provider based in Dallas, Texas, and of USLD (IN THE MATTER OF TRADING IN THE SECURITIES OF VALUE-ADDED COMMUNICATIONS, INC. (HO-2765)). A proposed merger between USLD and VAC was terminated in February 1993. The investigation concerns whether certain persons may have purchased securities while in possession of material non-public information or disclosed this information to others. The Commission Staff is also investigating Mr. Holmes' noncompliance with the filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, in periods prior to 1994 with respect to transactions in the securities of USLD. Section 16(a) requires officers and directors of public companies to file reports with the Commission regarding their personal transactions in their company's securities. Mr. Holmes and others have appeared before the Commission Staff and provided testimony with regard to these matters. The Company understands that the Commission may seek to impose civil judicial or administrative remedies and/or sanctions against some of the persons who have given testimony, including Mr. Holmes. The Company believes, based on information now available, that if such remedies or sanctions were sought they would not have a material adverse effect on the Company. 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. U.S. LONG DISTANCE CORP After the Distribution, USLD will continue to conduct its operator services and direct dial long distance businesses as set forth on pages 6 through 14, inclusive, of USLD's Annual Report on Form 10-K for the year ended September 30, 1995, which description is incorporated herein by reference. 57 MANAGEMENT BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD Upon consummation of the Distribution, Billing's Board of Directors will comprise four directors, Parris H. Holmes, Jr. (Chairman), Alan W. Saltzman, Lee Cooke and James E. Sowell. 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:
DIRECTOR INITIAL TERM EXPIRES - ------------------------------------------------------------------------------------ --------------------- Parris H. Holmes, Jr................................................................ 1999 Alan W. Saltzman.................................................................... 1999 Lee Cooke........................................................................... 1998 James E. Sowell..................................................................... 1997
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 be comprised of certain directors who are not employees of Billing or any of its subsidiaries. The Audit Committee will initially be comprised of directors Cooke and Sowell. 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 be comprised of certain directors who are not employees of Billing or any of its subsidiaries. The Compensation Committee will initially be comprised of directors Cooke and Sowell. 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 be comprised of certain directors who are not employees of Billing or any of its subsidiaries. The Nominating Committee will initially be comprised of directors Cooke and Sowell. 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 V. 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 58 receive $1,000 for attendance. In each case, the members of the Board will be reimbursed for their 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. 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 59 "Billing Director Plan"), which will become effective on the effective date of the Registration Statement on Form 10. A copy of the Billing Director Plan is attached hereto as Annex VII, and this summary is qualified in its entirety by reference to the text of such Annex VII. The Billing Director Plan authorizes the granting of non-incentive options ("Billing Director Options") to purchase Billing Common Stock to non-employee directors (estimated to total two 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 two (2) 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 non-employee 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 non-employee director, a stock option ("Billing Director Fee Option") to purchase certain shares of Billing Common Stock. Each non-employee 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. 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 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 60 of the exercise price is to make it possible for the optionee to exercise his Billing Director Options or Billing Director Fee Options, 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. If at any time while the Billing Director Plan is in effect or unexercised Billing Director Options or Billing Director Fee Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding shares of Billing Common Stock through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of shares of Billing Common Stock, then and in such event: (i) appropriate adjustment shall be made in the maximum number of shares of Billing Common Stock then subject to being optioned under the Billing Director Plan, so that the same proportion of the Company's issued and outstanding shares of Billing Common Stock shall continue to be subject to being so optioned; and (ii) appropriate adjustment shall be made in the number of shares of Billing Common Stock and the exercise price per share of Billing Common Stock thereof then subject to any outstanding Billing Director Options or Billing Director Fee Option, so that the same proportion of the Company's issued and outstanding shares of Billing Common Stock shall remain subject to purchase at the same aggregate exercise price. In addition, the Committee shall make such adjustments in the Billing Director Options or Billing Director Fee Options price and the number of shares covered by outstanding Billing Director Options or Billing Director Fee Options that are required to prevent dilution or enlargement of the rights of the holders of such Billing Director Options or Billing Director Fee Options that would otherwise result from any reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, issuance of rights, spinoff or any other change in capital structure of the Company. 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 ten years from the date it becomes effective, 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 61 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. 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, Chief Financial Officer, Treasurer and Corporate Secretary 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................ 51 Director (1)(2)(3) James E. Sowell.......... 48 Director (1)(2)(3)
