<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1996
REGISTRATION NO. 0-28536
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A
POST EFFECTIVE AMENDMENT NO. 1
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)
<TABLE>
<S> <C>
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)
</TABLE>
(210) 321-6900
Registrant's Telephone Number, Including Area Code
------------------------
Securities to be Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Name of each exchange on which
Title of each class to be registered: each class is to be registered:
NONE NOT APPLICABLE
</TABLE>
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)
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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."
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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
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<PAGE>
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 22, 1996
R-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGE
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<S> <C> <C> <C>
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 (previously filed)
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. (filed herewith)
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 (filed herewith)
10.6 -- Form of Stock Option Agreement for Non-Plan Options (previously filed)
10.7 -- Telecommunications Agreement between USLD and Billing (filed herewith)
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 (previously filed)
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
</TABLE>
R-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBITS PAGE
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Agreement dated December 28, 1992 among ZPDI, USLD, USLDI, U.S. Billing, Inc. ("USBI")
and Lender; Second Amendment to Amended and Restated Loan and Security Agreement dated
April 2, 1993 among ZPDI, USLD, USLDI, USBI and Lender; Third Amendment to Amended and
Restated Loan and Security Agreement dated October 15, 1993 among ZPDI, USLD, USLDI,
USBI and Lender; Fourth Amendment and Joinder to Amended and Restated Loan and Security
Agreement dated October 1, 1993 among ZPDI, USLD, USLDI, USBI, USLD Acquisition Corp.
("USAcq") and Lender; Fifth Amendment and Joinder to Amended and Restated Loan and
Security Agreement dated November 16, 1993 among ZPDI, USLD, USLDI, USBI, USAcq, STS
Telecommunications, Inc. ("STS") and Lender; Sixth Amendment to Amended and Restated
Loan and Security Agreement dated December 7, 1993 among ZPDI, USLD, USLDI, USBI,
USAcq, STS and Lender; Seventh Amendment to Amended and Restated Loan and Security
Agreement dated March 17, 1994 among ZPDI, USLD, USLDI, USBI, USAcq, STS, Enhanced
Services Billing, Inc. ("ESBI"), California Acquisition Corp. ("CAC") and Lender;
Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender;
Corporate Guaranty dated May 24, 1991 executed by USLDI for the benefit of Lender;
Corporate Guaranty dated May 24, 1991 executed by ZPDI for the benefit of Lender;
Corporate Guaranty dated May 24, 1991 executed by USLD for the benefit of Lender;
Corporate Guaranty dated October 1993 executed by USAcq for the benefit of Lender;
Corporate Guaranty dated November 1993 executed by STS for the benefit of Lender;
Corporate Guaranty executed by Telecom Acquisition Corp. for the benefit of Lender;
Corporate Guaranty executed by ESBI for the benefit of Lender; Corporate Guaranty
executed by CAC for the benefit of Lender; Escrow and Disbursing Agreement dated May
24, 1991 among ZPDI, Lender and Texas Commerce Bank, N.A. (previously filed)
<S> <C> <C> <C>
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 (filed herewith).
10.20 -- Software License Agreement dated June 28, 1996 between Saville Systems U.S., Inc. and
Billing Information Concepts, Inc. (to be filed by amendment)
10.21 -- Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners,
Ltd. and Billing Information Concepts, Inc. (filed herewith).
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 -- Amended Schedule 14C Information Statement of U.S. Long Distance Corp. (filed herewith)
</TABLE>
R-6
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION,
PREFERENCE AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
Billing Information Concepts Corp.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------------
Billing Information Concepts Corp., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the corporation as required by Section 151 of the General
Corporation Law at a meeting on July 10, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the corporation (the "Board of Directors") in accordance with
the provisions of the Restated Certificate of Incorporation of the corporation,
the Board of Directors hereby creates the following series of preferred stock,
par value $.01 per share, of the corporation:
The designation and number of shares, and the relative rights, preferences,
and limitations of the corporation's Series A Junior Participating Preferred
Stock is as follows:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series A Junior
Participating Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be 6,000. Such number
of shares may be increased or decreased by resolution of the Board of Directors;
provided that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the corporation convertible into Series A Preferred Stock.
1
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SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any other
series of preferred stock (or any similar stock) of the corporation, the
holders of shares of Series A Preferred Stock, in preference to the holders
of Common Stock, par value $.01 per share (the "Common Stock"), of the
corporation, and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, cumulative preferential dividends, payable in
cash on the first day of January, April, July and October in each year
(each such date being referred to herein as "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, at a rate per annum (rounded to the nearest cent) equal to the
greater of (a) $1.00 per share, or (b) subject to the provision for
adjustment hereinafter set forth, 10,000 times the aggregate per share
amount of all cash dividends, and 10,000 times the aggregate per share
amount (payable in kind) of all noncash dividends or other distributions
(other than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by reclassification or
otherwise)), declared on the Common Stock during the immediately preceding
fiscal year. In the event the corporation shall at any time after the date
on which U.S. Long Distance Corp. ("USLD") distributes the Common Stock to
the holders of USLD's Common Stock (the "USLD Distribution Date") declare
or pay any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) or combination or consolidation of
the outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issuance of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total
amount
2
<PAGE>
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be not more than 60 days prior to the date fixed for the
payment thereof.
SECTION 3. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock shall have the following
voting rights:
(A) Each share of Series A Preferred Stock shall entitle the holder
thereof to 10,000 votes on all matters submitted to a vote of the
stockholders of the corporation. In the event the corporation shall at any
time after the USLD Distribution Date declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) or combination or consolidation of the outstanding shares
of Common Stock into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation, Preferences and Rights in respect of a series of preferred
stock (or any similar stock) of the corporation, in the Restated
Certificate of Incorporation of the corporation, or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock and any other capital stock of the corporation having general voting
rights shall vote together as one class on all matters submitted to a vote
of stockholders of the corporation.
(C) Except as set forth herein, in the Restated Certificate of
Incorporation of the corporation or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the corporation shall not:
3
<PAGE>
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the corporation ranking junior (both as to
dividends and upon liquidation, dissolution or winding up) to the
Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The corporation shall not permit any subsidiary of the corporation
to purchase or otherwise acquire for consideration any shares of stock of
the corporation unless the corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES.
Any shares of Series A Preferred Stock redeemed, purchased or otherwise
acquired by the corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock
without designation as to series and may be reissued as part of a new series of
preferred stock subject to the conditions and restrictions on issuance set forth
herein, in the Restated Certificate of Incorporation, or in any other
Certificate of Designation, Preferences and Rights in respect of a series of
preferred stock (or any similar stock) of the corporation, or as otherwise
required by law.
4
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SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the corporation, no
distribution shall be made (1) to the holders of shares of Common Stock or
any other stock ranking junior to the Series A Preferred Stock upon
liquidation, distribution or winding up, unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received $1.00 per share,
plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment; provided that
the holders of shares of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 10,000 times the aggregate amount
to be distributed per share to holders of shares of Common Stock, or (2) the
holders of shares of stock ranking on a parity with the Series A Preferred
Stock upon liquidation, dissolution or winding up, except distributions made
ratably on the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the
corporation shall at any time after the USLD Distribution Date declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) or combination or consolidation of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event under
the proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC.
In case the corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or converted or changed into other stock or securities, cash
and/or any other property, then in any such case proper provision shall be
made so that each share of Series A Preferred Stock shall at the same time be
similarly exchanged for or converted or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to
10,000 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged for or converted or changed. In the event
the corporation shall at any time after the USLD Distribution Date declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) or combination or consolidation of the
outstanding shares of Common Stock into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or conversion or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
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SECTION 8. NO REDEMPTION.
Shares of the Series A Preferred Stock shall not be redeemable.
SECTION 9. AMENDMENT.
This Certificate of Designation shall not be amended in any manner that
would materially alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock, voting together as a single class.
6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation, Preferences and Rights
is executed on behalf of the corporation by its President and attested by its
Secretary this 10th day of July, 1996.
BILLING INFORMATION CONCEPTS CORP.
By: /s/ Alan W. Saltzman
---------------------------------------------
Name: Alan W. Saltzman
----------------------------------------
Title: President
---------------------------------------
Attest:
/s/ Kelly E. Simmons
- ------------------------------
Name: Kelly E. Simmons
-------------------------
Title: Sr. VP & CFO
------------------------
F:\SSDOC\56617\36209.5H
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RIGHTS AGREEMENT
This Rights Agreement (the "Agreement"), is dated as of July 10, 1996,
between Billing Information Concepts Corp., a Delaware corporation (the
"Company"), and U.S. Trust Company of Texas, N.A. (the "Rights Agent").
Capitalized terms included in this Agreement shall have the meaning set forth
herein.
W I T N E S S E T H:
WHEREAS, on July 10, 1996 the Board of Directors of the Company (i)
authorized the issuance and declared a dividend of one right (a "Right") for
each share of the Common Stock, par value $.01 per share ("Common Stock"), of
the Company outstanding as of the close of business on the date (the "Record
Date") on which U.S. Long Distance Corp. ("USLD") distributes the Common Stock
to the holders of USLD common stock, par value $.01 per share, each Right
representing the right to purchase, on the terms and conditions contained
herein, one ten-thousandth of a share (subject to adjustment) of Series A Junior
Participating Preferred Stock, par value $.01 per share ("Series A Preferred
Stock"), of the Company having the rights and preferences set forth in the form
of Certificate of Designation, Preferences and Rights attached hereto as Exhibit
A, and (ii) further authorized the issuance of one Right (subject to adjustment)
with respect to each share of Common Stock that shall become outstanding
(whether originally issued or delivered from the Company's treasury) between the
Record Date and the Distribution Date; provided, however, that Rights may be
issued with respect to shares of Common Stock that shall become outstanding
after the Distribution Date and prior to the Expiration Date in accordance with
Section 22.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties agree as follows:
SECTION 1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the meanings
indicated:
(a) "Acquiring Person" shall mean any Person who or which shall be
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person; PROVIDED, HOWEVER, that (i)
if the Board of Directors of the Company determines in good faith that a Person
who would otherwise be an "Acquiring Person" became such inadvertently
(including, without limitation, because (A) such Person was unaware that it
beneficially owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (B) such Person was aware of the extent of
its Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without any
intention of changing or influencing control of the Company, and if such Person
as promptly as practicable divested or divests itself of Beneficial Ownership of
a sufficient number of shares of Common Stock so that such Person would no
longer be an "Acquiring Person," then such Person shall not be deemed to be or
to have become an "Acquiring Person" for any purposes of this Agreement; (ii)
if, as of the date hereof, any Person is the Beneficial Owner of 15% or more of
the shares of Common Stock outstanding, such Person shall not be or become an
"Acquiring Person" unless and until such
1
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time as such Person shall become the Beneficial Owner of additional shares of
Common Stock (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Stock in shares of Common Stock or
pursuant to a split or subdivision of the outstanding Common Stock), unless,
upon becoming the Beneficial Owner of such additional shares of Common Stock,
such Person is not then the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding; and (iii) no Person shall become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding increases the proportionate
number of shares of Common Stock beneficially owned by such Person to 15% or
more of the shares of Common Stock then outstanding, PROVIDED, HOWEVER, that if
a Person shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding by reason of such share acquisitions by the
Company and shall thereafter become the Beneficial Owner of any additional
shares of Common Stock (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding Common Stock in shares of Common Stock
or pursuant to a split or subdivision of the outstanding Common Stock), then
such Person shall be deemed to be an "Acquiring Person" unless upon becoming the
Beneficial Owner of such additional shares of Common Stock such Person does not
beneficially own 15% or more of the shares of Common Stock then outstanding.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Exchange Act, as in effect on the date hereof.
(b) "Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
(c) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any shares of Common Stock:
(i) that such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly (as determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of this Agreement);
(ii) that such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, whether or not in writing, or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or otherwise;
provided that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," (x) securities tendered pursuant to a tender or exchange
offer made by such Person or any of such Person's Affiliates or Associates until
such tendered securities are accepted for purchase or exchange, (y) securities
that such Person has a right to acquire on the exercise of Rights at any time
prior to the occurrence of a Section 11(a)(ii) Event or (z) securities issuable
upon exercise
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of Rights from and after the occurrence of a Section 11(a)(ii) Event if such
Rights were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 22 hereof
("original Rights") or pursuant to Section 11(i) or Section 11(n) hereof with
respect to an adjustment to original Rights; or (B) the right to vote pursuant
to any agreement, arrangement or understanding (whether or not in writing);
provided that a Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security if the agreement, arrangement or understanding
to vote such security arises solely from a revocable proxy or consent given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable General Rules and Regulations under the Exchange
Act; or
(iii) that are beneficially owned, directly or indirectly (as
determined pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the date of this Agreement), by any other Person
with which such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding, whether or not in writing, for the
purpose of acquiring, holding, voting (except as described in clause (B) of
subparagraph (ii) of this paragraph (d)) or disposing of any securities of the
Company. Notwithstanding anything in this paragraph (d) to the contrary, (i) a
Person engaged in the business of underwriting securities shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," any securities acquired in
good faith in a firm commitment underwriting until the expiration of 40 days
after the date of such acquisition and (ii) no Person who is an officer,
director or employee of an Exempt Person shall be deemed, solely by reason of
such Person's status or authority as such, to be the "Beneficial Owner" of, to
have "Beneficial Ownership" of or to "beneficially own" any securities that are
"beneficially owned" (as defined in this Section 1(d)), including, without
limitation, in a fiduciary capacity, by an Exempt Person or by any other such
officer, director or employee of an Exempt Person.
(e) "Board of Directors" shall mean the Board of Directors of the
Company or any duly authorized committee thereof.
(f) "Business Day" shall mean any day other than a Saturday, Sunday,
or a day on which banking institutions in the State of Texas are authorized or
obligated by law or executive order to close.
(g) "Close of Business" on any given date shall mean 5:00 p.m.,
Dallas, Texas time, on such date; provided that if such date is not a Business
Day it shall mean 5:00 p.m., Dallas, Texas time, on the next succeeding Business
Day.
(h) "Common Stock" when used with reference to the Company shall mean
the Common Stock (currently par value $.01 per share) of the Company. "Common
Stock" when used with reference to any Person other than the Company which shall
be organized in corporate form shall mean the capital stock or other equity
security with the greatest per share voting power of such Persons. "Common
Stock" when used with reference to any Person other than the Company which shall
not be organized in corporate form shall mean units of beneficial interest that
shall represent the right to participate in profits, losses, deductions and
credits of such Person and that shall be entitled to exercise the greatest
voting power per unit of such Person.
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(i) "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(j) "Current Market Price" shall have the meaning set forth in
Section 24(d) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in Section
3(a) hereof.
(m) "Equivalent Series A Preferred Stock" shall have the meaning set
forth in Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(o) "Exchange Ratio" shall have the meaning set forth in Section
24(a) hereof.
(p) "Exempt Person" shall mean the Company, any Subsidiary of the
Company, U.S. Long Distance Corp., any employee benefit plan or employee stock
plan of the Company or of any Subsidiary of the Company, or any person or entity
organized, appointed or established for or pursuant to the terms of any such
plan or for the purpose of funding any such plan or funding other employee
benefits for employees of the Company or of any Subsidiary of the Company.
(q) "Expiration Date" shall have the meaning set forth in Section
7(a) hereof.
(r) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(s) "Invalidation Time" shall have the meaning set forth in Section
11(a)(ii) hereof.
(t) "NASDAQ" shall mean the National Association of Securities
Dealers, Inc. Automated Quotations System.
(u) "Original Rights" shall have the meaning set forth in Section
1(d)(ii) hereof.
(v) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
(w) "Principal Party" shall have the meaning set forth in Section
13(b) hereof.
(x) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
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(y) "Record Date," with respect to the initial issuance of the Rights
shall be the close of business on the date on which U.S. Long Distance Corp.
distributes the Common Stock of the Company to the holders of the Common Stock
of USLD.
(z) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(aa) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(ab) "Section 11(a)(ii) Event" shall mean any instance in which any
Person, alone or together with its Affiliates and Associates, shall become an
Acquiring Person.
(ac) "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(ad) "Section 13 Event" shall mean any event described in clause (i),
(ii) or (iii) of Section 13(a) hereof.
(ae) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(af) "Series A Preferred Stock" shall have the meaning set forth in
the recitals hereof.
(ag) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.
(ah) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition shall include, without
limitation, a report filed pursuant to the Exchange Act) by the Company or an
Acquiring Person that an Acquiring Person has become such or such earlier date
as a majority of the Board of Directors shall become aware of the existence of
an Acquiring Person.
(ai) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.
(aj) "Subsidiary" of a Person shall mean any corporation or other
entity which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person and any corporation or other entity that is otherwise controlled by
such Person.
(ak) Intentionally omitted.
(al) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(am) "Triggering Event" shall mean any Section 11(a)(ii) Event or
Section 13 Event.
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(an) "USLD" shall mean U.S. Long Distance Corp.
SECTION 2. APPOINTMENT OF RIGHTS AGENT.
The Company hereby appoints the Rights Agent to act as agent for the
Company in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agent as it may deem necessary or desirable.
SECTION 3. ISSUANCE OF RIGHT CERTIFICATES.
(a) Until the Close of Business on the day (the "Distribution Date")
which is the earlier of (i) the tenth day after the Stock Acquisition Date or
(ii) the tenth Business Day (or such later day as may be determined by action of
the Board of Directors taken prior to the Close of Business on such tenth
Business Day and prior to such time as any Person becomes an Acquiring Person)
following the commencement by any Person (other than an Exempt Person) of, or
the first public announcement of the intent of any Person (other than an Exempt
Person) to commence, a tender or exchange offer upon the successful consummation
of which such Person would be the Beneficial Owner of 15% or more of the
outstanding Common Stock (irrespective of whether any shares are actually
purchased pursuant to any such offer), (x) the Rights will be evidenced (subject
to the provisions of Section 3(c) hereof) by the certificates for the Common
Stock registered in the names of the holders of the Common Stock and not be
separate Right Certificates, and (y) each Right will be transferable only in
connection with the transfer of a share (subject to adjustment as hereinafter
provided) of Common Stock; provided that if the Distribution Date would be prior
to the Record Date, the Record Date shall be the Distribution Date; and provided
that if a tender offer or exchange offer referred to in clause (ii) above is
cancelled or withdrawn prior to the Distribution Date, such offer shall be
deemed, for purposes of this Agreement, never to have been made. As soon as
practicable after the Distribution Date, the Rights Agent will mail, by first-
class, postage-prepaid mail, to each record holder of the Common Stock as of the
Close of Business on the Distribution Date, as shown by the records of the
Company, at the address of such holder shown on such records, a Right
Certificate in substantially the form of Exhibit B hereto ("Right Certificate")
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(i) or
Section 11(n) hereof, at the time of distribution of the Right Certificates the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Right Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date the Rights will be
evidenced solely by such Right Certificates.
(b) Intentionally omitted.
(c) Certificates for Common Stock outstanding as of the Record Date
shall have impressed on, printed on, written on or otherwise affixed to them the
legend set forth below in subparagraph 3(d). With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date (or,
if earlier, the Expiration Date), the Rights will be evidenced by such
certificates for Common Stock registered in the names of the holders thereof.
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Until the Distribution Date (or, if earlier, the Expiration Date), the surrender
for transfer of any certificate for Common Stock outstanding on the Record Date
shall (subject to the provisions of Section 11(a)(ii) and the other provisions
hereof) also constitute the surrender for transfer of the Rights associated with
the Common Stock represented thereby.
(d) Subject to the provisions of Section 11(a)(ii) and the other
provisions hereof, Rights shall be issued in respect of all shares of Common
Stock that become outstanding after the Record Date but prior to the earlier of
the Distribution Date or the Expiration Date and, in certain circumstances
provided for in Section 22 hereof, may be issued in respect of shares of Common
Stock that become outstanding after the Distribution Date. Certificates issued
for Common Stock (including without limitation certificates issued upon original
issuance, disposition from the Company's treasury or transfer or exchange of
Common Stock) after the Record Date but prior to the earlier of the Distribution
Date or the Expiration Date (or, in certain circumstances as provided in Section
22 hereof, after the Distribution Date) shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in an Agreement between Billing
Information Concepts Corp. and U.S. Trust Company of Texas, N.A., as
Rights Agent, dated as of July 10, 1996, and as amended from time to
time (the "Agreement"), the terms of which are incorporated herein by
reference and a copy of which is on file at the principal executive
office of U.S. Trust Company of Texas, N.A. Under certain
circumstances, as set forth in the Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by
this certificate. U.S. Trust Company of Texas, N.A. will mail to the
holder of this certificate a copy of the Agreement without charge
promptly after receipt by it of a written request therefor. Rights
issued to or beneficially owned by a Person who is or becomes an
Acquiring Person or an Affiliate or Associate of such Acquiring Person
(as such terms are defined in the Agreement) or, under certain
circumstances, transferees thereof, will become void as provided in
Section 11(a)(ii) of the Agreement and thereafter may not be
transferred to any Person.
With respect to such certificates containing the foregoing legend, the Rights
associated with the Common Stock represented by such certificates shall, until
the Distribution Date, be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall (subject to the provisions
of Section 11(a)(ii) and the other provisions hereof) also institute the
surrender for transfer of the Rights associated with the Common Stock
represented thereby.
Notwithstanding paragraphs (c) or (d), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
SECTION 4. FORM OF RIGHT CERTIFICATES.
The Right Certificates (including the forms of assignment and election to
purchase to be printed on the reverse thereof), when, as and if issued, shall be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are
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not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation made pursuant thereto or with
any rule or regulation of any stock exchange or automated quotation system on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 11 and 22 hereof, the Right Certificates,
whenever issued, evidencing the Rights issued on the Record Date shall be dated
as of the Record Date, and right Certificates evidencing Rights issued after the
Record Date shall be dated as of the date of such issuance, and on their face
Right Certificates shall entitle the holders thereof to purchase one ten-
thousandth of one share of Series A Preferred Stock, or other securities or
property as provided herein, as the same may from time to time be adjusted as
provided herein, at the price per one ten-thousandth of a share set forth
therein, as the same may from time to time be adjusted as provided herein (the
"Purchase Price").
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Right Certificates shall be executed on behalf of the Company
by its President and Chief Executive Officer, any Senior Vice President, or the
Treasurer, either manually or by facsimile signature, and have affixed thereto
the Company's seal or a facsimile thereof which shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless so countersigned.
In case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent,
issued and delivered with the same force and effect as though the Person who
signed such Right Certificates had not ceased to be such officer of the Company;
and any Right Certificate may be signed on behalf of the Company by any Person
who, at the actual date of the execution of such Right Certificate, shall be a
proper officer of the Company to sign such Right Certificate, although at the
date of the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each Right Certificates, the date of each Right
Certificate, and the certificate number for each Right Certificate.
SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES.
(a) Subject to the provisions of Section 11(a)(ii) and the other
provisions hereof, at any time after the Close of Business on the Distribution
Date and at or prior to the Close of Business on the Expiration Date, any Right
Certificate or Right Certificates may be transferred or split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one ten-thousandths of a share of
Series A Preferred Stock as the Right Certificate or Right Certificates
surrendered then entitled such holder to purchase. Any registered holder
desiring to transfer any right Certificate shall surrender the Right Certificate
at the principal office of the Rights Agent with the form of assignment on the
reverse side thereof duly endorsed (or enclose with such Right Certificate a
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<PAGE>
written instrument of transfer in form satisfactory to the Company and the
Rights Agent), duly executed by the registered holder thereof or his attorney
duly authorized in writing, and with such signature duly guaranteed. Any
registered holder desiring to split up, combine or exchange any Right
Certificate shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon
the Rights Agent, subject to the provisions of Section 11(a)(ii) and the other
provisions hereof, shall countersign (by manual signature) and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) and the other
provisions hereof, upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, if requested by the Company,
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will execute and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered owner in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS.
(a) Except as otherwise provided herein, the Rights shall become
exercisable at the Close of Business on the Distribution Date, and thereafter
may be exercised in whole or in part to purchase shares of Series A Preferred
Stock upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed (with such signature duly
guaranteed), to the Rights Agent at its principal office, together with payment
of the aggregate Purchase Price (subject to adjustment as hereinafter provided)
with respect to the number of one ten-thousandths of a share of Series A
Preferred Stock (except as otherwise provided herein) as to which such
surrendered Rights are then being exercised, at or prior to the Close of
Business on the date (the "Expiration Date") which is the earliest of (i) July
10, 2006 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof, or (iii) the time at which the Rights
are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall initially be $130 for each one ten-
thousandth of a share of Series A Preferred Stock issued pursuant to the
exercise of a Right. The Purchase Price and the number of one ten-thousandths
of a share of Series A Preferred Stock or other securities to be acquired upon
exercise of a Right shall be subject to adjustment from time to time as provided
in Sections 11 and 13 hereof. The Purchase Price shall be payable in lawful
money of the United States of America, in accordance with Section 7(c) hereof.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the number of one ten-thousandths of a share of
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Series A Preferred Stock to be purchased and an amount equal to any applicable
transfer tax, by cash, certified or official bank check or money order payable
to the order of the Company or the Rights Agent, the Rights Agent shall, subject
to Section 20(j) hereof, thereupon promptly (i) requisition from any transfer
agent of the Series A Preferred Stock certificates for the number of shares of
Series A Preferred Stock so elected to be purchased (and/or requisition from the
depository agent depository receipts representing interests in such number of
fractional shares of Series A Preferred Stock as are to be purchased, in which
case certificates for the fractional shares of Series A Preferred Stock so
represented shall be deposited with the depository agent) and the Company will
comply and hereby authorizes and directs such transfer agent (and any such
depository agent) to comply with all such requests, (ii) requisition from the
Company the amount of cash to be paid in lieu of issuance of fractional shares
in accordance with Section 14(b) hereof, and (iii) promptly after receipt of
such Series A Preferred Stock certificates cause the same to be delivered to or
upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder, or, when appropriate,
after receipt promptly deliver such depository receipts and cash to or upon the
order of the registered holder of such Right Certificate; provided that in the
case of a purchase of securities, other than Series A Preferred Stock, pursuant
to Section 11 or Section 13 hereof, the Rights Agent shall promptly take the
appropriate actions corresponding to the foregoing clauses (i) through (iii).
In the event that the Company is obligated to issue other securities of the
Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate.
(d) Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all the Rights
evidenced thereby, a new right Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized assigns,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES.
All Right Certificates surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or to any
of its agents, be delivered to the Rights Agent for cancellation or in cancelled
form or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any Right Certificate purchased or acquired by the Company
otherwise than upon the
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exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
SECTION 9. RESERVATION AND AVAILABILITY OF SHARES OF SERIES A PREFERRED
STOCK.
(a) The Company covenants and agrees that at all times it will cause
to be reserved and kept available, out of and to the extent of its authorized
and unissued shares of Series A Preferred Stock not reserved for another purpose
(and, following the occurrence of a Triggering Event, shares of Common Stock and
other securities) or shares of Series A Preferred Stock (and, following the
occurrence of a Triggering Event, shares of Common Stock and other securities)
held in its treasury, the number of shares of Series A Preferred Stock (and,
following the occurrence of a Triggering Event, shares of Common Stock and other
securities) that, as provided in this Agreement, including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights, provided that the Company shall not be required to reserve and keep
available shares of Common Stock or other securities sufficient to permit the
exercise in full of all outstanding Rights pursuant to the adjustments set forth
in Section 11(a)(ii), Section 11(a)(iii) or Section 13 hereof unless the Rights
become exercisable pursuant to such adjustments, and then only to the extent the
Rights become exercisable pursuant to such adjustments.
(b) So long as the shares of Series A Preferred Stock (and, following
the occurrence of a Triggering Event, shares of Common Stock and other
securities) issuable and deliverable upon the exercise of Rights may be listed
on any national securities exchange or automated quotation system, as the case
may be, the Company shall use its best efforts to cause, from and after such
time as the Rights become exercisable, all shares reserved for such issuance to
be listed on such exchange or automated quotation system, as the case may be,
upon official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts to, if then necessary to permit the issuance
of shares of Series A Preferred Stock (and, following the occurrence of a
Triggering Event, shares of Common Stock and other securities) upon the exercise
of Rights, register the offering and issuance of and qualify such shares of
Series A Preferred Stock (and, following the occurrence of a Triggering Event,
shares of Common Stock and other securities) under the Securities Act and any
applicable state securities or "blue sky" laws (to the extent exemptions
therefrom are not available), cause the related registration statement and
qualifications to become effective as soon as possible after such filing and
keep such registration and qualifications effective as soon as possible after
such filing and keep such registrations and qualifications effective until the
earlier of the date as of which the Rights are no longer exercisable for such
securities and the Expiration Date. The Company may temporarily suspend, for a
period of time not to exceed 90 days, the exercisability of the Rights in order
to prepare and file a registration statement under the Securities Act and permit
it to become effective. In the event of any such suspension, the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
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been obtained and until a registration statement under the Securities Act (if
required) shall have been declared effective.
(d) The Company covenants and agrees that it will take all such action
as may be necessary to insure that all shares of Series A Preferred Stock (and,
following the occurrence of a Triggering Event, shares of Common Stock and other
securities) delivered upon exercise of Rights shall, to the extent applicable,
at the time of delivery of the certificates for such securities (subject to
payment of the aggregate Purchase Price in respect thereof), be duly and validly
authorized and issued and fully paid and nonassessable securities in accordance
with applicable law.
(e) The Company further covenants and agrees that it will pay when due
and payable any and all federal and state transfer taxes and charges that may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of Series A Preferred Stock (or other securities, as the case may be)
upon the exercise of Rights; provided that the Company shall not be required to
pay any transfer tax that may be payable in respect of any transfer or delivery
of Right Certificates to a Person other than, or the issuance or delivery of
certificates for Series A Preferred Stock (or other securities, as the case may
be) upon exercise of rights in a name other than that of, the registered holder
of the Right Certificate, and the Company shall not be required to issue or
deliver a Right Certificate or certificate for Series A Preferred Stock (or
other securities, as the case may be) to a Person other than such registered
holder until any such tax shall have been paid (any such tax being payable by
the holder of such Right Certificate at the time of surrender) or until it has
been established to the Company's satisfaction that no such tax is due.
SECTION 10. SERIES A PREFERRED STOCK RECORD DATE.
Each Person in whose name any certificate for shares of Series A Preferred
Stock (or other securities, as the case may be) is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
the Series A Preferred Stock (or other securities, as the case may be)
represented thereby on, and such certificate shall be dated, the date upon which
the Right Certificate evidencing such Rights was duly surrendered and payment of
the aggregate Purchase Price therefor (and any applicable transfer taxes) was
made, PROVIDED, HOWEVER, that if the date of such surrender and payment is a
date upon which the Preferred Stock transfer books of the Company are closed,
such Person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Stock transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company except as provided herein.
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SECTION 11. ADJUSTMENTS TO NUMBER AND KIND OF SHARES, NUMBER OF RIGHTS OR
PURCHASE PRICE.
The number and kind of shares subject to purchase upon the exercise of each
Right, the number of Rights outstanding and the Purchase Price are subject to
adjustment from time to time as provided in this Section 11.
(a)(i) In the event that the Company shall at any time after the
Record Date (A) declare or pay any dividend on Series A Preferred Stock payable
in shares of Series A Preferred Stock, (B) subdivide or split the outstanding
shares of Series A Preferred Stock into a greater number of shares, (C) combine
or consolidate the outstanding shares of Series A Preferred Stock into a smaller
number of shares or effect a reverse split of the outstanding shares of Series A
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Series A Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a), the Purchase Price in effect immediately prior
to the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of Series A Preferred Stock or capital stock, as the case may be,
issuable upon exercise of a Right on such date, shall be proportionately
adjusted so that the holder of any Right exercised after such time shall be
entitled to receive, upon payment of an amount equal to (x) the Purchase Price
in effect immediately prior to the record date or effective date of such
dividend, subdivision, combination or reclassification, multiplied by (y) the
number of one ten-thousandths of a share of Series A Preferred Stock, or shares
of capital stock, as the case may be, as to which a Right was exercisable
immediately prior to such date, the aggregate number and kind of shares of
Series A Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date, the holder thereof
would have owned upon such exercise and been entitled to receive, or would be
deemed to have owned, by virtue of such dividend, subdivision, combination or
reclassification.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person (the first occurrence of such event being
referred to hereinafter as the "Section 11(a)(ii) Event"), then (A) the Purchase
Price shall be adjusted to be the Purchase Price in effect immediately prior to
the Section 11(a)(ii) Event multiplied by the number of one ten-thousandths
(1/10,000) of a share of Preferred Stock for which a Right was exercisable
immediately prior to such Section 11(a)(ii) Event, whether or not such Right was
then exercisable, and (B) each holder of a Right, except as otherwise provided
in this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have
the right to receive upon exercise thereof at a price equal to the Purchase
Price (as so adjusted), in accordance with the terms of this Agreement and in
lieu of shares of Preferred Stock, such number of shares of Common Stock (the
"Adjustment Shares") as shall equal the result obtained by dividing the Purchase
Price (as so adjusted) by 50% of the current per share market price of the
Common Stock (determined pursuant to Section 11(d) hereof) on the date of such
Section 11(a)(ii) Event; PROVIDED, HOWEVER, that the Purchase Price (as so
adjusted) and the number of Adjustment Shares so receivable upon exercise of a
Right shall, following the Section 11(a)(ii) Event, be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof.
Notwithstanding anything in this Agreement to the contrary, however, from and
after the Section 11(a)(ii) Event ("Invalidation Time"), any Rights that are
beneficially owned by (x) any Acquiring Person (or Affiliate or
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Associate of any Acquiring Person), (y) a transferee of any Acquiring Person (or
such Affiliate or Associate) who becomes a transferee after the Section
11(a)(ii) Event or (z) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who became a transferee prior to or concurrently with
the Section 11(a)(ii) Event pursuant to either (I) a transfer from the Acquiring
Person to holders of its equity securities or to any Person with whom it has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (II) a transfer that the Board of Directors has determined is part of
a plan, arrangement or understanding that has the purpose or effect of avoiding
the provisions of this paragraph, and subsequent transferees of such Persons,
shall be void without any further action and any holder of such Rights shall
thereafter have no rights whatsoever with respect to such Rights under any
provision of this Agreement. The Company shall use all reasonable efforts to
ensure that the provisions of this Section 11(a)(ii) are complied with, but
shall have no liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From and after
the Section 11(a)(ii) Event, no Right Certificate shall be issued pursuant to
Section 3 or Section 6 hereof that represents Rights that are or have become
void pursuant to the provisions of this paragraph, and any Right Certificate
delivered to the Rights Agent that represents Rights that are or have become
void pursuant to the provisions of this paragraph shall be canceled. From and
after the occurrence of an event specified in Section 13(a) hereof, any Rights
that theretofore have not been exercised pursuant to this Section 11(a)(ii)
shall thereafter be exercisable only in accordance with Section 13 and not
pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) a number of shares of Preferred Stock or fraction
thereof such that the current per share market price of one share of Preferred
Stock multiplied by such number or fraction is equal to the current per share
market price of one share of Common Stock. In the event that the number of
shares of Common Stock that are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights is not sufficient to permit the exercise in
full of the Rights in accordance with Section 11(a)(ii) hereof and the Rights
shall become so exercisable, the Board of Directors shall, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party, (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (computed using the
Current Market Price used to determine the number of Adjustment Shares) (the
"Current Value"), over (2) the then current Purchase Price times the number of
one ten-thousandths of a share of Series A Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event (such excess, the "Spread") and (B) with respect to each Right (other than
Rights which have become void pursuant to Section 11(a)(ii) hereof), make
adequate provision to substitute for any or all such Adjustment Shares (1) cash,
(2) shares of Series A Preferred Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of preferred stock
which, by virtue of having dividend, voting or liquidation rights substantially
comparable to those of the Common Stock, are deemed in good faith by the Board
of Directors to have substantially the same value as shares of Common Stock
(such shares of Series A Preferred Stock and shares or units of shares of
preferred stock are herein called "Common Stock Equivalents")), (3) debt
securities of the Company, (4) other assets, (5) a reduction of the Purchase
Price, or (6) any combination of the foregoing, having a value which, when added
to the value of the shares of
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Common Stock actually issued upon exercise of such Right, shall have an
aggregate value equal to the Current Value, where such aggregate value has been
determined in good faith by the Board of Directors based upon the advice of a
nationally recognized independent investment banking firm selected in good faith
by the Board of Directors; provided that if the Company shall not have made
adequate provision to deliver value pursuant to clause (B) above within 30 days
following the date (the "Section 11(a)(ii) Trigger Date") of the first
occurrence of a Section 11(a)(ii) Event, then the Company shall be obligated to
deliver, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available) and then, if necessary, shares of Series A
Preferred Stock and then, if necessary, cash, which shares and cash have an
aggregate value equal to the Spread. If, upon the occurrence of a Section
11(a)(ii) Event, the number of shares of Common Stock authorized by the
Company's Certificate of Incorporation but not outstanding or reserved for
issuance for purposes other than upon exercise of the Rights is not sufficient
to permit exercise in full of the Rights in accordance with Section 11(a)(ii)
hereof, and if the Board of Directors shall determine in good faith that it is
likely that sufficient additional shares of Common Stock could be authorized for
issuance upon exercise in full of the Rights, then, if the Board of Directors so
elects, the 30 day period set forth above may be extended to the extent
necessary, but not more than 90 days after the Section 11(a)(ii) Trigger Date,
in order that the Company may seek stockholder approval for the authorization of
such additional shares (such 30 day period, as it may be extended, is herein
called the "Substitution Period"). The extent that the Company determines that
some action must be taken pursuant to the first or second sentence of this
Section 11(a)(iii), the Company (x) shall provide, subject to Section 11(a)(ii)
hereof and the last sentence of this Section 11(a)(iii), that such action shall
apply uniformly to all outstanding Rights and (y) may suspend the exercisability
of the Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine the
value thereof. In the event of any such suspension, the Company shall issue a
public announcement stating that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Common Stock shall be the Current Market Price per share of the
Common Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit
value of any Common Stock Equivalent shall be deemed to be equal to the Current
Market Price per share of the Common Stock on such date. The Board of Directors
may, but shall not be required to, establish procedures to allocate the right to
receive Common Stock upon the exercise of the Rights among holders of Rights
pursuant to this Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Series A Preferred Stock entitling
them to subscribe for or purchase (for a period expiring within 45 calendar days
after such record date) shares of Series A Preferred Stock, shares having the
same rights, privileges and preferences as Series A Preferred Stock ("Equivalent
Series A Preferred Stock") or securities convertible into Series A Preferred
Stock or Equivalent Series A Preferred Stock at a price per share of Series A
Preferred Stock or Equivalent Series A Preferred Stock (or having a conversion
price per share, if a security convertible into Series A Preferred Stock or
Equivalent Series A Preferred Stock) less than the Current Market Price per
share of Series A Preferred Stock on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price
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in effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Series A Preferred Stock outstanding on
such record date, plus the number of shares of Series A Preferred Stock which
the aggregate offering price of the total number of shares of Series A Preferred
Stock and Equivalent Series A Preferred Stock (and the aggregate initial
conversion price of the convertible securities so to be offered, including the
price required to be paid to such convertible security) would purchase at such
Current Market Price, and the denominator of which shall be the number of shares
of Series A Preferred Stock outstanding on such record date, plus the number of
additional shares of Series A Preferred Stock or Equivalent Series A Preferred
Stock to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such noncash consideration shall
be as determined in good faith by the Board of Directors, whose determination
shall be described in a statement filed with the Rights Agent. Shares of Series
A Preferred Stock owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed, and in the
event that such rights, options, warrants or convertible securities are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price that would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Series A Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of the
Company), assets (other than a dividend payable in Series A Preferred Stock, but
including any dividend payable in stock other than Series A Preferred Stock) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the Current Market
Price per share of Series A Preferred Stock on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the cash, assets or warrants applicable to a
share of Series A Preferred Stock and the denominator of which shall be such
Current Market Price per share of Series A Preferred Stock. Such adjustments
shall be made successively whenever such a record date is fixed, and in the
event that such distribution is not so made, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(d)(i) For the purpose of any computation hereunder (including
computations pursuant to Section 14 hereof), other than computations made
pursuant to Section 11(a)(iii) hereof, the "Current Market Price" per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices per share of such stock for the 30 consecutive Trading Days immediately
prior to such date, and for purpose of computations made pursuant to Section
11(a)(iii) hereof, the "Current Market Price" per share of Common Stock on any
date shall be deemed to be the average of the daily closing prices per share of
such stock for the 10 consecutive Trading Days immediately following such date;
provided that in the event the Current Market Price per share of Common Stock is
determined during a period following the announcement by the issuer of such
stock of (i) any dividend or distribution on such stock (other
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than a regular quarterly cash dividend) or (ii) any subdivision, combination or
reclassification of the stock, and prior to the expiration of the requisite 30
Trading Day or 10 Trading Day period, as set forth above, the exdividend date
for such dividend or distribution, or the effective date of such subdivision,
combination or reclassification, occurs, then, and in each such case, the
Current Market Price shall be properly adjusted to take into account exdividend
trading. The closing price for each day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
Common Stock are listed or admitted to trading or, if the shares of Common Stock
are not listed or admitted to trading on any national securities exchange, the
last quoted sale price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the NASDAQ or such
other system as may then be in use, or, if on any such date the prices of shares
of Common Stock are not reported by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in such stock selected by the Board of Directors. If on any such date
no market maker is making a market in the Common Stock, the fair value of such
shares on such date as determined in good faith by the Board of Directors shall
be used. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of Common Stock are listed or
admitted to trading is open for the transaction of business or, if the shares of
Common Stock are not listed or admitted to trading on any national securities
exchange, a Business Day. If the Common Stock is not publicly held or not so
listed or traded, "Current Market Price" per share shall mean the fair value per
share as determined in good faith by the Board of Directors, whose determination
shall be described in a statement filed with the Rights Agent.
(ii) For the purpose of any computation hereunder, the "Current
Market Price" per share of Series A Preferred Stock shall be determined in the
same manner as set forth above for the Common Stock in clause (i) of this
Section 11(d) (other than the last sentence thereof). If the Current Market
Price per share of Series A Preferred Stock cannot be determined in the manner
provided above or if the Series A Preferred Stock is not publicly held or listed
or traded in a manner described in clause (i) of this Section 11(d), the
"Current Market Price" per share of Series A Preferred Stock shall be
conclusively deemed to be an amount equal to ten thousand (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date of
this Agreement) multiplied by the Current Market Price per share of the Common
Stock. If neither the Common Stock nor the Series A Preferred Stock is publicly
held or so listed or traded, "Current Market Price" per share of the Series A
Preferred Stock shall mean the fair value per share as determined in good faith
by the Board of Directors, which determination shall be described in a statement
filed with the Rights Agent. For all purposes of this Agreement, the "Current
Market Price" of one ten-thousandth of a share of Series A Preferred Stock shall
be equal to the "Current Market Price" of one share of Series A Preferred Stock
divided by ten thousand (subject to adjustment as provided above). The "Current
Market Price" per share of Equivalent Series A Preferred Stock shall be
determined in the same manner as set forth above for the Series A Preferred
Stock.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease
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of at least 1% in the Purchase Price; provided that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share, as the case may be. Notwithstanding the first sentence
of this Section 11(e), any adjustment required by this Section 11 shall be made
no later than the earlier of (i) three years after the date of the transaction
that mandates such adjustment or (ii) one month prior to the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Series A Preferred
Stock, thereafter the number of such other shares so receivable upon exercise of
any Right and the Purchase Price thereof shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
applicable provisions with respect to the shares of Series A Preferred Stock
contained in Sections 7, 9, 10, 11, 13 and 14 hereof, and such provisions shall
apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one ten-thousandths of a
share of Series A Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustments as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i) hereof, upon each adjustment of the Purchase Price as a result
of the calculations made in Section 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one ten-
thousandths of a share of Series A Preferred Stock (calculated to the nearest
ten-thousandth) obtained by (i) multiplying (x) the number of one ten-
thousandths of a share covered by a Right immediately prior to such adjustment
by (y) the Purchase Price in effect immediately prior to such adjustment of the
Purchase Price and (ii) dividing the product so obtained by the Purchase Price
in effect immediately after such adjustment of the Purchase Price.
(i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in substitution for any
adjustment in the number of one ten-thousandths of a share of Series A Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights outstanding
after the adjustment in the number of Rights shall be exercisable for the number
of one ten-thousandths of a share of Series A Preferred Stock for which a Right
was exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment in the number of Rights shall become that number of
Rights (calculated to the nearest ten-thousandth) obtained by dividing the
Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days later
than the date of the public announcement. If Right Certificates
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have been issued, upon each adjustment of the number of Rights pursuant to this
Section 11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date Right
Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of record
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one ten-thousandths of a share of Series A Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number of
one ten-thousandths of a share that were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the shares of Series A Preferred Stock and cash, other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the shares of Series A Preferred Stock and cash, other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Purchase Price in effect prior to such adjustment; provided that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares of Series A
Preferred Stock and cash, other capital stock or securities, if any, upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent in their good faith judgment the Board of Directors shall determine
to be advisable in order that any (i) consolidation or subdivision of the Series
A Preferred Stock, (ii) issuance for cash of any shares of Series A Preferred
Stock, (iii) issuance for cash of shares of Series A Preferred Stock or
securities that by their terms are convertible into or exchangeable for shares
of Series A Preferred Stock, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company shall not be taxable to holders of its Series A Preferred Stock.
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(n) The Company covenants and agrees that, after the earlier of the
Distribution Date or the Stock Acquisition Date, it will not, except as
permitted by Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or eliminate the
benefits intended to be afforded by the Rights.