- ------------------------ (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, manufacturer and marketer of computer peripheral equipment. See "Business -- Litigation" for a description of certain proceedings involving Mr. Holmes. 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 ZPDI in 1989 as Vice President -- Information Management Systems. Mr. Saltzman is an advisory 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. 62 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). 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. Mr. Cooke is also an advisory director of Tanisys Technology, Inc. From 1988 through 1991, Mr. Cooke served in the elected position of Mayor of Austin, Texas. JAMES E. SOWELL is the founder of Jim Sowell Construction Co., Inc., which began in 1972 primarily for single-family home construction. Since 1972, the company has expanded its scope of operations and ownership to include land development, income property development, financial institutions, country club and golf course operations and ownership, hotel and restaurant ownership and operations, as well as interests in major corporations. Mr. Sowell is a director of Tanisys Technology, Inc. Mr. Sowell was Chairman of the Board of Business Capital Corporation ("BCC"), Arlington Golf Club, Inc. ("AGC") and Sable Holmes, Inc. ("SHI") and a general partner of SBS Venture ("SBS"). All of these entities filed petitions for relief under the U.S. Bankruptcy Code, BCC in March 1991 (emerged in January 1992), AGC in April 1992 (emerged in January 1993), SHI in September 1993, and SBS in September 1991 (petition withdrawn in December 1991). 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 63 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 $1,795 in USLD deferred compensation contributions made on behalf of Mr. Gehri. (11) Amount shown reflects Mr. Long's salary from December 27, 1993, the beginning date of his employment with U.S. Long Distance, Inc., through the end of fiscal 1994. STOCK OPTION GRANTS IN FISCAL 1995 The following table provides certain information related to options granted to the named executive officers of Billing during the period October 1, 1994 through September 30, 1995 pursuant to 64 USLD stock plans. For information concerning the treatment of USLD options held by Billing officers after the Distribution, see "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement."
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ------------------------------ ANNUAL RATES OF NUMBER OF % OF TOTAL STOCK PRICE SECURITIES OPTIONS EXERCISE APPRECIATION FOR UNDERLYING GRANTED TO OR BASE OPTION TERM (4) OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------- NAME GRANTED (#)(1) FISCAL 1995 ($/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. (4) Amount in parentheses reflects value after repricing of options occurring in fiscal 1996. See "Stock Option Grants in Fiscal 1995" above. 65 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 Distribution Date. 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. A copy of the Billing Employee Stock Plan is attached hereto as Annex VI, and this summary is qualified in its entirety by reference to the text of such Annex VI. 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 June 30, 1996, it is anticipated that NQSOs to purchase a total of 1,609,647 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." 66 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 215 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; 67 (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 of 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 may 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. 68 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. 69 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 "Billing Purchase Plan"), which will become effective upon the effective date of the Registration Statement on Form 10. A copy of the Billing Purchase Plan is attached hereto as Annex VIII, and this summary is qualified in its entirety by reference to such Annex VIII. 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 (or USLD prior to the Distribution) 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 300 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 on the first payroll date after 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. 70 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 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 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 71 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 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 Distribution Date. 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 nine 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 Distribution Date. 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 nine 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. 72 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 two years from the Distribution Date 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 $200,000. 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 $140,000. 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 ($400,000); Mr. Simmons -- a lump-sum payment in the amount equal to one times his then effective annual base salary ($140,000). 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 73 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. ZPDI has entered into an employment agreement with Mr. Gehri, which will be assumed by BICI in the Preliminary Transactions. This agreement continues until December 31, 1996, subject to automatic extension unless and until terminated by either BICI or Mr. Gehri upon not less than 120 days' prior written notice. The employment agreement is subject to early termination as provided therein, including if Mr. Gehri 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 BICI. The employment agreement provides for an annual, calendar year base salary of $92,000, plus commissions earned if the quarterly and annual revenue budgets for the third party billing component of BICI exceed certain amounts with the total value of the bonus plan for the fiscal year ended September 30, 1996 equal to $30,000. The employment agreement also provides for an incentive bonus at the discretion of the Compensation Committee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION James E. Sowell, a director of the Company, is a member of the Compensation Committee of the Board of Directors of the Company. Mr. Holmes is Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. Sowell and Mr. Holmes serve on the Board of Directors of Tanisys Technology, Inc., a developer, manufacturer and marketer of computer peripheral equipment. Mr. Holmes also serves on the Compensation Committee of Tanisys Technology, Inc. 74 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Because the Distribution will be on the basis of one share of Billing Common Stock distributed for each share of USLD Common Stock owned on the Record Date, each USLD stockholder will own at the Distribution Date the same percentage of the issued and outstanding Billing Common Stock as he owns of USLD Common Stock. The following table sets forth certain information regarding the anticipated beneficial ownership of Billing Common Stock by persons anticipated by Billing to own beneficially more than five percent of the outstanding Billing Common Stock. The information is based upon the actual holdings of USLD Common Stock as of June 30, 1996.