(o) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Record Date and prior to
the Distribution Date (i) declare a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares
of Common Stock, (iii) combine the outstanding shares of Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the outstanding Common Stock, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.
SECTION 12. CERTIFICATE OF ADJUSTMENTS.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts giving rise to such adjustment,
(b) promptly file with the Rights Agent and with each transfer agent for the
Common Stock a copy of such certificate and (c) mail a brief summary thereof to
each record holder of a Right (or, if prior to the Distribution Date, to each
holder of Common Stock) in accordance with Section 26 hereof. Notwithstanding
the foregoing sentence, the failure of the Company to give such notice shall not
affect the validity of or the force of effect of or the requirement for such
adjustment. The Rights Agent shall be fully protected in relying upon any
certificate prepared by the Company pursuant to this Section 12 hereof and on
any adjustment therein described.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER.
(a) In the event that, directly or indirectly, at any time after the
Section 11(a)(ii) Event (i) the Company shall consolidate with or shall merge
into any other Person, (ii) any Person shall merge with and into the Company and
the Company shall be the continuing or surviving corporation of such merger and,
in connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earnings power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person (other than the Company or one or more
wholly owned Subsidiaries of the Company), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of a Right
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(other than Rights which have become void pursuant to Section 11(a)(ii) hereof)
shall thereafter have the right to receive, upon the exercise thereof at the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof), in accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock or Common Stock of the Company, such number validly authorized
and issued, fully paid, nonassessable and freely tradeable shares of Common
Stock of the Principal Party (as such term is hereinafter defined), not subject
to any liens, encumbrances, rights of first refusal or other adverse claims, as
shall equal the result obtained by dividing the Purchase Price as theretofore
adjusted in accordance with Section 11(a)(ii) hereof) by 50% of the current per
share market price of the Common Stock of such Principal Party (determined
pursuant to Section 11(d) hereof) on the date of consummation of such
consolidation, merger, sale or transfer; PROVIDED, HOWEVER, that the Purchase
Price (as theretofore adjusted in accordance with Section 11(a)(ii) hereof) and
the number of shares of Common Stock of such Principal Party so receivable upon
exercise of a Right shall be subject to further adjustment as appropriate in
accordance with Section 11(f) hereof to reflect any events occurring in respect
of the Common Stock of such Principal Party after the occurrence of such
consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Rights Agreement; (C) the term "Company" shall thereafter be deemed to
refer to such Principal Party; and (D) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its shares of Common Stock in accordance with Section 9 hereof) in connection
with such consummation of any such transaction as may be necessary to assure
that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (i) or
(ii) of the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, or, if there is more than one such
issuer, the issuer the Common Stock of which has the greatest aggregate market
value of shares outstanding or (B) if no securities are so issued, (x) the
Person that is the other party to the merger, if such Person survives the
merger, or, if there is more than one such Person, the Person the Common Stock
of which has the greatest aggregate market value of shares outstanding or (y) if
the Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it survives)
or (z) the Person resulting from the consolidation; and
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(ii) in the case of any transaction described in clause (iii) of
the first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a party
to such transaction or transactions receives the same portion of the assets or
earning power so transferred or if the Person receiving the greatest portion of
the assets or earning power cannot be determined, whichever of such Persons as
is the issuer of Common Stock having the greatest aggregate market value of
shares outstanding; provided that in any such case described in the foregoing
clause (b)(i) or (b)(ii), (1) if the Common Stock of such Person is not at such
time or has not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, and if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of all of which are and have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Section 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the offering and
sale of the securities purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration statement to become
effective as soon as practicable after such filing and use its best efforts to
cause such registration statement to remain effective (with a prospectus at all
times meeting the requirements of the Securities Act) until the Expiration Date,
and similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the Principal
Party shall be listed on a national securities exchange, to list (or continue
the listing of) the Rights and the securities purchasable upon exercise of the
Rights on such securities exchange and, if the Common Stock of the Principal
Party shall not be listed on a national securities exchange, to cause the Rights
and the securities purchasable upon exercise of the Rights to be reported by
NASDAQ or such other system as may then be in use;
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(iii) deliver to holders of the Rights historical financial
statements for the Principal Party that comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the shares of Common Stock of the Principal Party subject
to purchase upon exercise of outstanding Rights.
In the event that any of the transactions described in Section 13(a) hereof
shall occur, the Rights which have not theretofore been exercised pursuant to
either Section 7 or Section 11(a)(ii) hereof shall thereafter be exercisable
only in the manner described in Section 13(a) hereof.
(d) Furthermore, in case the Principal Party that is to be a party to
a transaction referred to in this Section 13 has provision in any of its
authorized securities or in its Certificate or Articles of Incorporation or
Bylaws or other instrument governing its corporate affairs, which provision
would have the effect of (i) causing such Principal Party to issue (other than
to holders of Rights pursuant to this Section 13), in connection with, or as a
consequence of, the consummation of a transaction referred to in this Section
13, shares of Common Stock of such Principal Party at less than the then Current
Market Price per share (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Stock of such Principal
Party at less than such then Current Market Price, or (ii) providing for any
special payment, tax or similar provisions in connection with the issuance of
the Common Stock of such Principal Party pursuant to the provisions of Section
13, then, in such event, the Company hereby agrees with each holder of Rights
that it shall not consummate any such transaction unless prior thereto the
Company and such Principal Party shall have executed and delivered to the Rights
Agent a supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after the occurrence of a Section 11(a)(ii) Event, enter into any transaction of
the type contemplated by clauses (i) through (iii) of Section 13(a) hereof if
(x) at the time of or immediately after such consolidation, merger, sale or
other transaction there are any rights, warrants or other instruments or
securities outstanding or agreements in effect that would substantially diminish
or otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale or other transaction, the stockholders of the Person who constitutes, or
would constitute, the "Principal Party" for purposes of Section 13(a) hereof
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates or (z) the form or nature of organization of
the Principal Party would preclude or limit the exercisability of the Rights.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Right Certificates which evidence fractional Rights. If the
Company shall not issue fractions of Rights, in lieu of such fractional Rights,
there shall be paid to the holders of record
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of the Right Certificates with regard to which such fractional Rights would
otherwise be issuable an amount in cash equal to the same fraction of the then
current market value of a whole Right. For the purposes of this Section 14(a),
the then current market value of a Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which fractional
Rights would have been issuable, determined in the same manner as the closing
price of a share of Common Stock shall be determined pursuant to Section 11(d)
hereof.
(b) The Company shall not be required to issue fractions of shares of
Series A Preferred Stock or other securities of the Company upon exercise of the
Rights (other than fractions of shares of Series A Preferred Stock that are
integral multiples of one ten-thousandths of a share) or to distribute
certificates that evidence interests in fractional shares (other than fractions
of shares of Series A Preferred Stock that are integral multiples of one ten-
thousandths of a share); provided that in lieu of issuing fractions of shares of
Series A Preferred Stock, the Company may, at its election, issue depository
receipts evidencing interests in fractions of shares pursuant to an appropriate
agreement between the Company and a depository selected by it, but only if such
agreement shall provide that the holders of such depository receipts shall have
all of the rights, privileges and preferences to which they would be entitled as
beneficial owners of the Series A Preferred Stock. With respect to fractional
shares that are not integral multiples of one ten-thousandths of a share, if the
Company does not issue such fractional shares or depository receipts in lieu
thereof, there shall be paid to the holders of record of Right Certificates at
the time the Rights evidenced by such Certificates are exercised as herein
provided an amount in cash equal to the same fraction of the then current market
value of a share of Series A Preferred Stock or other securities of the Company.
For purposes of this Section 14(b), the then current market value of a share of
Series A Preferred Stock or other securities of the Company shall be the closing
price thereof for the Trading Day immediately prior to the date of such
exercise, as determined pursuant to Section 11(d) hereof or in the same manner
as the closing price of a share of Series A Preferred Stock shall be determined
pursuant to Section 11(d)(ii) hereof, as the case may be.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates that evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one share of Common Stock. For purposes of this Section
14(c), the current market value of one share of Common Stock shall be the
closing price of one share of Common Stock (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(d) The holder of a Right by the acceptance of a Right expressly
waives his right to receive any fractional Right or any fractional share of
Series A Preferred Stock or other securities of the Company upon exercise of a
Right, except as provided by this Section 14.
SECTION 15. RIGHTS OF ACTION.
All rights of action in respect of this Agreement are vested in the
respective holders of record of the
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Right Certificates (and, prior to the Distribution Date, the holders of record
of the Common Stock); and any holder of record of any Right Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company or any other Person to enforce, or otherwise act in respect
of, his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and, accordingly, that they will
be entitled to specific performance of the obligations under, and injunctive
relief against actual or threatened violations of, the obligations of any Person
subject to this Agreement.
SECTION 16. AGREEMENT OF RIGHT HOLDERS.
Every holder of a Right by accepting the same consents and agrees with the
Company and the Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will not be evidenced
by a Right Certificate and will be transferrable only in connection with the
transfer of Common Stock;
(b) after the Distribution Date, the Right Certificates will be
transferrable only on the registry books of the Rights Agent if surrendered at
the designated office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificate or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent or the transfer agent
of the Common Stock) for all purposes whatsoever, and either the Company nor the
Rights Agent shall be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligations; provided that the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
SECTION 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER.
No holder of a Right, as such, shall be entitled to vote, receive dividends
in respect of or be deemed for any purpose to be the holder of Series A
Preferred Stock or any other securities of the Company that may at any time be
issuable upon the exercise of the Rights, nor shall
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anything contained herein or in any Right Certificate be construed to confer
upon the holder of any Right Certificate, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders, or to receive dividends or subscription
rights in respect of any such stock or securities, or otherwise, until the Right
or Rights evidenced by such Right Certificate shall have been exercised in
accordance with the provisions hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense incurred without negligence, bad faith or willful
misconduct on the part of the Rights Agent for anything done or omitted to be
done by the Rights Agent in connection with the acceptance and administration of
this Agreement, including the cost and expenses of defending against any claim
of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Right
Certificate, certificate for Series A Preferred Stock or other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, guaranteed, verified or acknowledged, by the proper Person or
Persons.
SECTION 19. MERGER, CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall
succeed to the agency created by this Agreement, any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Rights Certificates so countersigned, and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent or in
the name of the successor Rights Agent, and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
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(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
SECTION 20. DUTIES OF RIGHTS AGENT.
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Right Certificates, by their acceptance thereof, shall be
bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted to be taken by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including without limitation the identity of any Acquiring Person and the
determination of Current Market Price) be proved or established by the Company
prior to taking or suffering to be taken any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President and the Chief
Executive Officer, any Senior Vice President, the Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary of the Company and
delivered to the Rights Agent, and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered to be taken in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not (i) be responsible for (A) the
validity of this Agreement or the execution and delivery hereof (except the due
execution hereof by the Rights Agent) or the validity or execution of any Right
Certificate (except its countersignature thereof), (B) any breach by the Company
of any covenant or condition contained in this Agreement or in any Right
Certificate, (C) any adjustment required under the provisions of Section 11 or
13 hereof or (D) the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right Certificates
after actual notice of any such adjustment) or (ii) by any
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act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Series A Preferred Stock to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
shares of Series A Preferred Stock will, when issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President and the Chief Executive Officer, any Senior
Vice President, the Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss the Company resulting from any such act, default, neglect
or misconduct; provided reasonable care was exercised in the selection and
continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
election to purchase or the form of assignment set forth on the reverse thereof,
as the case may be, has either not been completed or indicates an affirmative
response to clause 1 or 2 thereof, the Rights Agent shall not take any further
action with respect to such requested exercise or transfer without first
consulting with the Company.
SECTION 21. CHANGE OF RIGHTS AGENT.
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The Rights Agent or any successor Rights Agent may resign and be discharged
from its duties under this Agreement upon 30 days' notice in writing mailed to
the Company and to each transfer agent of the Common Stock by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
(with or without cause) upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. Notwithstanding the foregoing provisions of
this Section 21, in no event shall the resignation or removal of a Rights Agent
be effective until a successor Rights Agent shall have been appointed and have
accepted such appointment. If the Company shall fail to make such appointment
within a period of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
incumbent Rights Agent or the holder of record of any Right Certificate may
apply to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such
a court, shall be (a) a corporation organized and doing business under the laws
of the United States or any State thereof, in good standing, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50,000,000 or (b) an Affiliate controlled by a corporation
described in clause (a) of this sentence. After appointment, the successor
Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed, but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock, and mail a notice thereof in
writing to the registered holders of the Right Certificates. The failure to
give any notice required by this Section 21 or any defect therein shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
SECTION 22. ISSUANCE OF NEW RIGHT CERTIFICATES.
Notwithstanding any of the provisions of this Agreement to the contrary,
the Company may, at its option, issue new Right Certificates evidencing Rights
in such form as may be approved by the Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares of stock or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to a Triggering Event or the
redemption or expiration of the Rights, the Company may, with respect to shares
of Common Stock so issued or sold pursuant to the exercise of employee stock
options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities hereafter issued by the Company, or in any
other case, if
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deemed necessary or appropriate by the Board of Directors, issue Right
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided that (i) no such Right Certificate shall be
issued if, and to the extent that, the Company shall be advised by counsel that
such issuance would create a significant risk of material adverse tax
consequences to the Company or the Person to whom such Right Certificate would
be issued, and (ii) no such Right Certificate shall be issued if, and to the
extent that, appropriate adjustment shall otherwise have been made in lieu of
the issuance thereof.
SECTION 23. REDEMPTION.
(a) The Board of Directors may, at its option, at any time prior to
the earlier of (i) the first occurrence of a Section 11(a)(ii) Event, and (ii)
the Close of Business on the Expiration Date, cause the Company to redeem all
but not less than all of the then outstanding Rights at a redemption price of
$0.01 per Right, as such amount may be appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price").
(b) Immediately upon the effective time of the redemption of the
Rights as specified by the action of the Board of Directors ordering the
redemption of the Rights, and without any further action and without any notice,
the right to exercise the Rights will terminate and the only right thereafter of
the holders of Rights shall be to receive the Redemption Price, without any
interest thereon. Promptly after the effective time of the redemption of the
Rights as specified by the action of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the holders of the then outstanding Rights by mailing such notice to all such
holders at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent of the Common Stock. Any notice which is mailed in the manner
provided herein shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the effective time of the
redemption, the method by which the payment of the Redemption Price will be made
and the time for such payment. The failure to give any notice required by this
Section 23(b) or any defect therein shall not affect the legality or validity of
the action taken by the Company.
SECTION 24. EXCHANGE.
(a) The Board of Directors may, at its option, at any time after the
first occurrence of a Section 11(a)(ii) Event, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for shares
of Common Stock at an exchange ratio of one share of Common Stock per Right
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than an Exempt Person),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Stock then outstanding.
(b) Immediately upon the effective time of the exchange of the Rights
as specified by the action of the Board of Directors ordering the exchange of
any Rights pursuant
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<PAGE>
to Section 24(a) hereof and without any further action and without any notice,
the right to exercise such Rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of Common
Stock equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give notice of any such exchange;
provided that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly shall mail a notice
of any such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent. Any
notice that is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
that will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated by this Section 24, the Company shall take
all such action as may be necessary to authorize additional shares of Common
Stock for issuance upon exchange of the Rights. In the event that the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional shares of Common Stock, the Company shall
substitute, for each share of Common Stock that would otherwise be issuable upon
exchange of a Right, a number of shares (or fractions thereof) of Series A
Preferred Stock (or Equivalent Series A Preferred Stock), having an aggregate
Current Market Price equal to the Current Market Price per share of Common Stock
as of the date of issuance of such shares (or a fraction thereof) of Series A
Preferred Stock (or Equivalent Series A Preferred Stock).
(d) In any exchange pursuant to Section 24(a) hereof, the Company
shall not be required to issue fractions of shares of Common Stock or to
distribute certificates that evidence fractional shares of Common Stock. In
lieu of such fractional shares of Common Stock, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this Section 24(d), the current market value
of a whole share of Common Stock shall be the Current Market Price of a share of
Common Stock (as determined pursuant to the second sentence of Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of exchange pursuant
to Section 24(a) hereof.
SECTION 25. NOTICE OF PROPOSED ACTIONS.
(a) In case the Company, after the earlier of the Distribution Date
or the Stock Acquisition Date, shall propose to (i) effect any of the
transactions referred to in Section 11(a)(i) hereof or to pay any dividend to
the holders of record of Series A Preferred Stock payable in stock of any class
or to make any other distribution to the holders of record of Series A Preferred
Stock (other than a regular quarterly cash dividend), or (ii) offer to the
holders of record of Series A Preferred Stock options, warrants, or other rights
to subscribe for or to purchase shares of Series A Preferred Stock (including
any security convertible into or exchangeable for Series A Preferred Stock) or
shares of stock of any class or any other securities, options, warrants,
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<PAGE>
convertible or exchangeable securities or other rights, or (iii) effect any
reclassification of the Series A Preferred Stock or any recapitalization or
reorganization of the Company, or (iv) to effect the liquidation, dissolution or
winding up of the Company, then, in each such case, the Company shall give to
each holder of record of a Right Certificate, in accordance with Section 26
hereof, notice of such proposed action, which shall specify the record date for
the purposes of such transaction referred to in Section 11(a)(i), or such
dividend or distribution, or the date on which such reclassification,
recapitalization, reorganization, liquidation, dissolution or winding up is to
take place and the record date for determining participation therein by the
holders of record of Series A Preferred Stock, if any such date is to be fixed,
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of record of Series A Preferred Stock for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of record of Series A Preferred Stock, whichever shall be the earlier.
The failure to give any notice required by this Section 25 or any defect therein
shall not affect the legality or validity of the action taken by the Company or
the vote upon any such action.
(b) If a Section 11(a)(ii) Event shall occur, then the Company shall,
as soon as practicable thereafter, give to each holder of Rights, in accordance
with Section 26 hereof, a notice of the occurrence of such event, which notice
shall describe such event and the consequences of such event to the holders of
Rights under Section 11(a)(ii) hereof.
(c) In case any of the transactions referred to in Section 13 hereof
are proposed, then, in any such case, (i) the Company shall give to each holder
of Rights, in accordance with Section 26 hereof, notice of the proposal of such
transaction at least 10 days prior to consummating such transaction, which
notice shall specify the proposed event and the consequences of the event to
holders of Rights under Section 13 hereof, and, upon consummating such
transaction, shall similarly give notice thereof to each holder of Rights and
(ii) all references in the preceding paragraph (a) to Series A Preferred Stock
shall be deemed thereafter to refer to Common Stock or other securities of the
Principal Party, as appropriate.
SECTION 26. NOTICES.
Notices or demands authorized by this Agreement to be given or made by the
Rights Agent or by the holder of record of any Right Certificate or Right to or
on behalf of the Company shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Billing Information Concepts Corp.
9311 San Pedro, Suite 400
San Antonio, Texas 78216
Attn: General Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of record
of any Right Certificate or Right to or on the Rights Agent shall be
sufficiently given or made if sent by first-
32
<PAGE>
class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
U.S. Trust Company of Texas, N.A.
2001 Ross Avenue, Suite 2700
Dallas, Texas 75201
Attn: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of record of any Right Certificate or
Right shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed to such holder at the address of such holder as it appears
upon the registry books of the Rights Agent or, prior to the Distribution Date,
on the registry books of the transfer agent of the Common Stock.
SECTION 27. SUPPLEMENTS AND AMENDMENTS.
For as long as the Rights are redeemable, and except as provided in the
last sentence of this Section 27, the Company may, in its sole and absolute
discretion, and the Rights Agent shall, if the Company so directs, supplement or
amend any provision of this Agreement in any respect without the approval of any
holders of the Rights or the Common Stock. At any time when the Rights are not
redeemable, and except as provided in the last sentence of this Section 27, the
Company may, and the Rights Agent shall if the Company so directs, supplement or
amend this Agreement without the approval of any holders of Right Certificates
in order to (a) cure any ambiguity, (b) correct or supplement any provision
contained herein that may be defective or inconsistent with any other provisions
herein or (c) change or supplement the provisions hereunder in any manner that
the Company may deem necessary or desirable; provided that no such supplement or
amendment shall adversely affect the interests of the holders of Right
Certificates as such; and provided that this Agreement may not be so
supplemented or amended to (i) lengthen a time period relating to when the
Rights may be redeemed or this Agreement amended at the sole and absolute
discretion of the Company at such time as the Rights are not redeemable or (ii)
lengthen or shorten any other time period unless such lengthening or shortening
of such other time period is for the purpose of protecting, enhancing or
clarifying the rights of, or the benefits to, the holders of Rights as such
(other than any Acquiring Person or an Affiliate or Associate of such an
Acquiring Person). Upon the delivery of a certificate from an appropriate
officer of the Company that states that the proposed supplement or amendment is
in compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made that changes
the Redemption Price or the number of one ten-thousandths of a share of Series A
Preferred Stock for which a Right is exercisable.
SECTION 28. SUCCESSORS.
All of the covenants and provisions of this Agreement by or for the benefit
of the Company or the Rights Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
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<PAGE>
SECTION 29. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give any Person other than
the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Distribution Date, the Common Stock) any legal
or equitable right, remedy or claim under this Agreement, and this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights Agent and
the holders of record of the Right Certificates (and, prior to the Distribution
Date, the Common Stock).
SECTION 30. CHOICE OF LAW.
This Agreement and each Right Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Delaware and for all
purposes shall be governed by and construed in accordance with the laws of such
state applicable to contracts to be made and performed entirely within such
state.
SECTION 31. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
SECTION 32. DESCRIPTIVE HEADINGS.
Descriptive headings of the several sections of this Agreement are inserted
for convenience only and shall not control or affect the meaning or construction
of any of the provisions hereof.
SECTION 33. SEVERABILITY.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under present or future laws effective during the term hereof,
such provision shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable provision never
comprised a part hereof; and the remaining provisions hereof shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in its terms to
such illegal, invalid or unenforceable provision as may be possible and be
legal, valid and enforceable.
SECTION 34. DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS. The
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not
34
<PAGE>
redeem the Rights or to amend this Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) that are done or made by the Board
of Directors of the Company in good faith shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights, as such,
and all other parties, and (y) not subject the Board of Directors to any
liability to the holders of the Rights.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
Attest: BILLING INFORMATION
CONCEPTS CORP.
By: /s/ Kenneth A. Prinz By: /s/ Kelly E. Simmons
----------------------------- ----------------------------------
Name: Kenneth A. Prinz Name: Kelly E. Simmons
------------------------ -----------------------------
Title: Assistant Secretary Title: Sr. VP & CFO
---------------------- ----------------------------
Attest: U.S. TRUST COMPANY OF TEXAS, N.A.
By: Bill Barber By: /s/ John C. Stohlmann
----------------------------- ----------------------------------
Name: William J. Barber Name: John C. Stohlmann
------------------------ -----------------------------
Title: Vice President Title: Vice President
----------------------- ----------------------------
<PAGE>
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATION,
PREFERENCE AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
Billing Information Concepts Corp.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------------
Billing Information Concepts Corp., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the corporation as required by Section 151 of the General
Corporation Law at a meeting on July 10, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of the corporation (the "Board of Directors") in accordance with
the provisions of the Restated Certificate of Incorporation of the corporation,
the Board of Directors hereby creates the following series of preferred stock,
par value $.01 per share, of the corporation:
The designation and number of shares, and the relative rights, preferences,
and limitations of the corporation's Series A Junior Participating Preferred
Stock is as follows:
SECTION 1. DESIGNATION AND AMOUNT.
The shares of such series shall be designated as "Series A Junior
Participating Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be 6,000. Such number
of shares may be increased or decreased by resolution of the Board of Directors;
provided that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the corporation convertible into Series A Preferred Stock.
1
<PAGE>
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any other
series of preferred stock (or any similar stock) of the corporation, the
holders of shares of Series A Preferred Stock, in preference to the holders
of Common Stock, par value $.01 per share (the "Common Stock"), of the
corporation, and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, cumulative preferential dividends, payable in
cash on the first day of January, April, July and October in each year
(each such date being referred to herein as "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, at a rate per annum (rounded to the nearest cent) equal to the
greater of (a) $1.00 per share, or (b) subject to the provision for
adjustment hereinafter set forth, 10,000 times the aggregate per share
amount of all cash dividends, and 10,000 times the aggregate per share
amount (payable in kind) of all noncash dividends or other distributions
(other than a dividend payable in shares of Common Stock or a subdivision
of the outstanding shares of Common Stock (by reclassification or
otherwise)), declared on the Common Stock during the immediately preceding
fiscal year. In the event the corporation shall at any time after the date
on which U.S. Long Distance Corp. ("USLD") distributes the Common Stock to
the holders of USLD's Common Stock (the "USLD Distribution Date") declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) or combination or consolidation of
the outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A)
above immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issuance of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total
amount
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<PAGE>
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which
record date shall be not more than 60 days prior to the date fixed for the
payment thereof.
SECTION 3. VOTING RIGHTS.
The holders of shares of Series A Preferred Stock shall have the following
voting rights:
(A) Each share of Series A Preferred Stock shall entitle the holder
thereof to 10,000 votes on all matters submitted to a vote of the
stockholders of the corporation. In the event the corporation shall at any
time after the USLD Distribution Date declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) or combination or consolidation of the outstanding shares
of Common Stock into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction, the numerator
of which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designation, Preferences and Rights in respect of a series of preferred
stock (or any similar stock) of the corporation, in the Restated
Certificate of Incorporation of the corporation, or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock and any other capital stock of the corporation having general voting
rights shall vote together as one class on all matters submitted to a vote
of stockholders of the corporation.
(C) Except as set forth herein, in the Restated Certificate of
Incorporation of the corporation or as otherwise provided by law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any
corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the corporation shall not:
3
<PAGE>
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the corporation ranking junior (both as to
dividends and upon liquidation, dissolution or winding up) to the
Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The corporation shall not permit any subsidiary of the corporation
to purchase or otherwise acquire for consideration any shares of stock of
the corporation unless the corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
SECTION 5. REACQUIRED SHARES.
Any shares of Series A Preferred Stock redeemed, purchased or otherwise
acquired by the corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of preferred stock
without designation as to series and may be reissued as part of a new series of
preferred stock subject to the conditions and restrictions on issuance set forth
herein, in the Restated Certificate of Incorporation, or in any other
Certificate of Designation, Preferences and Rights in respect of a series of
preferred stock (or any similar stock) of the corporation, or as otherwise
required by law.
4
<PAGE>
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any liquidation, dissolution or winding up of the corporation, no
distribution shall be made (1) to the holders of shares of Common Stock or
any other stock ranking junior to the Series A Preferred Stock upon
liquidation, distribution or winding up, unless, prior thereto, the holders
of shares of Series A Preferred Stock shall have received $1.00 per share,
plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment; provided that
the holders of shares of Series A Preferred Stock shall be entitled to
receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 10,000 times the aggregate amount
to be distributed per share to holders of shares of Common Stock, or (2) the
holders of shares of stock ranking on a parity with the Series A Preferred
Stock upon liquidation, dissolution or winding up, except distributions made
ratably on the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In the event the
corporation shall at any time after the USLD Distribution Date declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) or combination or consolidation of the outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event
under the proviso in clause (1) of the preceding sentence shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION, MERGER, ETC.
In case the corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or converted or changed into other stock or securities, cash
and/or any other property, then in any such case proper provision shall be
made so that each share of Series A Preferred Stock shall at the same time be
similarly exchanged for or converted or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to
10,000 times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, for which or into which each
share of Common Stock is exchanged for or converted or changed. In the event
the corporation shall at any time after the USLD Distribution Date declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) or combination or consolidation of the
outstanding shares of Common Stock into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or conversion or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
5
<PAGE>
SECTION 8. NO REDEMPTION.
Shares of the Series A Preferred Stock shall not be redeemable.
SECTION 9. AMENDMENT.
This Certificate of Designation shall not be amended in any manner that
would materially alter or change the powers, preferences or special rights of
the Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Series A Preferred Stock, voting together as a single class.
6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation, Preferences and Rights
is executed on behalf of the corporation by its President and attested by its
Secretary this ___ day of _____, 1996.
BILLING INFORMATION CONCEPTS CORP.
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attest:
- ------------------------------
Name:
-------------------------
Title:
------------------------
7
<PAGE>
EXHIBIT B
[Form of Right Certificate]
Certificate No. Rights
------- --------
NOT EXERCISABLE AFTER JULY 10, 2006 OR EARLIER IF REDEEMED OR EXCHANGED. THE
RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF BILLING INFORMATION CONCEPTS
CORP., AT $0.01 PER RIGHT (SUBJECT TO ADJUSTMENT) ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT. RIGHTS ISSUED TO OR BENEFICIALLY OWNED BY A PERSON WHO IS OR
BECOMES AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF SUCH ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR, UNDER CERTAIN
CIRCUMSTANCES, TRANSFEREES THEREOF, WILL BECOME VOID AS PROVIDED IN SECTION
11(a)(ii) OF THE RIGHTS AGREEMENT AND THEREAFTER MAY NOT BE TRANSFERRED TO ANY
PERSON.
Right Certificate
Billing Information Concepts Corp.
This certifies that _________________________, or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of July 10, 1996, as the same may be amended from
time to time ("Rights Agreement"), between Billing Information Concepts Corp., a
Delaware corporation (the "Company"), and U.S. Trust Company of Texas, N.A. (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date (as that term is defined in the Rights Agreement) and prior to 5:00 P.M.
(Dallas time) on July 10, 2006 at the principal office of the Rights Agent, or
its successors as Rights Agent, in Dallas, Texas, one ten-thousandth (1/10,000)
of a fully paid and nonassessable share of Series A Junior Participating
Preferred Stock, par value $.01 per share ("Series A Preferred Stock"), of the
Company at a purchase price of $130 per one ten-thousandth of a share, as the
same may from time to time be adjusted in accordance with the Rights Agreement
(the "Purchase Price"), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed.
As provided in the Rights Agreement, the Purchase Price and the number of
shares of Series A Preferred Stock that may be purchased upon the exercise of
the Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events and, upon the happening of
certain events, securities other than shares of Series A Preferred Stock, or
other property, may be acquired upon exercise of the Rights evidenced by this
Right Certificate, as provided by the Rights Agreement.
1
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, as amended from time to time, which terms,
provisions and conditions are incorporated herein by reference and made a part
hereof, and reference to the Rights Agreement is made for a full description of
the rights, limitations of rights, obligations, duties and immunities of the
Rights Agent, the Company and the holders of record of Right Certificates.
Copies of the Rights Agreement are on file at the principal executive office of
the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent designated for that
purpose, may be exchanged for another Right Certificate or right Certificates of
like tenor and date evidencing Rights entitling the holder of record to purchase
the same aggregate number of shares of Series A Preferred Stock as the Rights
evidenced by the Right Certificate or Right Certificates surrendered entitled
that holder to purchase. If this Right Certificate is exercised in part, the
holder shall be entitled to receive, upon surrender hereof, another Right
Certificate or Right Certificates for the number of whole rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this right Certificate may be (i) redeemed by the Company by action of the Board
of Directors at its option at a redemption price of $0.01 per Right, or (ii)
exchanged in whole or in part for shares of the Common Stock, par value $.01 per
share, of the Company, or shares of Series A Preferred Stock.
No fractional shares of Series A Preferred Stock or other securities of the
Company are required to be issued upon the exercise of any Right or Rights
evidenced hereby (other than fractions of shares of Series A Preferred Stock
that are integral multiples of one ten-thousandth of a share), and in lieu
thereof, as provided in the Rights Agreement, a cash payment may be made. As
provided in the Rights Agreement, interests in fractions of shares of Series A
Preferred Stock may, at the election of the Company, be evidenced by depository
receipts.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of Series A Preferred Stock or
of any other securities of the Company that may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement) or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
The Board of Directors shall have the exclusive power and authority to
administer the Rights Plan and to exercise the rights and powers specifically
granted to the Board of Directors or the Company, or as may be necessary or
advisable in the administration of the Rights Plan.
2
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ________________________, ________.
ATTEST: BILLING INFORMATION CONCEPTS CORP.
By:
- -------------------------- ----------------------------------------
Secretary Name:
-----------------------------------
Title:
-----------------------------------
COUNTERSIGNED:
U.S. TRUST COMPANY OF TEXAS, N.A.,
as Rights Agent
By:
----------------------------
Name:
-----------------------
Title:
-----------------------
3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Rights evidenced by this
Right Certificate.)
FOR VALUE RECEIVED _______________________________________ hereby sells,
assigns and transfers unto
______________________________________________________
(Please print name and address of transferee)
_____________________________________________________________________ rights
evidenced by this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
______________________ Attorney, to transfer such Rights on the books of the
within-named company, with full power of substitution.
Dated:
----------------------------
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by and were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
----------------------------------------
Signature
- --------------------------------------------------------------------------------
4
<PAGE>
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder if such holder
desires to exercise the Rights evidenced by this
Right Certificate.)
To: Billing Information Concepts CORP.
The undersigned hereby irrevocably elects to exercise _______ rights
evidenced by this Right Certificate to purchase the securities or other property
due upon the exercise of such Rights and requests that certificates for any such
securities be issued in the name of:
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate for the balance remaining of such Rights shall be registered in the
name of and delivered to:
Please insert social security or other identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
------------------------
----------------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
5
<PAGE>
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).
----------------------------------------
Signature
- --------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase, as
the case may be, must conform to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
F:\SSDOC\56617\36209.5H
1
<PAGE>
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;
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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 other than the Distribution.
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
<PAGE>
DISTRIBUTION AGREEMENT
between
U.S. LONG DISTANCE CORP.
and
BILLING INFORMATION CONCEPTS CORP.
dated as of
July 10, 1996
<PAGE>
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)
<PAGE>
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)
<PAGE>
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.
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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).
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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.
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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 , 1996.
DISTRIBUTION RECORD DATE: The date established by the USLD Board
as the date for taking a record of the Holders of USLD Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as , 1996, subject to the fulfillment on or before ,
1996 of certain conditions to the Distribution as provided in Section 6.02.
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.
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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.
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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.
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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)
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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.
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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 MANAGEMENT Corp. and U.S.
Billing, Inc.) to Billing, (ii) to cause MegaPlus Dialing, Inc., its wholly
owned subsidiary to sell to USLD for $8,785,000 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
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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
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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
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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
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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.
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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.
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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.
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(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"
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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
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(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
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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
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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
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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
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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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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,
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<PAGE>
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.
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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
<PAGE>
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
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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.
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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
-----------------------------
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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
<PAGE>
Exhibit K
Opinion of Arter & Hadden....................................... 16
SCHEDULES
1.01(a) Billing Group Subsidiaries.................................... 7
1.01(b) Transferred Intellectual Property ............................ 7
34
<PAGE>
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
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SCHEDULE 1.01(b)
TRANSFERRED INTELLECTUAL PROPERTY
NONE
36
<PAGE>
BENEFIT PLANS AND
EMPLOYMENT MATTERS ALLOCATION AGREEMENT
between
U.S. LONG DISTANCE CORP.
and
BILLING INFORMATION CONCEPTS CORP.
<PAGE>
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-
<PAGE>
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
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(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
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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
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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.
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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
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(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.
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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.
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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);
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(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
Distribution Date, and continued by Billing pursuant to Section 2.4(b); or
(v) BILLING NON-EMPLOYEE DIRECTOR PLAN. A stock-based incentive
compensation Plan providing for awards of stock options to non-employee
directors of Billing, its parent and subsidiaries, adopted by USLD as the
sole stockholder of Billing on July 10, 1996, but effective as of the
Distribution Date, and continued by Billing pursuant to Section 2.4(b).
STOCK PURCHASE PLAN. A stock-based Plan meeting the requirements of
Section 423 of the Code, maintained for Employees of USLD or Billing.
SUBSIDIARY. Any corporation, including each of the following
categories:
(i) RETAINED SUBSIDIARY. Any subsidiary of USLD except Billing
and the Billing Subsidiaries; or
(ii) BILLING SUBSIDIARY. Each of the Billing Group Subsidiaries
as defined in the Distribution Agreement and all other Subsidiaries of
Billing as defined in the Distribution Agreement at the time of the
Distribution.
USLD. U.S. Long Distance Corp., a Delaware corporation.
WELFARE PLAN. Any Plan that provides medical, health, disability,
accident, life insurance, death, dental or any other welfare benefit, including,
without limitation, any post-employment benefit.
1.2 CERTAIN CONSTRUCTIONS. References to the singular in this
Agreement shall refer to the plural and vice-versa and references to the
masculine shall refer to the feminine and vice-versa.
1.3 SCHEDULES; SECTIONS. References to a "Schedule" are, unless
otherwise specified, to one of the Schedules attached to this Agreement, and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Agreement.
1.4 SURVIVAL. Obligations described in this Agreement shall remain in
full force and effect and shall survive the Distribution Date.
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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
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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
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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.
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(b) BILLING COMPREHENSIVE STOCK PLAN AND NON-EMPLOYEE DIRECTOR PLAN.
As soon as practicable after the date hereof, Billing shall take, or cause to be
taken, all action necessary and appropriate (i) to ratify the adoption of the
Billing 1996 Employee Comprehensive Stock Plan and the Billing Non-Employee
Director Plan, and (ii) to present such Plans to USLD, as the sole stockholder
of Billing, for its approval of these Plans. All awards of options under the
Billing 1996 Employee Comprehensive Stock Plan and the Billing Non-Employee
Director Plan will be denominated in Billing Common Stock. To the extent
authorized by USLD, its sole stockholder, prior to the Distribution Date,
Billing will reserve as shares under the Billing 1996 Employee Comprehensive
Stock Plan and the Billing Non-Employee Director Plan 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
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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 Distribution Date, shall begin its initial enrollment
period on August 1, 1996, or such other date
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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.
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(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
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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
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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.
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(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
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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
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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
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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
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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.
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<PAGE>
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
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<PAGE>
SCHEDULE 2.6(a)
[Medical/Dental Plans to be Sponsored and Continued by USLD]
<PAGE>
SCHEDULE 2.6(b)
[Medical/Dental Plans to be Sponsored and Established by Billing]
<PAGE>
TRANSITIONAL SERVICES AND SUBLEASE AGREEMENT
This TRANSITIONAL SERVICES AND SUBLEASE AGREEMENT, is made as of
July 10, 1996 (the "Agreement"), by and between U. S. LONG DISTANCE
CORP., a Delaware corporation ("USLD"), and BILLING INFORMATION CONCEPTS
CORP., a Delaware corporation ("Billing").
WHEREAS, USLD has agreed to provide certain transitional services to and
sublease certain facilities to Billing in connection with the distribution of
all of the shares of common stock of Billing to the stockholders of USLD (the
"Distribution") upon the terms and conditions hereinafter set forth; and
WHEREAS, Billing has agreed to provide certain transitional services to
USLD in connection with the Distribution upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. USLD SERVICES.
(a) To the extent requested by Billing, USLD agrees to provide
to Billing those administrative, support and other services, with respect to
the billing clearinghouse and information management services business of
Billing and its subsidiaries, listed and described in EXHIBIT A hereto (the
"USLD Services"), at the rate or rates specified in EXHIBIT A hereto. The
USLD Services are based on USLD's and Billing's understanding of the
administrative, support and other services reasonably required by Billing and
its subsidiaries at the date of this Agreement.
(b) If, following the Distribution, Billing reasonably determines
that additional services, consistent with the recent historical practices of
USLD or the billing clearinghouse and information management services business
provided by Billing and its subsidiaries, should be provided, USLD and Billing
agree to negotiate in good faith to appropriately modify this Agreement with
respect to such additional services.
(c) Billing shall pay USLD, for the USLD Services, on a monthly
basis, the amount stated in EXHIBIT A hereto, or, in the case of additional
services agreed to pursuant to paragraph 1.(b), such fees as the parties shall
negotiate on an arms-length basis. Charges for the USLD Services shall be
invoiced on or about the 20th business day of the calendar month next following
the calendar month in which the USLD Services have been performed, and such
invoices shall be payable net thirty (30) days following receipt thereof.
(d) USLD shall use good faith and its reasonable best efforts to
provide the USLD Services in a timely and competent manner. All USLD Services
provided under this Agreement shall be provided in accordance with USLD's
standard policies, procedures and practices.
<PAGE>
(e) USLD shall provide USLD Services as an independent contractor,
and the employees or agents of USLD providing such USLD Services shall remain
employees or agents of USLD. USLD shall use its discretion in performing the
USLD Services, subject to the general discretion of Billing and subject to
compliance with applicable law. USLD shall determine its work location, hours
and rules. However, to the extent USLD or an employee or agent of USLD
supplying USLD Services shall be on the premises of Billing, it shall observe
the working hours and working rules of such premises. USLD agrees, upon
Billing's reasonable request, to replace any of its employees assigned to
perform or assist in the performance of the USLD Services.
(f) USLD shall provide USLD Services to Billing for the term
set forth in EXHIBIT A, unless sooner terminated as provided in Section 4.
2. BILLING SERVICES.
(a) To the extent requested by USLD, Billing agrees to provide
to USLD those administrative, support and other services, with respect to the
direct dial long distance telecommunications services and operator services
businesses of USLD and its subsidiaries, listed and described in EXHIBIT B
hereto (the "Billing Services"), at the rate or rates specified in EXHIBIT B
hereto. The Billing Services are based on Billing's and USLD's understanding
of the administrative, support and other services reasonably required by USLD
and its subsidiaries at the date of this Agreement.
(b) If, following the Distribution, USLD reasonably determines
that additional services, consistent with the recent historical practices of
Billing or the direct dial long distance telecommunications services and
operator services businesses provided by USLD and its subsidiaries, should be
provided, Billing and USLD agree to negotiate in good faith to appropriately
modify this Agreement with respect to such additional services.
(c) USLD shall pay Billing, for the Billing Services, on a monthly
basis, the amount stated in EXHIBIT B hereto, or, in the case of additional
services agreed to pursuant to paragraph 2.(b), such fees as the parties shall
negotiate on an arms-length basis. Charges for the Billing Services shall be
invoiced on or about the 20th business day of the calendar month next following
the calendar month in which the Billing Services have been performed, and such
invoices shall be payable net thirty (30) days following receipt thereof.
(d) Billing shall use good faith and its reasonable best efforts
to provide the Billing Services in a timely and competent manner. All Billing
Services provided under this Agreement shall be provided in accordance with
Billing's standard policies, procedures and practices.
(e) Billing shall provide Billing Services as an independent
contractor, and the employees or agents of Billing providing such Billing
Services shall remain employees or agents of Billing. Billing shall use its
discretion in performing the Billing Services, subject to the general
discretion of USLD and subject to compliance with applicable law. Billing
shall
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<PAGE>
determine its work location, hours and rules. However, to the extent Billing
or an employee or agent of Billing supplying Billing Services shall be on the
premises of USLD it shall observe the working hours and working rules of such
premises. Billing agrees, upon USLD's reasonable request, to replace any of
its employees assigned to perform or assist in the performance of the Billing
Services.
(f) Billing shall provide Billing Services to USLD for the term
set forth in EXHIBIT B, unless sooner terminated as provided in Section 4.
3. SUBLEASE OF FACILITIES.
(a) USLD, in consideration of the covenants, conditions and
agreements and stipulations of Billing hereinafter expressed, hereby leases,
demises and rents to Billing (i) approximately 6,200 square feet of the space
occupied by USLD at Suite 800, 9311 San Pedro, San Antonio, Texas, together
with the right to use the hallways, restrooms and common areas of Suite 800
and the 8th floor (the "8th Floor Subleased Premises") more fully described
in EXHIBIT C attached hereto and made a part hereof for all purposes and (ii)
approximately 18,633 square feet of the space occupied by Billing at Suite
400, 9311 San Pedro, San Antonio, Texas, together with the right to use
hallways, restrooms and common areas of Suite 400 and the 4th floor (the "4th
Floor Subleased Premises") more fully described in EXHIBIT D attached hereto
and made a part hereof for all purposes (collectively, the 4th Floor
Subleased Premises and the 8th Floor Subleased Premises are referred to as
the "Subleased Premises"). The Subleased Premises are situated in the Nowlin
building (the "Building") located in the city of San Antonio in Bexar County,
Texas. The Building is located on a tract of land situated in said county,
which land is more fully described in EXHIBIT E attached hereto and made a
part hereof for all purposes.
(b) To have and to hold the Subleased Premises, together
with the appurtenances thereto, unto Billing beginning on the date of the
Distribution until terminated as provided in Section 4, to be used and
occupied by Billing for general office purposes.
(c) In consideration of this sublease, Billing shall pay to
USLD at the address stated herein the sum of (i) approximately $6,500 per
month for the 8th Floor Subleased Premises and (ii) approximately $19,600 per
month for the 4th Floor Subleased Premises in legal tender of the United
States of America, payable, without demand, in advance on or before the 1st
day of each calendar month during the full term hereof; provided, however,
that if the term of this sublease commences on a date other than the 1st day
of the calendar month, the first rental payment to be made on said
commencement date shall be the rental for one calendar month plus the
prorated rental remainder for the calendar month in which the subleased term
commences.
(d) Insofar as the provisions of that certain Office Lease
Agreement dated September 29, 1988 by and between Nowlin Building
Partnership, Ltd., as Landlord, and USLD, as Tenant, as amended (the "Main
Lease"), do not conflict with the specific provisions herein contained, they
and each of them are incorporated into this Agreement as fully as if
completely rewritten, and Billing agrees to be bound to USLD by all of the
terms of the Main Lease and to assume and perform all of the obligations and
responsibilities of USLD pursuant to the Main Lease and to indemnify and hold
harmless USLD from any claim or liability under the Main Lease except for the
payment of rental by USLD to the Landlord as provided in the Main Lease. The
relationship between Billing and USLD hereunder shall be the same as that
between USLD and the Landlord under the Main Lease.