NUMBER OF SHARES BENEFICIALLY PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS - --------------------------------------------------------------------------- ----------------- ----------- Putnam Investments, Inc. (1)............................................... 1,832,500 12.9% One Post Office Square Boston, Massachusetts 02109
- ------------------------ (1) According to the Schedule 13G dated June 7, 1996 jointly filed by March & McLennan Companies, Inc. ("MMC"), Putnam Investments, Inc. ("Putnam Investment"), Putnam Investment Management, Inc. ("Putnam Management") and Putnam Advisory Company, Inc. ("Putman Advisory") (i) Putnam Investment, a wholly owned subsidiary of MMC and the parent holding company of Putnam Management and Putnam Advisory, beneficially owned, 1,832,500 shares of USLD Common Stock as a result of the shares of USLD Common Stock beneficially owned by Putnam Management and Putnam Advisory, (ii) Putnam Management, a registered investment advisor and subsidiary of Putnam Investment, beneficially owned 1,586,100 shares of USLD Common Stock and (iii) Putnam Advisory, a registered investment adviser and subsidiary of Putnam Investment, beneficially owned 246,400 shares of USLD Common Stock. According to the Schedule 13G, (i) Putnam Investment had shared voting power over 186,700 shares and shared dispositive power over all 1,832,500 shares, (ii) Putnam Management had shared dispositive power over all 1,586,100 shares and (iii) Putnam Advisory had shared voting power over 186,700 shares and shared dispositive power over all 246,400 shares. MMC and Putnam Investment declare in the Schedule 13G that the filing of the Schedule 13G shall not be deemed an admission by either or both of them that they are, for the purposes of Section 13(d) or 13(g) of the Securities Act, the beneficial owner of any securities covered by the Schedule 13G, and further state that neither of them has any power to vote or dispose of or direct the voting or disposition of any of the securities covered by the Schedule 13G. This table has been prepared based on information furnished to USLD by the respective stockholders and contained in filings made with the Commission. All of the figures in this table and the footnotes for shares of Billing Common Stock have been derived based upon the hypothetical assumption that the Record Date and the Distribution Date were June 30, 1996, so as to inform the reader what the beneficial ownership of Billing Common Stock would have been at that time. Actual ownership on the Distribution Date may vary substantially from that shown in the table. 75 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 June 30, 1996, according to the data furnished by the person named.
COMMON STOCK ----------------------------------------------- AMOUNT AND NATURE OF PERCENT OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED (1) - --------------------------------------------------------- -------------------- ------------------------- Parris H. Holmes, Jr..................................... 262,866(2) 1.7% Alan W. Saltzman......................................... 139,877(3) * Kelly E. Simmons......................................... 36,000(4) * Paul L. Gehri............................................ 19,567(5) * Michael R. Long.......................................... 6,500(6) * Lee Cooke................................................ 5,000(7) * James E. Sowell.......................................... 20,000(8) All executive officers and directors as a group (six persons, including the executive officers and directors listed above)........................................... 469,810(9) 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 14,930,422 shares of Common Stock issued and outstanding on June 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 1,219 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 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 1,219 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 1,150 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) Represents shares owned by Jim Sowell Construction Co., Inc., a corporation of which Mr. Sowell owns 100%. (9) Includes 308,251 shares that seven 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 and 3,588 shares that such executive officers purchased under the USLD Stock Purchase Plan. 76 DESCRIPTION OF CAPITAL STOCK GENERAL Billing's authorized capital stock consists of 70,000,000 shares of Billing Common Stock, of which on June 30, 1996, 10,000 shares were 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 IV 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 June 30, 1996, approximately 14,930,422 shares of Billing Common Stock, constituting 24.9% 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 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 77 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. 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 78 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 IV and V, 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 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 79 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 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 80 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 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. 81 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 $130. 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 USLD, 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 July 10, 2006, unless redeemed or exchanged earlier as described below. 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 82 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 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. 83 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 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. 84 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 except under certain circumstances. 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 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 seeking 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. 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. 85 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. 86 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 Corp. ("USBC") 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, ESBI, USBI and USBC. 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. Immediately prior to the Distribution, Billing 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 payment by USLD of the direct costs of the Distribution estimated to be approximately $10,000,000 and the receipt by USLD of $8,785,000 in connection with the dissolution of Mega Plus Dialing, Inc., a wholly owned subsidiary. Had the Distribution occurred on March 31, 1996, approximately $23,561,000 of cash would have been required to be transferred by Billing to USLD, including a cash transfer of $10,000,000 for payment of the direct costs of the Distribution. F-7 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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 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. Because collection of the Company's trade receivables is made prior to the Company remitting funds to its customers, there is virtually no risk of collection, thus, no bad debt allowance is recorded. The Company offers participation in an advance funding program to qualifying customers through its Advance Payment Agreement. The service fees charged to customers by the Company are, generally, computed at a rate of prime plus 4%. 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 F-8 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 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. F-9 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. F-10 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. F-11 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3. DEBT (CONTINUED) 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 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 F-12 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4. LEASES (CONTINUED) 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 ----- -----
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 --------- --------- --------- --------- --------- ---------
F-13 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6. INCOME TAXES (CONTINUED) 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 --------- --------- --------- --------- --------- ---------
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. However, should the IRS prevail in its assertion of this assessment, the Company estimates that the potential liability for income taxes, penalty and interest could range between $3,700,000 and $5,300,000. NOTE 7. BENEFIT PLANS The Company did not have a stock option plan in effect for fiscal 1993, 1994 or 1995. 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 F-14 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7. BENEFIT PLANS (CONTINUED) 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 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 $10,654,000 during fiscal 1996 for minimum usage charges under billing and collection agreements. However, the billing and collection agreements do not provide for any penalties other than payment of the obligation should the usage levels not be met. The Company has met all such volume commitments in the past and anticipates exceeding the minimum usage volumes with these vendors. F-15 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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. 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 MARCH 31, 30, 1995 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, the final terms of which were determined July 10, 1996, USLD intends to distribute shares of the Company's common stock to the existing stockholders of USLD. At the Distribution Date, USLD F-20 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SUBSEQUENT EVENTS (CONTINUED) stockholders on the record date for the Distribution will 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 have entered into certain agreements, all effective as of the Distribution Date. Such 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 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 and One Plus 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 Leasing Agreement, whereby USLD will have the right to lease an airplane owned by Billing in consideration for certain usage charges and expenses. 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 One Plus Billing and Information Management Services Agreement, the Telecommunications Agreement and the Leasing Agreement reflect terms and conditions similar to those that would have been arrived at by independent parties bargaining at arm's length. 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 also provides 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. F-21 BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. SUBSEQUENT EVENTS (CONTINUED) 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 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 has adopted the Billing 1996 Employee Comprehensive Stock Plan and Billing 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. In addition, Billing has adopted the Billing Employee Stock Purchase Plan and the Billing 401(k) Retirement Plan. USLD, as sole stockholder of Billing, approved the adoption of the Billing 1996 Employee Comprehensive Stock Plan, the Billing Employee Stock Purchase Plan, the Billing 401(k) Retirement Plan and the Billing 1996 Non-Employee Director Plan on July 10, 1996. F-22 ANNEX I May 13, 1996 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; I-1 (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; (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; and (xii) reviewed the solvency and sufficient surplus opinions provided by Houlihan, Lokey, Howard & Zukin. 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 I-2 ANNEX II 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 II-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 II-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. II-3 ANNEX III July 10, 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 (i) 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"), (ii) the grant of options to acquire Billing Stock ("Billing Options") to holders of options to acquire USLD stock ("USLD Options") in connection with the Distribution, and (iii) the adjustment to the exercise price of the USLD Options (the "Formula Adjustment") in connection with the Distribution. Specifically, you have requested our opinions 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, and whether the grant of the Billing Options or the Formula Adjustment will result in the recognition of taxable income by USLD or Billing or the holders of the USLD Options or the Billing Options. 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 addition, based on the qualifications and limitations described below, it is our opinion that neither the grant of the Billing Options nor the Formula Adjustment will result in the recognition of taxable income to USLD or Billing or the holders of the USLD Options or the Billing Options. 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 May 14, 1996 as thereafter amended 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; III-1 4. The Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing (the "Benefit Plans Allocation Agreement"); 5. 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"); 6. A "Best Interest of Shareholders" Opinion to the Board of Directors of USLD by Chicago Corporation; and 7. 