-3-
<PAGE>
4. TERMINATION.
(a) TERMINATION WITHOUT PRIOR NOTICE. USLD and Billing may
each immediately terminate this Agreement by written notice to the other (i) in
the event of the other's voluntary bankruptcy or insolvency, (ii) in the event
that the other shall make an assignment for the benefit of creditors, or (iii)
in the event that a petition shall have been filed against the other under any
bankruptcy law, corporate reorganization law or other law for relief of debtors
(or any other law similar in purpose or effect), which has caused the other to
have its business effectively discontinued in its then present form.
(b) TERMINATION WITH NOTICE. If either USLD or Billing (the
"Defaulting Party") shall fail adequately to perform in any material respect
any of its material obligations under Sections 1 or 2 or this Agreement,
whether voluntarily or involuntarily or as a result of any law or regulation
or otherwise, the other may terminate the services portion of this Agreement
upon ten (10) days' written notice to the Defaulting Party specifying the
respects in which the Defaulting Party has so failed to perform its
obligations under this Agreement, unless during such period the Defaulting
Party shall have remedied such failure. The sublease of the 8th Floor
Subleased Premises my be terminated by Billing only upon thirty (30) days
advance written notice and the sublease of the 4th Floor Subleased Premises
may be terminated by Billing only after March 31, 1997; provided, further,
that should Billing terminate the sublease on the 4th Floor Subleased
Premises at any time after March 31, 1997 and USLD is not able to sublease or
turn back to the landlord under the Main Lease the 4th Floor Subleased
Premises and cover all of its out of pocket costs in doing so, Billing shall
promptly pay, as invoiced by USLD monthly 50% of USLD's out of pocket costs
related to the 4th Floor Subleased Premises until the Main Lease expires in
January 1998.
5. LIMITATION OF LIABILITY. Neither USLD nor Billing shall be
liable for any indirect, special or consequential damages in connection with, or
arising out of, this Agreement or the USLD Services or Billing Services provided
under this Agreement.
6. DISCLAIMER OF WARRANTIES. Except as expressly set forth in this
Agreement or in any other agreement between the parties modifying or
supplementing this Agreement, neither USLD nor Billing makes any representation
or warranty whatsoever, express or implied, including, but not limited to, any
representation or warranty as to merchantability or fitness for a particular
purpose, arising out of this Agreement or the USLD Services or Billing Services
provided under this Agreement.
7. 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 in which such notice is received:
To Billing: Billing Information Concepts Corp.
9311 San Pedro, Suite 400
San Antonio, TX 78216
Attention: President
To USLD: U.S. Long Distance Corp.
9311 San Pedro, Suite 100
San Antonio, TX 78216
Attention: President
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<PAGE>
8. INDEMNITY.
(a) Subject to the terms and conditions specified herein, USLD agrees to
defend, indemnify, and hold harmless Billing and its agents, employees,
directors, and stockholders from any claims or actions of whatever nature that
may arise in connection with USLD providing USLD Services under this Agreement
to Billing. USLD shall not become a fiduciary to Billing by virtue of providing
USLD Services under this Agreement.
(b) Subject to the terms and conditions specified herein, Billing agrees
to defend, indemnify, and hold harmless USLD and its agents, employees,
directors, and stockholders from any claims or actions of whatever nature that
may arise in connection with Billing providing Billing Services under this
Agreement to USLD. Billing shall not become a fiduciary to USLD by virtue of
providing Billing Services under this Agreement.
9. GENERAL.
(a) Except as otherwise provided in this Agreement, neither USLD
nor Billing shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other and any such attempted assignment
without such prior written consent shall be void and have no force or effect.
This Agreement shall inure to the benefit of, and shall be binding upon, the
successors and permitted assigns of USLD and Billing.
(b) USLD agrees that it shall take appropriate action by
instruction of or agreement with its personnel to ensure that all personnel
performing USLD Services under this Agreement shall be bound by and comply with
all of the terms and conditions of this Agreement and the related Agreements
executed in connection with the Distribution. Billing agrees that it shall take
appropriate action by instruction of or agreement with its personnel to ensure
that all personnel performing Billing Services under this Agreement shall be
bound by and comply with all of the terms and conditions of this Agreement and
the related Agreements executed in connection with the Distribution.
(c) USLD shall be responsible for its actions in the performance
of the USLD Services and shall indemnify, hold harmless and defend (upon
request) Billing from and against all claims and losses of any type (including
reasonable attorneys' fees) in connection with, in whole or in part, any
negligent act or omission, any willful misconduct, or any failure to comply with
federal, state or local law, in the performance of the USLD Services. Billing
shall be responsible for its actions in the performance of the Billing Services
and shall indemnify, hold harmless and defend (upon request) USLD from and
against all claims and losses of any type (including reasonable attorneys' fees)
in connection with, in whole or in part, any negligent act or omission, any
willful misconduct, or any failure to comply with federal, state or local law,
in the performance of the Billing Services.
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<PAGE>
(d) USLD shall not be liable for any failure of, or delay in the
performance of, USLD Services under this Agreement for the period that such
failure or delay is due to acts of God, public enemy, civil war, strikes or
labor disputes, or any other cause beyond its reasonable control. Billing shall
not be liable for any failure of, or delay in the performance of, Billing
Services under this Agreement for the period that such failure or delay is due
to acts of God, public enemy, civil war, strikes or labor disputes, or any other
cause beyond its reasonable control. Each party agrees to notify the other
party hereto promptly of the occurrence of any such cause and to carry out this
Agreement as promptly as practicable after such cause is terminated.
(e) This Agreement constitutes the entire agreement of USLD and
Billing with respect to the USLD Services, the sublease and the Billing
Services. This Agreement may be amended or modified, and any of the terms or
conditions hereof may be waived, only by a written instrument executed by USLD
and Billing, or in the case of a waiver, by the party waiving compliance. Any
waiver by either USLD or Billing of any condition, or of the breach of any
provision or term in any one or more instances, shall not be deemed to be nor
construed as a further or continuing waiver of any such condition, or of the
breach of any other provision or term of this Agreement.
(f) Nothing in this Agreement is intended to confer any rights or
remedies under or by reason of this Agreement on any persons other than USLD or
Billing and their respective successors and permitted assigns. Nothing in this
Agreement is intended to relieve or discharge the obligations or liability of
any third persons to USLD or Billing. No provision of this Agreement shall give
any third persons any right of subrogation or action over or against USLD or
Billing.
(g) This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Texas without
reference to principles of conflicts of law.
(h) The section headings in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
(i) This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which shall constitute the same
instrument.
U.S. LONG DISTANCE CORP. BILLING INFORMATION
CONCEPTS CORP.
By: /s/ Larry M. James By: /s/ Kelly E. Simmons
--------------------------- ---------------------------
Title: President Title: Sr. VP & CFO
------------------------ ------------------------
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<PAGE>
EXHIBIT A
USLD SERVICES
DEPT. SERVICES DATE OF TERM COST EST.
Accounting Reporting/Financial Planning 12/31/96 1
Accounting Accounts Payable & Payroll 12/31/96 $1.30/payment
2
Tax Tax Returns, Planning 12/31/96 1
Finance Borrowing, Cash Mgmt, 12/31/96 1
Investor Relations
Legal Contracts, SEC Compliance, AS REQUESTED 1
Stock Transfer, Employee
Stock Options
Office Services Mail 12/31/96 $1,500 per
month plus
postage
Employee Benefits Recordkeeping, Tax AS REQUESTED 1
Filings, Workers
Compensation Claims,
Health & Dental Claims
Information Services LAN, E-Mail, PC Support, 12/31/96 1
Consulting
- -----------------
1 General pricing rule is that time spent on services or projects will be
charged at 1.5 times the salary of the individuals providing the service
plus out-of-pocket expenses.
2 Assumes that Billing will pay staffing requirements separately.
<PAGE>
EXHIBIT B
BILLING SERVICES
DEPT. SERVICES DATE OF TERM COST EST.
Accounting Reporting/Financial Planning 12/31/96 1
Accounting Accounts Payable & Payroll 12/31/96 $1.30/payment
2
Tax Tax Returns, Planning 12/31/96 1
Finance Borrowing, Cash Mgmt, 12/31/96 1
Investor Relations
Legal Contracts, SEC Compliance, AS REQUESTED 1
Stock Transfer, Employee
Stock Options
Office Services Mail 12/31/96 $1,500 per
month plus
postage
Employee Benefits Recordkeeping, Tax AS REQUESTED 1
Filings, Workers
Compensation Claims,
Health & Dental Claims
Information Services LAN, E-Mail, PC Support, 12/31/96 1
Consulting
- -----------------
1 General pricing rule is that time spent on services or projects will be
charged at 1.5 times the salary of the individuals providing the service
plus out-of-pocket expenses.
2 Assumes that USLD will pay staffing requirements separately.
<PAGE>
EXHIBIT C
SUBLEASED PREMISES
[Diagram of 8th Floor Subleased Premises]
<PAGE>
EXHIBIT D
[REAL ESTATE]
<PAGE>
EXHIBIT E
3.33 acres including all of the land known as Lot 57, Block 5, NCB 11715,
Nowlin Subdivision, City of San Antonio, Bexar County Texas, according to
Plat recorded in Volume 9515, Page 179
<PAGE>
ZERO PLUS - ZERO MINUS
BILLING AND INFORMATION MANAGEMENT
SERVICES AGREEMENT
This Zero Plus - Zero Minus Billing and Information Management Services
Agreement (the "Agreement") is entered into this 10th day of July 1996, by
and between BILLING INFORMATION CONCEPTS INC., a Delaware corporation
("BICI"), and U.S. LONG DISTANCE, INC., a Texas corporation ("Customer").
W I T N E S S E T H:
WHEREAS, Customer is engaged in the business of providing certain "zero plus" or
"zero minus" telecommunication services for which Customer desires to bill and
collect for these services through the local exchange companies (LECs); and
WHEREAS, BICI has entered into billing and collection agreements with certain
LECs which allow BICI to provide billing and information management services
for qualifying "zero plus" and "zero minus" Message Telephone Service ("MTS")
calls on behalf of BICI's customers; and
WHEREAS, BICI has the ability through its computer hardware, computer
software and accounting systems to provide billing and information management
services for qualifying MTS calls for Customer, and Customer desires to
obtain such billing and information management services from BICI on the
terms and conditions contained herein:
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants
and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, do hereby agree
as follows:
SECTION 1. DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings set forth
below, unless the context otherwise requires:
BAD DEBT: See Uncollectible Amounts and Written-Off Accounts.
BILLING TELEPHONE COMPANY (BTC): See Local Exchange Carrier.
BOC: Bell Operating Company.
BUSINESS DAY: A day other than Saturday and Sunday on which
commercial banks are open in the State of Texas.
CLAIM: Claim, loss, liability, damage, cost, correction and expense,
and whether ordinary, special, consequential or otherwise.
CONFIDENTIAL INFORMATION: See Section 8.
<PAGE>
EMI BILLING RECORDS: Computer readable records containing the
billing data for Customer's qualifying MTS calls, in the Bellcore EMI
(electronic message interface) format, for which each LEC has the
capability of processing through its billing and collection systems.
END USER: A natural person, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental agency or instrumentality, or other entity that subscribes to
or uses Customer's services.
FCC: The Federal Communications Commission.
FOREIGN INTRASTATE TAXES: Those applicable Taxes for MTS calls
originating and terminating in the same state but billed in another state
as described in Section 9 herein.
INDEPENDENT TELEPHONE COMPANIES: Those LECs that are not BOCs, which
presently include, subject to revision by BICI from time to time: General
Telephone Operating Companies (GTOCs), United Telecommunications Operating
Companies (United), Alltel, the alliance of Independent Telephone
Companies through Independent NECA Services, and U. S. Intelco.
INTEREXCHANGE CARRIER (IXC): Those telephone companies, other than
the LECs, that can provide intraLATA (where applicable), interLATA,
interstate and international telecommunications service.
LEC PROCESSING FEES: As described in paragraph 4.(c)(i) and 4.(f).
LOCAL EXCHANGE CARRIER (LEC): Any one of the local telephone
companies, as listed on Exhibit A hereto, providing intraLATA exchange
telephone services or issuing calling cards and with whom BICI has entered
into a billing and collection agreement.
MTS (MESSAGE TELEPHONE SERVICES): Direct dialed or operator assisted
station-to-station or person-to-person telephone calls billed: (i) to the
originating telephone number, (ii) collect to the terminating telephone
number, (iii) to a third telephone number other than the originating or
terminating telephone number, or (iv) to a LEC or IXC calling card.
"ENHANCED TELECOMMUNICATIONS SERVICES" OR "INFORMATION SERVICES" ARE NOT
CONSIDERED MTS CALLS HEREIN AND CANNOT BE BILLED UNDER THIS AGREEMENT.
POST-BILLING ADJUSTMENT OR CREDIT: Credits or rate adjustments
applied to an End User's account by the LEC or by BICI.
RBOCS: Regional Bell Operating Companies.
SUBMISSION DATE: As Described in paragraph 3.(a).
TARIFFS: The rates, terms and conditions for providing intraLATA,
interLATA (intrastate), interstate and international telecommunication
services as authorized and filed with the FCC, or with state or local
regulatory authorities.
2
<PAGE>
TAXES: The word "Taxes" shall mean all those taxes and tax-like
surcharges described in paragraph 9.(a) herein.
UNBILLABLE RECORDS: Those EMI Billing Records that pass BICI's edits
and screens and are submitted to the LECs for billing and collection but
subsequently fail the LEC's edits and screens and are not posted to an End
User's account by the LECs.
UNCOLLECTIBLE AMOUNTS: Those amounts that are billed to an End User's
account for Customer's Valid EMI Billing Records but are not collected due
to the End User receiving a Post-Billing Adjustment or Credit to its bill
or the End User failing to pay its bill to the LEC and the account
subsequently being written off as Bad Debt by the LEC.
VALID EMI BILLING RECORDS: As described in paragraph 3.(b).
WRITTEN-OFF ACCOUNTS: Those End Users' accounts that are not paid by
the End Users and are subsequently written off as Bad Debt by the LECs.
BICI REJECTED RECORDS: Those EMI Billing Records that fail BICI's edits
and screens and are returned to Customer and not submitted to the LECs for
billing and collection.
SECTION 2. SCOPE OF AGREEMENT.
Customer hereby agrees to purchase from BICI the services described in Section 3
herein, and BICI agrees to provide such services at the time and in the manner,
and subject to the terms and upon the conditions, set forth herein. Customer
agrees that BICI shall be the EXCLUSIVE source for LEC billing and information
management services in the United States and Canada for the billing telephone
companies listed in Exhibit A, attached hereto. However, nothing contained
herein shall be interpreted to prohibit Customer from contracting directly with
any LEC for its own direct LEC billing and collection agreement, provided that
Customer shall notify BICI of its intent at least sixty (60) days prior to
activation of such agreement. As BICI enters into billing and collection
arrangements with additional LECs, BICI will provide billing and information
management services to Customer for such LECs on the same terms and conditions
as contained herein.
SECTION 3. BILLING SERVICES.
(a) SUBMISSION OF EMI BILLING RECORDS. Customer shall submit to BICI
its EMI Billing Records for its qualifying MTS calls for BICI to submit to
each LEC under contract with BICI. Customer shall be responsible for
submitting to BICI EMI Billing Records that contain adequate information so
that BICI and the LECs can process such EMI Billing Records. Customer shall
submit these EMI Billing Records to BICI once per week, except when Customer
cannot satisfy BICI's minimum volume requirements as described in paragraph
7.(f), in which case Customer shall submit its EMI Billing Records at least
once per month. The cost of these submissions shall be borne by Customer.
The date BICI receives Customer's EMI Billing Records will be, for those
records, the "Submission Date."
3
<PAGE>
(b) BICI'S EDITS AND SCREENS. Upon receipt of Customer's EMI Billing
Records, BICI will promptly process Customer's EMI Billing Records through
BICI's computer edits and screens. Those EMI Billing Records that pass
BICI's edits and screens shall be "Valid EMI Billing Records." Those EMI
Billing Records that do NOT pass BICI's edits and screens shall be "BICI
Rejected Records," and shall be returned to Customer.
(c) SUBMISSION TO LECS. Promptly after receipt of Customer's EMI
Billing Records (within five (5) Business Days after such receipt for the
RBOCs and GTE, or within ten (10) Business Days after such receipt for
Independent Telephone Companies), BICI will submit Customer's Valid EMI
Billing Records to the appropriate LECs.
(d) PURCHASE BY LEC. Each LEC shall be responsible, to the extent
required by its agreement with BICI, to purchase Customer's Valid EMI Billing
Records.
(e) BILLING AND COLLECTION BY LEC. Each LEC shall be responsible, for
such Valid EMI Billing Records purchased by the LEC, for the billing and
collection of the revenue, for Customer's qualifying MTS calls, from End Users
residing within the applicable billing area of such LEC.
(f) PRINTING OF CUSTOMER'S NAME ON END USER'S LEC TELEPHONE BILL:
Wherever possible, BICI will use its best efforts to cause each Billing
Telephone Company to print Customer's name, along with the associated Valid
EMI Billing Records, on each End User's telephone bill. Customer
acknowledges that where the Billing Telephone Companies do not provide this
service, Customer's name shall not appear on the End User's telephone bill.
SECTION 4: LEC PAYMENTS, FEES AND CHARGES:
(a) PAYMENT BY LECS: Each LEC shall make payments to BICI for Valid
EMI Billing Records purchased from Customer in accordance with the LEC's
billing and collection agreement with BICI.
(b) AMOUNT PAID BY LECS: The LEC shall pay to BICI the gross amount
of Valid EMI Billing Records purchased by the LEC LESS the then-applicable
fees, charges, charge backs, credits and adjustments as prescribed in its
billing and collection agreement with BICI.
(c) LEC FEES, CHARGES, CHARGE BACKS, CREDITS AND ADJUSTMENTS:
Customer acknowledges and understands that BICI is and will be bound by the
terms of its billing and collection agreement with each LEC with respect to
each LEC's right to deduct or to reduce its collectible funds for: (i) the
amount charged by each LEC for processing, billing and collecting Customer's
Valid EMI Billing Records ("LEC Processing Fees"), (ii) any Unbillable
Records, (iii) any Post-Billing Adjustments or Credits provided to End Users,
(iv) any reserve for anticipated Uncollectible Amounts ("Bad Debt Holdback
Reserve"), and (v) any LEC Bad Debt "true-ups" (i.e. periodic true-ups
between the Bad Debt Holdback Reserve and the actual Uncollectible Amounts
realized by the LECs). In addition, Customer shall be responsible for any
data transmission and distribution fees for delivering or receiving
Customer's EMI Billing Records and for any other LEC charges specifically
related to billing and collecting Customer's EMI Billing Records. Customer
further agrees that payment of all amounts described in this paragraph 4.(c)
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shall be its sole responsibility and that BICI may withhold such amounts from
payments to Customer. Should such amounts exceed the amounts due to
Customer, such amounts shall be due and payable by Customer to BICI within
ten (10) Business Days of notification by BICI of any amounts due. A
schedule setting forth BICI's contractual average LEC Processing Fees for
each LEC is attached hereto as Exhibit B hereto.
(d) BAD DEBT HOLDBACK RESERVE: BICI will holdback or cause the LECs
to holdback an amount estimated to be sufficient to set-off any Uncollectible
Amounts that may be determined after the date BICI makes its final payment to
Customer for Customer's Valid EMI Billing Records billed and collected by the
LEC. Any Bad Debt Holdback Reserve withheld by the LEC shall be passed
through to Customer on the same percentage or the same amount as BICI was
assessed by the individual LECs. However, once sufficient data becomes
available to BICI from the LECs to enable BICI to determine a specific Bad
Debt history attributable to Customer, the Bad Debt Holdback Reserve rate
shall be based on Customer's specific historical Uncollectible Amounts. A
schedule setting forth the past twelve months' average Bad Debt Holdback
Reserve withheld by each LEC is attached hereto, for your reference, as
Exhibit G.
(e) MONTHLY LEC BAD DEBT TRUE-UP. Between six and eighteen (6 - 18)
months after BICI submits Customer's EMI Billing Records to the LECs for
billing and collection, the LECs will determine the actual amounts collected
from the End Users and true-up the difference between this amount and the
face amount of Customer's Valid EMI Billing Records purchased by the LEC.
BICI will provide Customer monthly reports on Bad Debt true-ups for these
differences. If the amount of these true-ups is "in favor" (positive) of
Customer, BICI will remit such amount to Customer when BICI receives the
true-up amount from the LECs. If the amount of these true-ups is "not in
favor" (negative) of Customer, BICI will withhold such amounts from the next
scheduled payment due to Customer. If the amounts due to Customer are not
sufficient to satisfy such true-up amounts, such amounts shall be due and
payable by Customer to BICI within ten (10) Business Days of notification by
BICI of any amounts due.
(f) LEC PROCESSING FEE CALCULATION. Each calendar month BICI will
determine the number of End User bills (renderings) that were or will be
required to bill all of BICI's similarly situated customer's Valid EMI
Billing Records submitted to BICI during that month and the average number of
Valid EMI Billing Records contained on each End User's bill. BICI will then
multiply these quantities by its contractual LEC Processing Fee schedules for
each LEC to calculate the "Average LEC Processing Fees" for each LEC.
Exhibit B, attached hereto, contains the Average LEC Processing Fees for each
LEC for the date thereof. BICI will then multiply this Average LEC
Processing Fee for each LEC by the number of Customer's Valid EMI Billing
Records submitted to each LEC to calculate Customer's LEC Processing Fees.
These Average LEC Processing Fees will also include any data transmission
fees, distribution fees, programming fees and any other charges directly
associated with billing Customer's Valid EMI Billing Records.
(g) END USER INQUIRY AND REBATE. Primary End User inquiry,
investigation and rebate policies are set forth in Exhibit F attached hereto.
Customer shall be responsible for payment of all Post-Billing Adjustments and
Credits provided to End Users by either the LEC or BICI. Such amounts may be
deducted weekly from the amounts due to Customer. If the amount due to
Customer is not sufficient to satisfy these amounts, then Customer shall pay
BICI such amount
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as is required to satisfy these amounts within ten (10) Business Days of
notification by BICI of any amounts due.
(h) REJECTED RECORDS. Those EMI Billing Records that fail BICI's
edits and screens and not submitted to the LECs for billing and collection,
BICI Rejected Records, shall be returned to Customer at no charge.
Unbillable Records rejected by the LEC, through no fault of BICI, shall be
charged the same BICI Processing Fees as described in Exhibit C attached
hereto.
(i) RESUBMITTED EMI BILLING RECORDS: Unbillable Records which are
resubmitted to the LECs for billing and collection shall be charged the
standard BICI Processing Fees as described in Exhibit C attached hereto.
SECTION 5. BICI BILLING SERVICE FEES, CHARGES AND CHARGE BACKS.
In addition to the LEC Processing Fees, charges, charge backs, credits and
adjustments set forth in Section 4, Customer agrees to pay to BICI and BICI
may deduct from amounts collected by the LECs on behalf of Customer and paid
to BICI, the following BICI billing service fees, charges, charge backs,
credits and assessments:
(a) A billing and information management service fee, the BICI
Processing Fee, for each Valid EMI Billing Record submitted to the LECs for
billing and collection by BICI, as specified in Exhibit C attached hereto;
(b) An End User inquiry, investigation and rebate fee for each Valid
EMI Billing Record submitted to the LECs for billing and collection by BICI,
as specified in Exhibit C attached hereto;
(c) Any Post-Billing Adjustment or Credit amounts refunded to End
Users by BICI's customer service inquiry and investigation activities, along
with any LEC charges associated with making such refunds to End Users;
(d) A charge, as specified in Exhibit C attached hereto, for any
submission of EMI Billing Records that contains less than the minimum volume
requirements of BICI for each "library code";
(e) An additional End User inquiry, investigation and rebate fee, as
described in Exhibit C attached hereto, for each inquiry that exceeds one
percent (1%) of the number of Valid EMI Billing Records for each library code
processed by BICI on behalf of Customer each month; and
(f) ACCOUNTS RECEIVABLE RECONCILIATION SYSTEM - FASTRACK: Customer
shall pay to BICI an initial, one-time fee, as described in Exhibit C
attached hereto, for BICI's accounts receivable reconciliation system known
as FASTRACK.
As collateral for all obligations now existing or hereafter arising from
Customer to BICI, Customer hereby grants to BICI a security interest in all
the following property of Customer, whether now owned or hereafter acquired
or created, and all proceeds and products thereof:
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(a) All amounts paid, and all amounts owing, by each LEC to BICI on
accounts for Customer's EMI Billing Records;
(b) All accounts owing from an End User to Customer arising from
services which give rise to Customer's EMI Billing Records;
(c) All amounts deposited by Customer with BICI pursuant to paragraph
13.(b) hereof; and
(d) all amounts owing and all amounts to be owing from BICI to Customer.
SECTION 6. PAYMENTS TO CUSTOMER.
(a) DETERMINATION OF AMOUNT DUE TO CUSTOMER. BICI will determine the
amount collected by each LEC for Customer's Valid EMI Billing Records and deduct
the then-applicable fees, charges, charge backs, credits and adjustments of the
LECs and BICI. If the amount due to Customer is not sufficient to satisfy these
fees, charges, charge backs, credits and adjustments, then Customer shall pay
this difference to BICI within ten (10) Business Days of notification by BICI of
any amounts due.
(b) RESERVES AND TRUE-UPS FOR UNBILLABLE RECORDS: BICI will reserve an
amount, from one month to the next, that is equal to Customer's prior history
for Unbillable Records. BICI will recalculate Customer's historical experience
quarterly from its prior three months results. Until such history can be
determined for Customer, BICI will reserve two and one-half percent (2.5%) from
the amount due to Customer. BICI will true-up this reserve each month when the
information becomes available from the LECs. BICI will then return excess
amounts to Customer or withhold additional amounts as may be required to satisfy
these liabilities from the amounts due to Customer.
(c) PAYMENT SCHEDULES: BICI will advance to Customer the estimated
amount determined under paragraph 6.(a) above within seven (7) Business Days of
receipt by BICI of any funds from a LEC for Customer's EMI Billing Records;
PROVIDED, HOWEVER, that if Customer has ceased doing business for five (5)
Business Days, is the subject of a bankruptcy proceeding, or a receiver, trustee
or custodian is appointed over substantially all of Customer's assets, or if
Customer fails to make any deposit required under paragraph 13.(b), or if BICI
has reasonable grounds to believe that the fees, charges, charge backs, credits
and adjustments to Customer may exceed any amount owing or to become owing from
BICI to Customer, BICI may withhold payments to Customer until all such amounts
have been determined and deducted from the amount owing to Customer. If the
amount owing to Customer is determined not sufficient to satisfy these fees,
charges, charge backs, credits and adjustments, then Customer shall pay the
difference to BICI within ten (10) Business Days of notification by BICI of any
amount due.
(d) METHOD OF PAYMENT: BICI will make all advance payments and final
payments due to Customer, using ACH wire transfer, each Tuesday or the first
Business Day following Tuesday should Tuesday not fall on a Business Day based
on the schedule described in paragraph 6.(c) herein.
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(e) ACCOUNTING FOR FUNDS: Funds received from the LECs for Customer's
Valid EMI Billing Records, less applicable fees, charges, charge backs, credits
and adjustments, shall be deposited and held by BICI in a common account until
such time as the amount determined to be due Customer is paid to Customer. BICI
will maintain an accounting of the balance owing or to be owing by BICI to
Customer of such amounts deposited and held by BICI.
SECTION 7. CUSTOMER'S OBLIGATIONS.
The Customer agrees as follows:
(a) COOPERATION BY CUSTOMER. Customer agrees to cooperate with BICI to
the fullest extent possible and to the best of Customer's ability to facilitate
the provisioning of services described in Section 3 herein. Such cooperation
shall include, but not be limited to, the following:
(i) Supplying BICI with Customer's identification codes, any and
all certifications of regulatory authority necessary for Customer to offer
its services, and any other information and documents necessary or helpful
to BICI; and
(ii) Supplying BICI with all technical information and assistance
with testing that may be necessary or helpful to BICI in providing its
services herein.
(b) APPLICABLE APPROVALS AND COMPLIANCE WITH LAW. Customer shall
obtain and keep current all applicable federal, state and local licenses,
certifications and approvals and shall fully comply with all other applicable
federal, state and local regulations, laws, rules and Tariffs. Customer agrees
that BICI shall assume and will assume no responsibility for such compliance
whatsoever. Customer acknowledges and understands that certain LEC billing
systems contain edits and screens that "block" Customer's EMI Billing Records
from being billed to End Users until BICI can demonstrate to such LECs that
Customer has proper authority for providing its services to the End User.
Customer further acknowledges and understands that it may take as long as sixty
(60) days after notification to the LECs of such authority before the LECs will
begin billing Customer's EMI Billing Records. Therefore, BICI will not be
responsible for billing Customer's EMI Billing Records for services provided
prior to the LECs removing their regulatory edits and screens from their billing
systems.
(c) VALIDATION. Customer shall validate all collect, third party and
calling card billed MTS calls using the LECs' LIDBs (line information data
bases) or some other alternative validation method that is acceptable to the
LECs and to BICI.
(d) COMPLETED CALLS. Customer acknowledges and agrees that where
required, Customer shall be in compliance with the FCC's order to determine call
connection using hardware or software "answer detection." Customer further
agrees that it will submit to BICI only those EMI Billing Records for calls that
represent valid, completed calls as defined in Exhibit D attached hereto.
(e) AGED EMI BILLING RECORDS. Customer shall not submit EMI Billing
Records to BICI that are more than ninety (90) days old or that exceed the "age
of toll" acceptable by the LECs, whichever is less.
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(f) MINIMUM TRANSMISSION VOLUMES. Customer shall not submit to BICI
fewer than five thousand (5,000) EMI Billing Records per "library code" in any
transmission of its EMI Billing Records. The minimum BICI Processing Fee, as
set forth in Exhibit C attached hereto, shall apply if the minimum volume per
transmission is not met.
(g) OBJECTIONABLE CONTENT. Customer agrees, as a condition of BICI's
performance under this Agreement, that BICI will not provide billing and
information management services which BICI deems harmful, damaging or against
public policy, including, but not limited to:
(i) Services which explicitly or implicitly refer to sexual
conduct;
(ii) Services which contain indecent, obscene or profane language;
(iii) Services which allude to bigotry, racism, sexism or other
forms of discrimination;
(iv) Services which through advertising, content or delivery are
deceptive, or that may take unfair advantage of minors or the general
public;
(v) Services which are publicly accessible, multi-party
connections commonly known as "gab" or "chat" services;
(vi) Services which are prohibited by Federal, state, or local laws
or Tariffs; or
(vii) Services which individual LECs exclude from the "types" of
services or products for which their policies permit them to bill and
collect.
(h) NO OTHER BILLING ARRANGEMENT: Customer warrants that the EMI
Billing Records submitted and to be submitted by Customer to BICI pursuant to
this Agreement are NOT and will NOT be subject to any other valid or
existing billing and collection agreement, have NOT been billed previously and
will NOT be billed by another party following their submission by Customer to
BICI.
SECTION 8. PROTECTION OF CONFIDENTIAL INFORMATION.
As used herein, "Confidential Information" shall mean (a) proprietary
information, (b) information marked or designated as confidential, (c)
information otherwise disclosed in a manner consistent with its confidential
nature, (d) information of one party, whether or not in written form and whether
or not designated as confidential, that is known or should reasonably be known
by the other party as being treated as confidential, and (e) information
submitted by one party to the second party where the second party knows or
reasonably should know that the first party is obligated to keep the information
confidential. The parties hereto expressly recognize and acknowledge that, as
result of the provision of services pursuant to this Agreement, Confidential
Information which may be proprietary to each party must or may be disclosed to
the other. Each party hereby agrees that it will make no disclosure of
Confidential Information provided under this Agreement without the prior written
consent of the other party. Additionally, each party shall restrict disclosure
of said information to its own employees, agents or independent contractors to
whom disclosure is necessary and who have agreed to be bound by the obligations
of confidentiality hereunder. Such employees, agents or independent contractors
shall use reasonable care, but not less care than they use with respect to their
own information of like character, to prevent disclosure of any Confidential
Information. Nothing contained in this Agreement shall be considered as
granting or conferring rights by license or otherwise in any Confidential
Information disclosed.
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SECTION 9. TAXES.
(a) CALCULATION OF TELECOMMUNICATIONS TAXES: BICI will be responsible
for calculating or will use its best efforts to cause the LECs to calculate the
following taxes applicable to each MTS call and allow them to be passed through
to the End User, such taxes being referred to herein collectively as "Taxes":
Federal excise tax, any state and local sales taxes or tax-like charges, or any
Foreign Intrastate Taxes or foreign tax-like charges. Notwithstanding the
foregoing, Customer acknowledges and agrees it is responsible for compliance
with all taxing requirements; therefore, Customer shall promptly notify BICI of
any tax or tax-like surcharges and the associated rates that apply to Customer's
MTS calls in any specific jurisdiction.
(b) BILLING AND COLLECTION OF TAXES: BICI will, for the benefit of and
on behalf of Customer, use its best efforts to cause the LECs to bill End Users
for all Taxes. Customer acknowledges and agrees that BICI is acting merely as
Customer's agent with respect to arranging for the billing and collection of
Taxes, and in no event shall BICI be entitled to retain or receive from
Customer, or from any End User, any statutory fee or share of Taxes to which
the person collecting the same may be entitled under applicable law.
(c) TAX EXEMPT STATUS FOR END USERS: BICI will have the authority, on
behalf of Customer, to authorize the LECs to calculate Taxes in the same manner
as the LECs calculate Taxes for their End Users and to authorize the LECs to
establish the tax exempt status of End Users in the same manner as the LECs
establish such status for their End Users. If Customer's MTS calls are exempt
from federal, state and local Taxes or tax-like charges, Customer shall so
indicate on each EMI Billing Record submitted to BICI.
(d) FILING AND PAYMENT OF TAXES: Based upon the information
calculated by BICI and/or received from the LECs with respect to Taxes assessed,
billed and collected by the LECs, BICI will, on behalf of Customer, prepare and
file in a timely manner with the applicable taxing authorities all returns
covering Taxes, and will, on behalf of Customer, but only to the extent of
amounts otherwise owing from BICI to Customer, pay in full and promptly remit to
such taxing authorities all Taxes owed thereto. Upon written request, BICI will
provide to Customer copies of any and all tax returns and other applicable
information relating to the payment of Taxes by BICI within thirty (30) days
after being filed and paid by BICI.
(e) HOLD HARMLESS: Customer shall indemnify and hold BICI and its
employees, agents and representatives free and harmless from and against any
Claim (including, without limitation, reasonable attorneys' fees and court
costs) relating to or arising out of any Taxes, penalties, interest, additions
to tax, surcharge or other amounts to which BICI may be subject or incur,
relating to or arising out of (i) BICI's reliance upon any calculations,
determinations or other directives, or lack thereof, given by Customer to BICI
with respect to the calculation, assessment, billing and/or collection of any
Taxes contemplated by this Agreement; or (ii) a determination by the Internal
Revenue Service or any other taxing authority that any amount paid by BICI
pursuant to paragraph 9.(d) above with respect to Taxes was insufficient, except
in the event such insufficiency was the result of gross negligence on the part
of BICI; provided, however, that Customer shall not be required to indemnify
BICI or the employees, agents and
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representatives thereof for any loss, damage, Claim, cause of action or other
liability to the extent, but only to the extent, caused by the gross negligence
or willful misconduct of BICI.
(f) BILLED TAXES: Customer shall be responsible for the payment of
any additional Taxes or tax-like charges assessed against BICI based on the
revenues collected by BICI from Customer's Valid EMI Billing Records, "Billed
Taxes" under this Agreement, excluding Federal and state income Taxes.
SECTION 10. FORCE MAJEURE.
BICI shall not be held liable for any delay or failure in performance of any
part of this Agreement or Exhibits attached hereto from any cause beyond its
control and without its fault or negligence, such as acts of God, acts of
civil or military authority, government regulations, embargoes, epidemics,
war, terrorist acts, riots, insurrections, fires, explosions, earthquakes,
nuclear accidents, floods, strikes, power blackouts, volcanic action, other
major environmental disturbances, unusually severe weather conditions,
inability to secure products or services of other persons or transportation
facilities, or acts or omissions of transportation common carriers.
SECTION 11. LIMITATION OF LIABILITY.
(a) BICI will use its best efforts at all times to provide prompt and
efficient service; however, BICI makes no warranties or representations
regarding the services except as specifically stated in this paragraph 11.(a).
BICI will use due care in processing all work submitted to it by Customer and
agrees that it will, at its expense, correct any errors which are due solely
to malfunction of BICI's computers, operating systems or programs or errors
by BICI's employees or agents. Correction shall be limited to reprocessing
Customer's EMI Billing Records. BICI will not be responsible in any manner
for failures of, or errors in, proprietary systems and programs other than
those of BICI, nor shall BICI be liable for errors or failures of Customer's
software or operational systems. THIS WARRANTY IS EXCLUSIVE AND IS IN LIEU OF
ALL OTHER WARRANTIES, AND CUSTOMER HEREBY WAIVES ALL OTHER WARRANTIES,
EXPRESSED, IMPLIED, OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR USE FOR A PARTICULAR PURPOSE. Should there
be any failure in performance or errors or omissions by BICI with respect to
the information being processed and being submitted to the LECs for billing
and collection, BICI's liability shall be limited to using its best efforts
to correct such failure. In no event, except as specifically set forth herein,
shall BICI be liable to Customer or any third parties (including Customer's
customers) for any Claim even if BICI has been advised of the possibility of
such Claim.
(b) Due to the nature of the services being performed by BICI, Customer
agrees that in no event will BICI be liable for any Claim caused by BICI's
performance or failure to perform hereunder which is not reported by Customer in
writing to BICI within thirty (30) days of such performance or failure to
perform.
(c) Customer shall indemnify and save harmless BICI from and against any
Claim asserted against BICI by third parties and arising out of Customer's use
of the services provided
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under this Agreement, unless such Claim arises out of the willful misconduct or
gross negligence of BICI.
(d) Liability of BICI in any and all categories and for any and all
Claims arising out of this Agreement or out of any act or omission relating
thereto shall, in the aggregate, not exceed one (1) month's average of BICI's
Processing Fees to Customer over the twelve (12) months preceding such date in
which the damage or injury is alleged to have occurred, but if this Agreement
has not been in effect for twelve (12) months preceding such date, then over
such fewer number of preceding months that this Agreement has been in effect.
SECTION 12. TERM OF AGREEMENT.
The initial term of this Agreement shall begin on the date on page 1 of this
Agreement or the date Customer begins submitting its EMI Billing Records to
BICI, whichever is later, and continue in full force and effect for a minimum
period of one (1) year from such date unless terminated in accordance with
paragraph 14.(b)(i) and shall automatically renew for successive periods of one
(1) year unless terminated by written notice from either party at least sixty
(60) days prior to the scheduled expiration date.
Notwithstanding anything to the contrary contained herein, if Customer is
currently billing more than twenty-five thousand (25,000) EMI Billing Records
per month, Customer may elect an initial term for this Agreement of two (2) or
three (3) years. Should Customer elect to extend the initial term of this
Agreement, Customer shall pay BICI a minimum Processing Fee, as described in
Exhibit C attached hereto, each month for the entire term of this Agreement. In
consideration for such, BICI will charge Customer a reduced billing services fee
for the term selected which coincides with the BICI fee schedule as presented in
Exhibit C, attached hereto.
SECTION 13. EXPIRATION OR TERMINATION.
(a) PAYMENT UPON EXPIRATION OR TERMINATION: Upon the expiration or
termination of this Agreement for any reason, Customer agrees to satisfy, when
or before due, any and all of its obligations arising under this Agreement.
(b) DEPOSIT FOR CHARGES: In addition, Customer acknowledges and
understands that certain LEC charges for Uncollectible Amounts, Bad Debt
true-ups and Post-Billing Adjustments and Credits which are not determined by
the LECs or provided to BICI for a period of up to eighteen (18) months after
the final processing of Customer's EMI Billing Records by BICI on behalf of
Customer. Customer further acknowledges and agrees that payment of these
amounts shall be its sole responsibility. To ensure such payments, Customer
shall, at the expiration or termination of this Agreement for any reason,
deposit with BICI an amount equal to two and one-half percent (2.5%) of the
face amount of Customer's gross billings for the prior twelve (12) months, or
such other amount as is estimated by BICI, based on Customer's prior history,
necessary to satisfy such charges. Such deposited amount shall be used by
BICI to pay Uncollectible Amounts, Bad Debt true-ups, Post-Billing Adjustments
and Credits and other charges incurred on behalf of Customer for billing and
collecting Customer's EMI Billing Records submitted by Customer to BICI during
the term of this Agreement. Each quarter BICI will re-examine the amount of
funds deposited and make such adjustments as BICI estimates may
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be necessary to satisfy the aforementioned charges. BICI will provide Customer
with proper documentation to substantiate charges attributable to Customer on
the same and consistent method as BICI determines such charges for all of its
customers. At the end of eighteen (18) months from the expiration or
termination date, BICI will return all unused amounts to Customer.
(c) REMAINING LIABILITY: Notwithstanding the foregoing, the deposit
of such amounts does not relieve or waive Customer's responsibility and
obligation to pay its obligations to BICI including, without limitations, any
and all fees, charges, charge backs, credits and adjustments associated with
billing and collecting its EMI Billing Records. In the event such associated
fees, charges, charge backs, credits and adjustments exceed the amount of the
deposit described in paragraph 13.(b), Customer shall remit to BICI such
additional amounts as are required to satisfy Customer's obligations under
this Agreement to BICI within ten (10) Business Days of notification by BICI
of any such amounts due.
(d) SAVINGS CLAUSE: Except as otherwise provided herein, expiration
or termination of this Agreement under this Section 13 shall terminate all
further rights and obligations of the parties hereunder, provided that:
(i) Neither BICI nor Customer shall be relieved of its respective
obligations to pay any sums of money due or to become due or payable or
accrued under this Agreement;
(ii) If such expiration or termination is a result of a default
hereunder or a breach hereof by a party hereto, the other party shall be
entitled to pursue any and all rights and remedies it has to redress such
default or breach in law or equity, subject to Sections 11, 14 and 24
hereof; and
(iii) The provisions of Sections 8 and 9 hereof, except paragraph
9.(b), shall survive the expiration or termination of this Agreement.
(e) EARLY TERMINATION OF EXTENDED TERM AGREEMENT: If Customer elects
to extend the initial term of this Agreement and should Customer terminate or
breach this Agreement before the expiration of the full initial term elected by
Customer upon execution hereof, BICI will recalculate and Customer shall pay to
BICI a processing fee for all EMI Billing Records processed under this Agreement
based on the current processing fee schedule at the one (1) year rate, attached
hereto as Exhibit C, plus ten percent (10%) for each EMI Billing Record
processed under this Agreement, at Customer's monthly volume levels.
SECTION 14. DEFAULT AND REMEDIES.
(a) DEFAULT: Either Party shall be in default hereunder if it:
(i) Fails to make any payment specified hereunder when or before
due and such failure continues for five (5) Business Days after written
notice;
(ii) Breaches any other material covenant or undertaking contained
in this Agreement and fails to remedy such breach within thirty (30)
Business Days after written notice thereof from the non-defaulting party;
or
(iii) Files, or there is filed against it, any voluntary or
involuntary proceeding under the Bankruptcy Code, or makes an assignment
for the benefit of creditors, dissolves, ceases to conduct business for
three (3) Business Days, resorts to any insolvency law, declares that it
is unable to pay its debts as they mature or if a receiver, trustee or
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custodian is appointed over, or an execution, attachment, or levy is made
upon, all or any material part of the property of such party.
(b) REMEDIES: Time is of the essence of this Agreement. In the event
of any default hereunder, the non-defaulting party shall have the following
rights and remedies:
(i) To terminate or cancel this Agreement, subject to the
provisions of paragraph 13.(d), by giving written notice thereof to the
defaulting party;
(ii) To declare all amounts due under this Agreement from the
defaulting party to the non-defaulting party to be immediately due and
payable;
(iii) To withhold, setoff, and retain, until all obligations of
Customer to BICI have been satisfied in full, any and all amounts which
may otherwise be due and payable to Customer under this Agreement and
apply such amounts to any balance due or to become due from Customer
to BICI;
(iv) All rights and remedies allowed by the applicable Uniform
Commercial Code;
(v) All other rights and remedies allowed by this Agreement and
under applicable law; and
(vi) All rights and remedies shall be cumulative and can be
exercised separately or concurrently.
SECTION 15. AMENDMENTS; WAIVERS.
No modification, amendment or waiver of any provision of this Agreement, and no
consent to any default under this Agreement, shall be effective unless the same
shall be in writing and signed by or on behalf of the party against whom such
modification, amendment, waiver or consent is claimed. In addition, no course
of dealing or failure of any party to strictly enforce any term, right or
condition of this Agreement shall be construed as a waiver or such term, right
or condition.
SECTION 16. ASSIGNMENT.
(a) BY CUSTOMER OR BICI. Assignment by Customer or BICI of any right,
obligation or duty or of any other interest hereunder, in whole or in part,
shall require consent by both parties. Such consent shall not be unreasonably
withheld by either party.
(b) GENERALLY. All rights, obligations, duties and interests of any
party under this Agreement shall inure to the benefit of and be binding on all
successors in interest and assigns of such party and shall survive any
acquisition, merger, reorganization or other business combination to which it is
a party.
SECTION 17. NOTICES AND DEMANDS.