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) (a) Neither USLD nor Billing is registered under the Investment Company Act of 1940, as amended, as a management company or an investment trust or has in effect an election under the Investment Company Act of 1940, as amended, to be treated as a business development company; (b) neither USLD nor Billing have filed with any federal tax return an election to be a regulated investment company or has made such an election for any taxable year; (c) USLD and Billing each derive less than ninety percent (90%) of their respective gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock or securities or foreign currencies or from other income derived with respect to investing in stock, securities or currency; (d) less than fifty percent (50%) of the value of the total assets of USLD and less than fifty percent (50%) of the value of the total assets of Billing are stocks and securities, provided that for such purposes total assets excludes (1) cash and cash items (including receivables), (2) government securities and (3) assets acquired (A) such that not more than twenty-five percent (25%) of the value of USLD's or Billing's total assets is invested in stock and securities of any one (1) issuer III-2 and not more than fifty percent (50%) of the value of its total assets is invested in the stock and securities of five (5) or fewer issuers (treating members of a controlled group as a single issuer) or (B) to terminate classification as an investment company; and (e) less than eighty percent (80%) of the value of the total assets of USLD and less than eighty percent (80%) of the value of the total assets of Billing are assets held for investment, provided that for such purposes total assets excludes (1) cash and cash items (including receivables), (2) government securities and (3) assets acquired (A) such that not more than twenty-five percent (25%) of the value of USLD's or Billing's total assets is invested in stock and securities of any one (1) issuer and not more than fifty percent (50%) of the value of its total assets is invested in the stock and securities of five (5) or fewer issuers (treating members of a controlled group as a single issuer) or (B) to terminate classification as an investment company. (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 five percent (5%) 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 have a positive federal income tax basis in excess of $10,000,000 with respect to the Billing Stock that it then holds. In addition, the internal tax accounting staff of USLD and Billing, which staff is responsible for (a) maintaining the tax investment basis of USLD and its investment in its subsidiaries and (b) the preparation of the consolidated federal income tax returns for such consolidated group, is not aware of any transactions between or among USLD, Billing and/or the other corporate members of such consolidated group which would require 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. (16) None of the USLD Options were designated as incentive stock options, at the time of their grant. III-3 (17) The USLD Options are not now and have never been actively traded on an established market. (18) None of the USLD Options are transferable by the holder thereof except pursuant to the laws of descent and distribution or a domestic relations order. (19) None of the USLD Options were immediately exercisable by the holder thereof at the time of its grant. 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 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 of June 30, 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 III-4 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 June 30, 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) except as specifically addressed herein, 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 whatsoever, including the Distribution and the grant of the Billing Options or the Formula Adjustment to the USLD Options, 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-Certain Federal Tax Consequences", "Special Factors-Uncertainty of Tax Consequences," "The Distribution -- Certain Federal Income Tax Consequences of the Distribution" and "Relationship Between Billing and USLD after the Distribution -- Benefit Plans and Employment Matters Allocation Agreement -- Tax Effect of Option Adjustment" 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 III-5 ANNEX IV 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 and amended by Certificate of Amendment to Certificate of Incorporation filed with the Secretary of State of Delaware on May 13, 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 July 12, 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; IV-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 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. 4.4 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 IV-2 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 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 IV-3 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. 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 IV-4 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. 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 IV-5 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 10th day of July, 1996. /s/ PARRIS H. HOLMES, JR. -------------------------------------- Parris H. Holmes, Jr., Chairman ATTEST: /s/ KELLY E. SIMMONS -------------------------------------- Kelly E. Simmons, Secretary IV-6 ANNEX V - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED BYLAWS OF BILLING INFORMATION CONCEPTS CORP. (A DELAWARE CORPORATION) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AMENDED AND RESTATED 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 V-1 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. 2.8 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 V-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 are 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 3.16 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 V-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. 3.10 Notice of special meetings 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. 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 V-4 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. 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 V-5 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 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. V-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 V-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 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. V-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 record date shall not precede the date upon which the resolution fixing the record date is adopted shall not be less than ten days, nor more than sixty days prior to the date of the meeting or any other 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. 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 V-9 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. 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 V-10 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. 