(a) HOW NOTICE GIVEN: Except as otherwise provided under this
Agreement, all notices, demands and requests which may be given by any party to
the other party shall be in writing and shall be: (i) delivered in person; (ii)
mailed, postage prepaid, registered or certified mail, return receipt requested;
(iii) placed in the hands of a national overnight delivery service
14
<PAGE>
or (iv) sent by facsimile transmission to the recipient's facsimile machine,
with an extra copy immediately following by first class mail; and addressed as
follows:
IF TO BICI, TO IT AT:
BILLING INFORMATION CONCEPTS INC.
ATTENTION: MARSHALL N. MILLARD
9311 SAN PEDRO, SUITE 400
SAN ANTONIO, TEXAS 78216
TELEPHONE: (210) 321-6900
FAX: (210) 525-6298
_________________________________________________________________
IF TO CUSTOMER, TO IT AT:
U.S. LONG DISTANCE, INC.
ATTENTION: MR. AUDIE LONG
9311 SAN PEDRO, SUITE 100
SAN ANTONIO, TEXAS 78216
TELEPHONE: (210) 525-9009
FAX: (210) 366-2437
If personal delivery is selected as the method of giving notice under this
Section, a receipt for such delivery shall be obtained. The address to which
such notices, demands, requests, elections or other communications may be given
by either party may be changed by written notice given by such party to the
other party pursuant to this Section 17.
(b) WHEN NOTICE EFFECTIVE: Except as otherwise expressly provided
herein, all such notices shall be effective upon receipt if delivered by hand,
facsimile, national overnight delivery service, certified or registered mail and
otherwise five (5) Business Days after placement in the U.S. mails.
SECTION 18. NO THIRD-PARTY BENEFICIARIES.
This Agreement shall not provide any person not a party to this Agreement with
any remedy, claim, liability, reimbursement, cause of action or other right in
excess of those existing without reference to this Agreement.
SECTION 19. GOVERNING LAW.
This Agreement shall be deemed to be a contract made under the laws of the State
of Texas, and the construction, interpretation and performance of this Agreement
and all transactions hereunder shall be governed by the domestic laws of such
State without regard to conflict of law principles.
SECTION 20. ENTIRE AGREEMENT.
15
<PAGE>
This Agreement constitutes the entire and exclusive Agreement between the
parties and supersedes all prior or contemporaneous agreements, and oral or
written representations, between them.
SECTION 21. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same document.
SECTION 22. HEADINGS.
The headings in this Agreement are for convenience only and shall not be
construed to define or limit any of the terms herein or affect the meaning or
interpretation of this Agreement.
SECTION 23. MOST FAVORED CUSTOMER.
It is the intent of the parties hereto that Customer shall be considered by
BICI as one of its most favored customers under this Agreement. By virtue of
this consideration, Customer shall not pay a greater BICI Processing Fee per
call, or in the alternative, receive a lesser number of out-cleared messages
for the same or lesser BICI Processing Fee, than any other similarly situated
customer of BICI under this Agreement. BICI will promptly reduce Customer's
monthly BICI Processing Fee and minimum revenue guarantees if it should grant
a lower rate per call or provide a greater number of out-cleared messages for
the same or lesser BICI Processing Fee to any customer of BICI under this
Agreement, similarly situated to Customer. Regardless of the mechanics of
the aforementioned, it is the intent of this clause and the principle
hereunder that Customer be treated as well as or better than the most
favorably treated customer of BICI under this Agreement.
SECTION 24. ARBITRATION
Any controversy, dispute or Claim arising out of or in connection with this
Agreement, or the breach, termination or validity hereof, shall be settled by
final and binding arbitration to be conducted by an arbitration tribunal in
San Antonio, Texas, pursuant to the rules of the American Arbitration
Association. In the event of any procedural matter not covered by the
aforesaid rules, the procedural law of the State of Texas shall govern. The
arbitration tribunal shall consist of three arbitrators. The party
initiating arbitration shall nominate one arbitrator in the request for
arbitration and the other party shall nominate a second in the answer thereto
within 15 days of receipt of the request. The two arbitrators so named will
then jointly appoint the third arbitrator. If the answering party fails to
nominate its arbitrator within the fifteen day period, or if the arbitrators
named by the parties fail to agree on the third arbitrator within thirty
days, the Office of the American Arbitration Association in Dallas, Texas
shall make the necessary appointments of such arbitrator(s). The arbitrator
shall only have authority to award compensatory damages and shall not have
authority to award punitive damages, other non-compensatory damages or any
other form of relief: the parties hereby waive all rights to and claims for
relief other than compensatory damages. The decision or award of the
arbitration tribunal (by a majority determination, or if there is no
majority, then by the determination of the third arbitrator, if any) shall be
final, and judgment upon such decision or award may be entered in the courts
of the
16
<PAGE>
State of Texas or the United States of America for the Western District of the
State of Texas. By execution and delivery of this Agreement, each of the
parties hereto accepts for itself and in respect of its property, generally and
unconditionally , the jurisdiction of the aforesaid courts.
Term
The initial term of this Agreement shall be for a period of three years from
the date hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first
set forth above.
BILLING INFORMATION CONCEPTS INC.:
By: /s/ Alan W. Saltzman
--------------------------------
Alan W. Saltzman
President and
Chief Operating Officer
Date: July 10, 1996
------------------------------
CUSTOMER:
U.S. LONG DISTANCE, INC.
By: /s/ Larry M. James
--------------------------------
Name: Larry M. James
------------------------------
(print)
Its: President
-------------------------------
Date: July 10, 1996
------------------------------
______________________________
Account Representative
17
<PAGE>
TELECOMMUNICATIONS AGREEMENT
This Agreement is entered into this 10th of July, 1996, by and between
U. S. LONG DISTANCE, INC., a Texas corporation with its principal office at 9311
San Pedro, Suite 100, San Antonio, Texas 78216 ("USLD"), and BILLING INFORMATION
CONCEPTS INC., a Delaware corporation with its principal office at 9311 San
Pedro, Suite 400, San Antonio, Texas 78216 ("Customer").
WITNESSETH:
WHEREAS, USLD is in the business of providing telecommunications services;
and
WHEREAS, Customer desires to purchase telecommunications services from
USLD:
NOW, THEREFORE, in consideration of the mutual promises and convenants
contained herein, and for other good and valuable consideration, the parties do
hereby contract and agree as follows:
1. USLD agrees to furnish to Customer, and Customer agrees to purchase
from USLD, the telecommunication services as set forth in EXHIBIT "A" attached
hereto and made a part of this Agreement as if set forth verbatim herein.
2. This Agreement shall commence on the date on which U.S. Long
Distance Corp. distributes the common stock, par value $.01 per share, of
Billing Information Concepts Corp. to the holders of U.S. Long Distance
Corp.'s common stock, par value $.01 per share (the "Commencement Date") and
continue for a period of three (3) years. This Agreement shall be extended,
on the same terms and conditions, for an additional period of one (1) year
unless either party notifies the other party in writing not less than sixty
(60) days prior to the termination date of its desire to terminate this
Agreement.
3. During the term of this Agreement, USLD shall charge for the
telecommunication services, and Customer shall pay for such telecommunication
services, that amount as determined by using the rates set out in EXHIBIT "A."
4. USLD shall give Customer at least forty-five (45) days' notification
in the event any service rate in EXHIBIT "A" is modified. Upon such
notification, Customer will have the right to terminate this Agreement without
penalty by providing USLD written notice within thirty (30) days of Customer's
intent to cancel service sixty (60) days from notice.
5. Customer hereby acknowledges that USLD's charges for the provision
of its telecommunication services will be billed on a monthly basis and that
payment for such services is due and payable fifteen (15) days from the invoice
date. Late payments will be assessed a late charge of 1.5% per month. Payments
not received within thirty (30) days of the invoice date will result in the
right of USLD to cancel and terminate the services provided herein, after
providing Customer with written notice, via facsimile, of such intent to
terminate service and allowing Customer ten (10) working days to cure the
deficiency.
6. Should Customer dispute any of the monthly charges on its monthly
invoice, it shall notify USLD of the disputed charges not later than ten (10)
days from the date of invoice. This notice shall set forth in writing all
details concerning the disputed charges. In the event of a dispute, Customer
shall pay the entire invoice in accordance with the payment terms set forth
therein. After resolution of the disputed portion of the invoice, the
adjustment, if any, shall be immediately credited to Customer's account.
7. Should Customer claim any exemption of any sales, use or other tax,
then Customer shall provide documentation regarding such exemption to USLD.
USLD will be allowed to maintain a copy of such
<PAGE>
documentation in its offices in San Antonio, Texas. It will be the
responsibility of Customer to make sure that its proof of exempt status remains
current.
8. No term or provision of this Agreement shall be deemed waived, and
no breach shall be deemed excused, unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. No consent
by any party to, or waiver of, a breach or default by the other, whether
expressed or implied, shall constitute a consent to, waiver of or excuse for any
different or subsequent breach or default.
9. Neither USLD nor Customer shall be liable to the other for any
consequential, indirect, special or incidental damages whatsoever, including,
without limitation, any loss of revenue, goodwill, or profits or claims by third
parties or otherwise in connection with or related to any of the services
provided pursuant to this Agreement.
10. USLD warrants that the equipment used in providing the services to
Customer pursuant to this Agreement is suitable for the uses intended, and
Customer warrants and represents that it is fully authorized to contract for the
services under this Agreement.
USLD MAKES NO OTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED.
11. This Agreement authorizes USLD to start provisioning of
telecommunications services, as set forth herein, to Customer on the
Commencement Date. This Agreement also authorizes USLD to act as Customer's
agent in placing orders with other carriers in order to provide
telecommunications services, if requested.
12. If the performance of the respective obligations of USLD or Customer
shall be prevented or interfered with by reason of any fire, flood, epidemic,
earthquake or any other act of God, explosion, strike or other disputes, riot or
civil disturbance, war (whether declared or undeclared) or armed conflict, any
municipal ordinance or state or federal law, governmental order or regulation or
order of any court of competent jurisdiction, or other similar forces not within
the control of USLD nor Customer, as the case may be, then Customer and/or USLD,
as the case may be, shall not be liable to the other for its failure to perform
such obligations hereunder.
13. If any term or provision of this Agreement shall be found to be
illegal or unenforceable, then, notwithstanding such illegality or
unenforceability, this Agreement shall remain in full force and effect and such
term or provision shall be deemed to be deleted. In addition, this Agreement
shall be terminated upon the determination of a governmental entity having
jurisdiction over the services provided under this Agreement.
14. Except as otherwise provided herein, the remedies provided for in
this Agreement are in addition to any other remedies available at law or in
equity, by statute or otherwise.
15. Should it be necessary for either party to this Agreement to retain
the services of an attorney to enforce its rights under this Agreement, and
should any suit be necessary to enforce said rights, then the prevailing party
shall be entitled to receive reasonable attorney's fees from the other party.
16. This Agreement shall be governed by the substantive laws of the
State of Texas, without regard to conflict of law principles, with venue at San
Antonio, Texas.
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<PAGE>
17. This Agreement shall be binding upon and inure to the benefit of
USLD and Customer and their respective successors and assigns. USLD retains the
right to assign all or part of this Agreement. This Agreement may not be
assigned by Customer without the prior written consent of USLD. USLD reserves
the right to obtain necessary credit information or require additional security
deposits from successors and assigns.
18. This Agreement, including the exhibits hereto and the documents and
instruments referred to therein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement, and any documents and instruments contemplated hereby, supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
19. This Agreement may be amended, modified or supplemented only by an
instrument in writing executed by the party against which enforcement of the
amendment, modification or supplement is sought.
20. This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original. It shall not be necessary in making proof
of this Agreement to produce or account for more than one (1) of such
counterparts.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year first above written, and the individuals signing below warrant that
they have authority to sign for and on behalf of the respective parties.
U. S. LONG DISTANCE, INC. BILLING INFORMATION CONCEPTS INC.
By: /s/ LARRY M. JAMES By: /s/ ALAN W. SALTZMAN
---------------------------- -------------------------------
Name: Larry M. James Name: Alan W. Saltzman
---------------------------- -------------------------------
Title: President Title: President
---------------------------- -------------------------------
Date: July 10, 1996 Date: July 10, 1996
---------------------------- -------------------------------
3
<PAGE>
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 effective date of the Registration Statement on Form 10 under the
Securities Act of 1934, as amended, filed by 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
<PAGE>
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.
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<PAGE>
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-
<PAGE>
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
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<PAGE>
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-
<PAGE>
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-
<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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)
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<PAGE>
EXHIBIT A
BILLING INFORMATION CONCEPTS CORP.
EXECUTIVE COMPENSATION DEFERRAL PLAN
ENROLLMENT FORM
Name: ________________________________________ Date:__________________
Social Security #: ______________________________ Plan Year:_____________
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ANNUAL DEFERRAL ELECTION
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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.
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PAYMENT OF BENEFIT
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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 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: ______________________________
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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:__________________
<PAGE>
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
effective date of the Registration Statement on Form 10 under the Securities
Exchange Act of 1934, as amended, filed by 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
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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%
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
(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
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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
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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.
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<PAGE>
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
-----------------------------
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<PAGE>
EXHIBIT A
BILLING INFORMATION CONCEPTS CORP.
DIRECTOR COMPENSATION DEFERRAL PLAN
ENROLLMENT FORM
Name: ________________________________________ Date:___________________
Social Security #: ______________________________ Plan Year:______________
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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:_______________
- -----------------------------------------------------------------------------
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<PAGE>
EXHIBIT 10.19
MASTER LOAN AND SECURITY AGREEMENT
This MASTER LOAN AND SECURITY AGREEMENT (this "Agreement") is entered
into as of December 31, 1993 by and between U.S. LONG DISTANCE, INC. ("Debtor"),
a Texas corporation with its principal place of business at 9311 San Pedro,
Suite 300, San Antonio, Texas 78216 and BOT FINANCIAL CORPORATION ("Lender"), a
Delaware corporation, with its principal place of business at 125 Summer Street,
Boston, Massachusetts 02110. In consideration of the mutual agreements
contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. The following terms shall have the following
respective meanings, and, except where the context otherwise requires, shall be
equally applicable to both the singular and the plural forms of such terms.
"AGREEMENT", "HEREOF", "HERETO", "HEREUNDER" and words of similar import
shall mean this Agreement, as from time to time amended, modified or
supplemented.
"ADDITIONAL COLLATERAL" shall mean the items of collateral specified as the
Additional Collateral in the Supplemental Security Agreements in which the same
is described.
"CASUALTY LOSS VALUE" of an item of Equipment, as of any Installment
Payment Date, means an amount obtained by multiplying the Cost of such item of
Equipment financed by the Lender by the percentage set forth opposite the
Installment Payment Date on the Schedule of Casualty Loss Values attached to the
Supplemental Security Agreement to which such item of Equipment relates.
"CASUALTY LOSS VALUE DETERMINATION DATE" means the Installment Payment Date
coincident with or next preceding the date of the Event of Loss, if the
installment payments on the Note relating to the item(s) of Equipment to which
such Event of Loss pertains are payable in advance, or the Installment Payment
Date next following the date of such Event of Loss, if such installment payments
are payable in arrears.
"CLOSING DATE" shall mean each date on which a Loan is made.
"CODE" shall mean the Uniform Commercial Code as from time to time in
effect in any applicable jurisdiction.
"COLLATERAL" shall mean the Equipment, the Proceeds thereof, the Additional
Collateral, if any, and all of Debtor's rights, title and interests therein and
thereto.
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"COMMITMENT EXPIRATION DATE" for Loans to be made for Equipment described
on a Loan Schedule shall mean the date set forth on such Loan Schedule as the
"Commitment Expiration Date".
"COST" shall mean, with respect to any item of Equipment, an amount equal
to the sum of (i) the seller's invoiced purchase price therefor (after giving
effect to any discount or other reduction) payable or paid by Debtor, or, in
the case of a re-financing, Debtor's original cost thereof, plus (ii) all
excise and sales taxes payable or paid by Debtor in connection with its
acquisition of such item, plus (iii) all costs and expenses payable or paid
by Debtor, and approved by Lender, in connection with the delivery and
installation of such item, which amount shall be set forth in the Supplemental
Security Agreement in which such item is described.
"EQUIPMENT" shall mean any and all items of equipment which are described
in Loan Schedules and Supplemental Security Agreements, together with all
accessories, parts, repairs, replacements, substitutions, attachments,
modifications, additions, improvements, upgrades and accessions of, to or upon
such items of equipment, now or hereafter acquired.
"EVENT OF LOSS" shall mean, with respect to any item of Equipment, the
actual or constructive loss thereof or of the use thereof, due to theft,
destruction, damage beyond repair or to an extent which makes repair
uneconomical, or the condemnation, confiscation or seizure thereof, or
requisition of title thereto or of use thereof, by any governmental authority
or any other person.
"GUARANTOR" means any guarantor of the payment and performance of the
Obligations under or relating to the Principal Documents.
"GUARANTY" means any guaranty of the payment and performance of the
Obligations under or relating to the Principal Documents, executed and
delivered by any Guarantor.
"INSTALLMENT PAYMENT DATE" shall mean, with respect to any Note, each date
on which a regular installment of principal and interest is due.
"LATE CHARGE RATE" shall mean a rate per annum equal to the higher of 2%
over the Prime Rate or 15%, but not to exceed the highest rate permitted by
applicable law.
"LENDER'S COMMITMENT" means, with respect to Loans to be made for Equipment
described on any Loan Schedule, the amount set forth as the "Lender's
Commitment" on such Loan Schedule.
2
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"LIENS" shall means liens, mortgages, security interests, pledges, title
retentions, charges, financing statements or other encumbrances of any kind
whatsoever.
"LOAN" shall mean each loan made by Lender pursuant to this Agreement and
each Loan Schedule.
"LOAN SCHEDULE" means a Loan Schedule to be executed by Lender and Debtor
and to be attached hereto and made a part hereof, setting forth a general
description of the Equipment covered by such Loan Schedule, the Commitment
Expiration Date, Lender's Commitment and Minimum Loan Amount for all Loans
relating to the Equipment covered by such Loan Schedule, the interest rate,
payment factors and number of periodic payments of principal and interest
applicable to such Loans and such other details as may be requested by Lender.
"MINIMUM LOAN AMOUNT" means, with respect to Loans to be made for Equipment
described by any Loan Schedule, the amount set forth as the "Minimum Amount" on
such Loan Schedule.
"NOTE" shall mean each promissory note executed and delivered by Debtor
pursuant hereto, satisfactory in form and substance to Lender.
"OBLIGATIONS" shall mean (a) the aggregate unpaid principal amount of, and
accrued interest on, the Notes; (b) all other obligations and liabilities of
Debtor, now existing or hereafter incurred, under, arising out of or in
connection with this Agreement or any Note or any Supplemental Security
Agreement; (c) any and all other indebtedness, liabilities and obligations of
any kind whatsoever of Debtor to Lender, whether now existing or hereafter
incurred.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, trustee(s) of a trust, unincorporated
organization, or government or governmental authority, agency or political
subdivision thereof.
"PRIME RATE" shall mean the interest rate per annum announced and made
effective from time to time by The Bank of Tokyo Trust Company, at its principal
office in New York, New York, as the prime rate or, as the case may be, the
base, reference or other similar rate then designated by it for general
commercial lending reference purposes, it being understood that such rate is a
reference rate, not necessarily the lowest, which serves as the basis upon which
effective rates of interest are calculated for obligations making reference
thereto.
3
<PAGE>
"PRINCIPAL DOCUMENTS" means this Agreement, any Guaranty, the Notes, the
Loan Schedules and the Supplemental Security Agreements.
"PROCEEDS" shall have the meaning assigned to it in the Code, and in any
event, shall include, but not be limited to, (i) any and all proceeds of any
insurance, indemnity, warranty or Guaranty payable to or on behalf of Debtor
from time to time with respect to the Equipment; (ii) any and all payments (in
any form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Equipment by any governmental body,
authority, bureau or agency or any other person (whether or not acting under
color of governmental authority); (iii) any and all other rents or profits or
other amounts from time to time paid or payable in connection with the
Equipment.
"SUPPLEMENTAL SECURITY AGREEMENT" means each Supplemental Security
Agreement executed and delivered by Debtor pursuant hereto, satisfactory
in form and substance to Lender.
SECTION 2. AMOUNT AND TERMS OF LOANS; USE OF PROCEEDS; SECURITY
INTEREST; NOTES; EVENT OF LOSS.
Subject to the terms and conditions hereof and of each Loan Schedule,
Lender agrees to make Loans to Debtor with respect to the Equipment described on
any Loan Schedule, from time to time prior to the Commitment Expiration Date set
forth on such Loan Schedule, in an aggregate principal amount not to exceed the
amount of Lender's Commitment set forth on such Loan Schedule, and with each
such Loan to be in an amount not less than the Minimum Loan Amount set forth
on such Loan Schedule.
The proceeds of each Loan shall be applied by Debtor solely in payment
of the Cost of (or in reimbursement to Debtor for payment of the Cost of) the
Equipment identified in the Supplemental Security Agreement to which such Loan
relates, in each case to the extent such Cost is financed by Lender. The
Equipment shall be satisfactory to Lender and shall be more specifically
described in the applicable Supplemental Security Agreement. As collateral
security for the prompt and complete payment and performance when due of all the
Obligations and in order to induce Lender to enter into this Agreement and make
the Loans and to extend other credit from time to time to Debtor, whether under
this Agreement or otherwise, Debtor hereby grants to Lender a continuing
security interest in the Collateral.
Each Loan shall be evidenced by Debtor's Note. Each Note shall (i) be
in the original principal amount of the Loan evidenced thereby and be dated the
date on which such Loan is made; (ii) be payable in such number and type of
installments of
4
<PAGE>
principal and interest and bear such interest rate on the unpaid principal
amount thereof as is specified in the Loan Schedule relating to such Loan; and
(iii) be payable on the dates and in the amounts set forth therein. Whenever
any unpaid principal amount of a Note shall become due and payable, interest
thereon shall thereafter accrue and be payable at the Late Charge Rate until
such principal amount shall be paid in full.
If an Event of Loss occurs with respect to an item of Equipment,
Debtor shall make a prepayment on the corresponding Note on the Installment
Payment Date next following the date of such Event of Loss in an amount equal to
the Casualty Loss Value of such item as of the Casualty Loss Value
Determination Date. Upon payment in full of any such prepayment amount, plus
any installments of principal and interest than due and payable on such Note,
and so long as no Event of Default has occurred and is continuing, the
affected item of Equipment shall be released from Lender's security interest.