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 V-11 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) 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 V-12 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 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 3.2, 3.3, 3.16 and 3.17 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. V-13 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: July 10, 1996 /s/ KELLY E. SIMMONS -------------------------------------- SECRETARY OF BILLING INFORMATION CONCEPTS CORP. (SEAL) V-14 ANNEX VI 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: (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 VI-1 (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. VI-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 Awards shall be granted and the number of shares to be covered by each such Award, 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 Award under the Plan may be granted an additional Award or Awards 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. VI-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 closing 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 one hundred (100) shares VI-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 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 pursuant to the exercise of such option, he 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 VI-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 also may 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 VI-6 death, permanent disability or Retirement or for such other reason as the Committee may provide, such Participant (or his estate or beneficiary) will be entitled to receive such additional portion of his 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 Stock 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 Stock would have vested. Unless otherwise provided in the Award Agreement, in the event that an Award of Restricted Stock 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 VI-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 (6) months of the Date of Grant, the restrictions and Restricted Period shall terminate on the six (6) 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 VI-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 (6) months of the grant of the Award and (ii) the election must be made either (a) six (6) 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, but in any event not before the effectiveness of the Company's Form 10 Registration Statement filed under the Exchange Act. 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. VI-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 shall be conclusively deemed to have indicated his 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. VI-10 ANNEX VII 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 meanings 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 sales price of the 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 the Shares on such system, and (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 the Shares on at least five (5) of the ten (10) preceding trading 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. VII-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, $0.01 per share, subject to his Unexercised Options. Each 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) VII-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. (a) The Option price per Share of any Option granted pursuant to paragraph 4(c)(i) of this Plan shall equal the product of (1) the exercise price of the related Unexercised Option myltiplied by (2) the ratio of (A) the average of the closing sales price per share of the Shares on the Nasdaq National Market for each of ten consecutive trading days beginning with and including the date on which Parent distributes the outstanding Shares to the holders of the common stock of Parent to (B) the sum of (y) the dollar amount determined under clause A above, plus (z) the average of the closing sales price per share of the common stock of Parent on the Nasdaq National Market for each of ten consecutive trading days beginning with and including the date on which Parent distributes the outstanding Shares to the holders of the common stock of Parent. (b) Except as described by subparagraph 6(a) above, 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 VII-3 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: (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. VII-4 10. TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide that such Option shall not be transferable by the Optionee other 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 guardian or legal representative shall have the right to exercise the related Option. 11. ISSUANCE OF SHARES. No person shall be, or have any of the rights or privileges of, a stockholder of the Company with respect to any of the Shares subject to an Option unless and until certificates representing such Shares shall have been issued and delivered to such person. As a condition of any transfer of the certificate for Shares, the Committee may obtain such agreements or undertakings, if any, as it may deem necessary or advisable to assure compliance with any provision of this Plan, any Option Agreement or any law or regulation, including, but not limited to, the following: (i) A representation, warranty or agreement by the Optionee to the Company, at the time any Option is exercised, that he 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. VII-5 (d) Any reference to the masculine, feminine or neuter gender shall be a reference to such other gender as is appropriate. 14. SECTION 83(B) ELECTION. If as a result of exercising an Option an Optionee receives Shares that are subject to a "substantial risk of forfeiture" and are not "transferable" as those terms are defined for purposes of Section 83(a) of the Code, then such Optionee may elect under Section 83(b) of the Code to include in his gross income, for his taxable year in which the Shares are transferred to such Optionee, the excess of the Fair Market Value of such Shares at the time of transfer (determined without regard to any restriction other than one which by its terms will never lapse), over 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 July 10, 1996, but shall become effective upon effectiveness of the Company's Form 10 Registration Statement filed under the Securities Exchange Act of 1934, as amended. 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 July 10, 2006, and any Option outstanding on such date will remain outstanding until it has either expired or has been exercised. VII-6 ANNEX VIII 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. VIII-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. VIII-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; VIII-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 VIII-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. VIII-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 VIII-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 July 10, 1996. The Plan will become effective upon the effectiveness of the Company's Form 10 Registration Statement filed under the Securities Exchange Act of 1934, as amended. 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. VIII-7 -----END PRIVACY-ENHANCED MESSAGE-----