SECTION 3. CONDITIONS OF BORROWING. Lender shall not be required to
make any Loan hereunder unless on the Closing Date thereof all legal matters
with respect to, and all legal documents executed in connection with, the
contemplated transactions are satisfactory to Lender and all of the following
conditions are met to the satisfaction of Lender (except that (a) and (b) are
required in connection with the initial Loan only):
(a) Lender has received a certificate signed by Debtor's Secretary or
Assistant Secretary, certifying the corporate proceedings or Debtor authorizing
the execution, delivery and performance of this Agreement and the other
Principal Documents and the transactions contemplated hereby and thereby, and
certifying the names and specimen signatures of the officers of Debtor
authorized to execute this Agreement and the other Principal Documents, and any
related documents, together with their specimen signatures; (b) the Guaranty, if
any, has been duly executed and delivered by the Guarantor and Lender has
received an executed counterpart thereof, together with a certificate signed by
Guarantor's Secretary or Assistant Secretary, certifying the corporate
proceedings of Guarantor authorizing the execution, delivery and performance of
the Guaranty, and certifying the names of the officers of Guarantor authorized
to execute the Guaranty and any related documents, together with their specimen
signatures; (c) if requested, Lender has received the written opinions
addressed to it of counsel for Debtor and Guarantor, if any, as to such matters
incident to the contemplated transactions as Lender may be reasonably request;
(d) Debtor has executed and delivered to Lender a Loan Schedule with respect to
the Equipment to be financed with the proceeds of such Loan; (e) Debtor has
executed and delivered to Lender the Note evidencing, and a Supplemental
Security Agreement describing the Equipment to be financed with the proceeds of,
such Loan; (f) the
5
<PAGE>
Equipment being financed with the proceeds of such Loan has been delivered to
and accepted by Debtor, and Lender has received satisfactory evidence that it is
insured in accordance with the provisions hereof and that the Cost thereof has
been, or concurrently with the making or the Loan shall be, fully paid;
(g) Lender has received copies of the invoices and bills of sale, if any
(including the manufacturers' statements of origin or the certificates of
title, showing Lender as sole lienholder in the case of titled vehicles),
covering Debtor's acquisition of the Equipment being financed with such Loan
and showing Debtor as the owner thereof; (h) Lender has received evidence,
satisfactory to Lender, of the insurance coverage to be maintained by Debtor
pursuant to Section 5A.(13) hereof; (i) all filings, recordings, notations of
lien, assignments and other actions (including the obtaining of landlord
and/or mortgagee waivers) deemed necessary or desirable by Lender in order to
perfect a valid first priority security interest in the Equipment (and related
Proceeds and rights of Debtor) being financed by such Loan and in the
Additional Collateral, if any, have been duly made or effected (except that
Lender's security interest in any Additional Collateral may be subject to a
prior security interest if so specified in the Supplemental Security Agreement
in which such Additional Collateral is described), and all fees, taxes and
other charges relating thereto have been paid; (j) the representations and
warranties contained in this Agreement, in any Guaranty and in the Supplemental
Security Agreement covering the Equipment with respect to which such Loan is
being made, are true and correct with the same effect as if made on and as of
such Closing Date and no Event of Default is in existence on such Closing Date
or shall occur as a result of such Loan; (k) in the sole judgment of Lender,
there has been no material adverse change in the financial condition, business
or operations of Debtor or any Guarantor since the date of the then most recent
financial statement of Debtor or any Guarantor delivered to Lender; (l) Lender
has received from Debtor and any Guarantor such other documents and information
as Lender has reasonably requested; (m) the amount of such Loan is not less
than the Minimum Loan Amount specified on the related Loan Schedule, and such
Loan, when added to the aggregate amount of all Loans theretofore made with
respect to the Equipment covered by such Loan Schedule, will not cause the
amount of Lender's Commitment specified on such Loan Schedule to be exceeded;
and (n) the Closing Date for such Loan is a date not later than the Commitment
Expiration Date specified on the related Loan Schedule.
SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce Lender
to enter into this Agreement and to make each Loan, Debtor represents and
warrants to Lender that: (a) Debtor is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation, has
the necessary authority and power to own the Equipment and its other
6
<PAGE>
assets and to transact the business in which it is engaged, and is duly
qualified to do business in each jurisdiction where the Equipment is located
and in each other jurisdiction in which the conduct of its business or the
ownership of its assets requires such qualification; (b) Debtor has full
power, authority and legal right to execute and deliver this Agreement and
the other Principal Documents, to perform its obligations hereunder and
thereunder, to borrow hereunder and to grant the security interest created
hereby and by each Supplemental Security Agreement; (c) this Agreement has
been (and each other Principal Document when executed and delivered shall
have been) duly authorized, executed and delivered by Debtor and constitutes
(and each other Principal Document when executed and delivered shall
constitute) a legal, valid and binding obligation of Debtor enforceable in
accordance with its terms; (d) no consent of any other party (including any
stockholders, trustees or holders of indebtedness), and no consent, license,
approval or other action of or by filing with any governmental
instrumentality, is required in connection with the execution, delivery or
performance by Debtor of, or the validity or enforceability of, this
Agreement or the other Principal Documents; (e) the execution, delivery and
performance by Debtor of this Agreement and the other Principal Documents do
not and will not violate any provision of any applicable law or regulation or
of any judgement, order, or the like of any court or governmental
instrumentality, will not violate any provision of Debtor's charter or bylaws
and will not violate any provision of, or cause a default under, any loan
agreement, indenture, contract, agreement or judgment to which Debtor is a
party or which is binding upon Debtor or any of its assets; (f) Debtor is not
in default under any material contract or judgment to which Debtor is a
party or which is binding upon Debtor or upon any of its assets; (g) there is
no action, suit, investigation or proceeding pending or threatened against or
affecting Debtor or any of its assets which involves any of the Collateral or
any of the contemplated transactions or which, if adversely determined,
could have a material adverse effect on Debtor's business, operations or
financial condition; (h) all financial statements of Debtor which have been
delivered to Lender have been prepared (and those financial statements which
hereafter will be delivered to Lender will be prepared) in accordance with
generally accepted accounting principles consistently applied, and present
fairly (and those financial statements which hereafter will be delivered to
Lender will present fairly) Debtor's financial position as at, and the
results of its operations for the periods ended on, the respective dates
thereof; (i) the security interest granted to Lender in the Collateral
constitutes and will continue to constitute a first priority security
interest in the Collateral, and there are (and will be) no other liens on or
against the Collateral whatsoever (except in the case of any Additional
Collateral for any prior security interest that is specified in the
Supplemental Security Agreement in which such Additional
7
<PAGE>
Collateral is described); and (j) on the date of each Loan, Debtor will have
good and marketable title to each item of Equipment financed with the proceeds
of such Loan and to the Additional Collateral, if any.
SECTION 5. COVENANTS. Debtor covenants and agrees that from and
after the date hereof and so long as Lender's Commitment or any of the Notes is
outstanding:
A. Debtor will: (1) promptly give written notice to Lender of the
occurrence of any Event of Loss or Event of Default, of the commencement or
threat of any material litigation or proceedings affecting Debtor or the
Collateral or of any dispute between Debtor and any governmental regulatory
body or other party that involves any of the Collateral; (2) observe and
comply with all applicable laws, rules and regulations and all requirements
of any governmental authorities relating to the performance of its
obligations hereunder and to the use, operation, maintenance and ownership of
the Collateral; (3) maintain its existence as a legal entity and obtain and
keep in full force and effect all rights, franchises, licenses and permits
which are necessary to the proper conduct of its business, and pay all fees,
taxes, assessments and governmental charges or levies imposed upon any of the
Collateral; (4) permit Lender or its authorized representative at any
reasonable time or times to inspect the Collateral (including, without
limitation, the use of photographic and video equipment) and, following the
occurrence and during the continuation of an Event of Default, at any
reasonable time or times to inspect the books and records of Debtor; (5) keep
proper books of record and account in accordance with generally accepted
accounting principles; (6) furnish to Lender the following financial
statements all in reasonable detail, prepared in accordance with generally
accepted accounting principles applied on a basis consistently maintained
throughout the periods involved: (a) as soon as available, but not later than
120 days after the end of each fiscal year, its consolidated balance sheet as
of the end of such fiscal year, and its consolidated statements of income and
changes in financial position for such fiscal year, audited by certified
public accountants acceptable to Lender; (b) as soon as available, but not
later than 90 days after the end of each of the first three quarterly periods
of each fiscal year, its consolidated balance sheet as of the end of such
quarter and its consolidated statement of income for such quarter and for the
portion of the fiscal year then ended, certified by its chief financial
officer; and (c) promptly, such additional financial and other information as
Lender may from time to time reasonably request; (7) promptly, at its
expense, execute and deliver to Lender such instruments and documents, and
take such action, as Lender may from time to time reasonably request in order
to carry out the intent and purpose of this Agreement and to establish and
protect the rights, interests and remedies created, or intended to be
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<PAGE>
created, in favor of Lender hereby, including, without limitation, the
execution, delivery, recordation and filing of financing statements and
continuation statements, and Debtor hereby authorizes Lender, in such
jurisdictions where such action is authorized by law, to effect any such
recordation or filing of financing statements without Debtor's signature; (8)
warrant and defend its good and marketable title to the Collateral, and Lender's
security interest in the Collateral, against all claims and demands whatsoever;
(9) at its expense, take such action (including the obtaining and recording of
waivers) as may be necessary to prevent any third party from acquiring any right
or interest in the Equipment by virtue of its being deemed to be real property,
a part of real property, or a part of other personal property (Debtor hereby
agreeing that the Equipment shall be and at all times remain separately
identifiable personal property), and if at any time any person shall claim any
such right or interest, Debtor will cause such claim to be waived in writing or
otherwise eliminated to Lender's satisfaction within 30 days after such claim
shall have first become known to it; (10) at its expense, if requested by Lender
in writing, attach to such item of Equipment a notice satisfactory to Lender
disclosing Lender's security interest in such item of Equipment; (11) use the
Equipment in a careful and proper manner, in accordance with the manufacturer's
or supplier's instructions or manuals, and only by competent and duly qualified
personnel; (12) at its expense, maintain the Equipment in good condition and
working order and furnish all parts, replacements, and servicing required
therefor so that the value, condition and operating efficiency thereof will at
all times be maintained, reasonable wear and tear excepted, and with any
repairs, replacements and parts added to the Equipment immediately, without
further act, becoming part of the Equipment and subject to the security interest
created by this Agreement; (13) (a) obtain and maintain at all times with
respect to the Equipment, at Debtor's expense, (i) "All-Risk" physical damage
insurance (including theft and collision for Equipment consisting of motor
vehicles) in an amount not less than the applicable Casualty Loss Value of the
Equipment, naming Lender and its assigns as loss payees as their interests may
appear, and (ii) comprehensive liability (including bodily injury, death and
property damage) insurance, in such amounts and insuring against such risks as
shall be satisfactory to Lender, and naming Lender and its assigns as
additional insureds, and with all such insurance to be in such form and with
such insurers as shall be satisfactory to Lender, and each insurance policy to
require that the insurer shall give Lender and its assigns at least 30 days
prior written notice of any alteration in the terms of such policy or of the
cancellation thereof, or of any reduction in the amount of such coverage, and
that the interests of Lender and its assigns shall continue to be insured
regardless of any breach of or violation by Debtor of any warranties,
declarations or conditions contained in such insurance policy, and (b) promptly
deliver certificates evidencing such insurance
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coverage (and, if requested by Lender or any of its assigns, copies of the
policies evidencing such insurance coverage) to Lender and its assigns (Debtor
agreeing that neither Lender nor any of its assigns shall bear any duty or
liability to ascertain the existence or adequacy of such insurance); and (14)
promptly cause to be furnished to Lender, in the case of titled vehicles, the
certificates of title showing Debtor as owner and Lender as sole lienholder.
B. Debtor will not without Lender's prior written consent: (1)
sell, convey, transfer, assign, exchange, lease or otherwise relinquish
possession or dispose of any of the Collateral or any of its rights, title or
interests therein, or attempt or offer to do any of the foregoing; (2) create,
assume or suffer to exist any Lien upon the Collateral except for the security
interest created hereby and by each Supplemental Security Agreement (and except
in the case of any Additional Collateral for any prior or subordinate security
interest that is specified in the Supplemental Security Agreement in which such
Additional Collateral is described); (3) (a) sell, transfer or otherwise dispose
of all or any substantial part of its assets; (b) change the form of
organization of its business; or (c) without thirty (30) days prior written
notice to Lender, change its name or its chief place of business; (4) move (or
in the case of titled vehicles, change the principal location of) any of the
Collateral from the location specified in the Supplemental Security Agreement
relating thereto without the prior written consent of Lender; or (5) make or
authorize any improvement, change, addition or alteration to the Equipment which
would impair its originally intended function, use or economic value.
SECTION 6 EVENTS OF DEFAULT; REMEDIES. The following events shall
each constitute an "Event of Default" hereunder:
(a) Debtor shall fail to pay any Obligation within five (5) days
after the same becomes due (whether at the stated maturity, by acceleration or
otherwise); (b) any representation or warranty made by Debtor in this Agreement
or in any other Principal Document or in any document, certificate or financial
or other statement now or hereafter furnished by Debtor in connection with this
Agreement or any Loan, or by any Guarantor under any Guaranty, shall at any time
prove to be untrue or misleading in any material respect as of the date when
made; (c) Debtor shall fail to observe any covenant, condition or agreement
contained in subsections 5A.13, 5B.1, 5B.3, 5B.4 or 5B.5 hereof; (d) Debtor
shall fail to observe or perform any other covenant or condition contained in
this Agreement or in any other Principal Document, and such failure shall
continue unremedied for a period of 30 days after the earlier of the date on
which Debtor obtains knowledge of such failure or the date on which notice
thereof shall be given by Lender to Debtor; (e) Debtor or any Guarantor shall
default in payment or performance of any other indebtedness
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or obligations now or hereafter owing by Debtor or any Guarantor to Lender or
to any parent, subsidiary or affiliate of Lender; (f) Debtor or any Guarantor
shall default in the payment or performance of any obligation of Debtor (or any
Guarantor) to any Person (other than Lender, or any parent, subsidiary or
affiliate of Lender, and other than any Guarantor) in excess of $1,000,000.00
(excluding any such obligation which is being contested in good faith by Debtor
or any Guarantor by appropriate proceedings, and the liability for which has not
been reduced to judgment) relating to the payment of borrowed money or the
payment of rent or hire under any lease agreement, and such obligation shall be
declared to be due and payable prior to the maturity thereof; or an attachment
or other Lien shall be filed or levied against a substantial part of the
property of Debtor (or any Guarantor), and such judgment shall continue unstayed
and in effect, or such attachment or Lien shall continue undischarged or
unbonded, for a period of 30 days; (g) Debtor or any Guarantor shall institute
proceedings to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy, reorganization, insolvency, liquidation or
dissolution proceedings against it, or commence a voluntary proceeding or case
under any applicable federal or state bankruptcy, insolvency or other similar
law, as now or hereafter constituted, or consent to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of Debtor or any Guarantor or of any substantial part of its
property, or make any assignment for the benefit of creditors or admit its
inability to pay its debts generally as they become due or its willingness to
be adjudicated a bankrupt, or fail generally to pay its debts as they become
due, or take corporate action in furtherance of any of the foregoing; (h) the
entry of a decree or order for relief by a court having jurisdiction in respect
of Debtor or any Guarantor adjudging Debtor or any Guarantor a bankrupt or
insolvent, or approving as properly filed a petition seeking a reorganization,
arrangement, adjustment or composition of or in respect of Debtor or any
Guarantor in an involuntary proceeding or case under any applicable federal or
state bankruptcy, insolvency or other similar law, as now or hereafter
constituted, or appointing a receiver, liquidator, or assignee, custodian,
trustee, or sequestrator (or similar official) of Debtor or any Guarantor or
of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 30 days; (i) a change in the ownership
of a majority of the issued and outstanding shares of capital stock of Debtor
or of any Guarantor; (j) Debtor or Guarantor shall enter into any merger,
consolidation or corporate reorganization or shall liquidate or dissolve; (k)
the condition of Debtor's or any Guarantor's affairs shall change so that, in
Lender's reasonable opinion, Lender's security interest in the Collateral is
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materially impaired or its credit risk is materially increased; (l) Debtor
shall, at any time, fail to maintain a ratio of Total Liabilities to Tangible
Net Worth no greater than 5 to 1 through September 30, 1994 and then 3.5 to 1
thereafter; or (m) the Securities Exchange Commission causes or rules that
Debtors 1993 financial statements need to be restated in whole or in part.
As used in this Section 6, "Tangible Net Worth" means the total of the par
value of common stock and any class or series of preferred stock (after
deduction for treasury stock), additional paid-in capital, general contingency
reserves and retained earnings or deficit of Debtor, determined in accordance
with generally accepted accounting principles, minus the following items
(without duplication of deductions), if any, appearing on the balance sheet of
Debtor: (i) the book value of all assets (including, without limitation,
goodwill) which would be treated as intangibles under generally accepted
accounting principles; and (ii) any write-up in the book amount of any existing
asset resulting from a re-evaluation thereof from the book amount entered upon
acquisition in excess of that permitted under generally accepted accounting
principles; and "Total Liabilities" means the total current liabilities and long
term indebtedness of Debtor, determined in accordance with generally accepted
accounting principles.
If an Event of Default shall occur, Lender may, by notice of default
given to Debtor, (a) terminate the Commitment and/or (b) declare the Notes to be
due and payable, whereupon the unpaid principal amount of the Notes, together
with accrued interest thereon, shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived (and in the case of any Event of Default specified in
clauses (g) or (h) such acceleration of the Notes shall be automatic, without
any notice by Lender) and/or (c) declare all of the other unpaid Obligations to
become immediately due and payable whereupon the same shall become immediately
due and payable; and/or (d) pursue and enforce any other rights and remedies
available to Lender, whether under this Agreement, under any other instrument or
agreement securing, evidencing or relating to the Obligations, under the Code,
or otherwise available at law or in equity. Without limiting the generality of
the foregoing, Debtor agrees that in any such event, Lender, without demand
of performance or other demand, advertisement, or notice of any kind (except
the notice specified below of time and place of public or private sale) to or
upon Debtor or any other person (all and each of which demands, advertisements
and/or notices are hereby expressly waived), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase or otherwise
dispose of and deliver the Collateral (or contract to do so), or any part
thereof, in one or more parcels at public or private
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sale or sales, at such prices as it may deem best, and for cash or on credit.
Lender shall have the right at any such public sale or sales, and to the
extent permitted by law, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in Debtor, which right or
equity is hereby expressly released. Debtor further agrees, at Lender's
request, to assemble the Collateral and make it available to Lender at places
which Lender shall reasonably select, whether at Debtor's premises or
elsewhere. Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale (after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safekeeping or otherwise of any or all of the Collateral or in any
way relating to the rights of Lender hereunder, including attorneys' fees and
legal expenses) to the payment in whole or in part of the Obligations, in
such order as Lender may elect. Only after so applying such net proceeds and
after the payment by Lender of any other amount required by any provision of
law (including Section 9-504(1)(c) of the Code) need Lender account for the
surplus, if any, to Debtor. To the extent permitted by applicable law, Debtor
waives all claims, damages, and demands against Lender arising out of the
repossession, retention or sale of the Collateral. Debtor agrees that Lender
need not give more than 10 days' notice (which notification shall be deemed
given when mailed, postage prepaid, addressed to Debtor at its address set
forth herein) of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. Debtor shall be liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Lender is entitled. Debtor agrees to pay all costs
of Lender, including attorneys' fees, incurred with respect to collection of
any of the Obligations and enforcement of any of its rights hereunder. To the
extent permitted by law, Debtor hereby waives presentment, demand, protest or
any notice (except as expressly provided in this Section 6) of any kind in
connection with this Agreement or any Collateral.
SECTION 7. ASSIGNMENTS. Debtor may not assign or transfer the
Obligations (or any thereof) or any of its rights or interests under any of
the Principal Documents without the prior written consent of Lender. Lender
may assign any of its rights and interests hereunder and under any of the
Principal Documents and in any of the Collateral and any such assignee may
re-assign any of such rights and interests. After any such assignment such
assignee shall have and may exercise all of Lender's rights and interests
assigned to it and the term "Lender" shall be deemed to include such assignee
with respect to the rights and interests so assigned.
SECTIONS. MISCELLANEOUS.
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8.1 POWER OF ATTORNEY. Debtor hereby irrevocably constitutes and
appoints Lender, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Debtor and in the name of Debtor or in its own name, for the purpose
of carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement with
respect to the Collateral. This power of attorney is a power coupled with an
interest and shall be irrevocable. The powers conferred on Lender hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers.
8.2 NO WAIVER OF RIGHTS. No failure or delay by Lender in
exercising any right, power or privilege hereunder or under any Note or other
Principal Document shall operate as any waiver thereof, nor shall any single
or partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. No right or remedy in this Agreement is intended
to be exclusive but each shall be cumulative and in addition to any other
remedy referred to herein or otherwise available to Lender at law or in
equity; and the exercise by Lender of any one or more of such remedies shall
not preclude the simultaneous or later exercise by Lender of any or all such
other remedies. No express or implied waiver by Lender of an Event of Default
shall in any way be, or be construed to be, a waiver of any other or
subsequent Event of Default. The acceptance by Lender of any regular
installment payment or any other sum owing hereunder shall not constitute a
waiver of any Event of Default in existence at the time, regardless of
Lender's knowledge or lack of knowledge thereof at the time of such
acceptance, and shall not constitute a reinstatement of the Agreement if
Lender has sent Debtor a notice of default, unless Lender shall have agreed
in writing to reinstate the Agreement and waive the Event of Default.
8.3 NOTICES. All notices, requests and demands to or upon any party
hereto shall be deemed duly given or made when deposited in the United States
mail, first class postage prepaid, addressed to such party at its address set
forth above or such other address as may be hereafter designated in writing
by such party to the other party hereto.
8.4 OTHER PAYMENTS AND INDEMNIFICATION. Debtor agrees, whether or
not the contemplated transactions are consummated, to pay or reimburse Lender
for (i) all fees and taxes in connection with the recording of this Agreement
or any other document or instrument required hereby; (ii) all fees and
expenses of whatever nature incurred in connection with creation,
preservation and protection of Lender's security
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interest in the Equipment, including, without limitation, all fees and taxes in
connection with the recording or filing of instruments and documents in
public offices, payment or discharge of any taxes or Liens upon or in respect
of the Equipment, and all other fees and expenses in connection with
protecting or maintaining the Equipment and Lender's security interest
therein, or in connection with defending or prosecuting any actions, suits or
proceedings arising out of or related to the Equipment; and (iii) all costs
and expenses (including legal fees and disbursements) of Lender in connection
with the enforcement of this Agreement and the Notes and any other Principal
Document. Debtor also agrees to pay, and to indemnify and save Lender
harmless from any delay in paying, all taxes (other than taxes on Lender's
net income), including without limitation, sales, use, stamp and personal
property taxes and all license, filing, and registration fees and assessments
and other charges, if any, payable or determined to be payable in connection
with the execution, delivery and performance of this Agreement or the Notes
or any other Principal Document or any modification thereof. If Debtor fails
to perform or comply with any of its agreements contained in this Agreement
and Lender shall itself perform, comply, or cause performance or compliance,
the expenses of Lender so incurred, together with interest thereon at the
Late Charge Rate, shall be payable by Debtor to Lender on demand and until
such payment shall constitute Obligations secured hereby.
8.5 SURVIVAL OF REPRESENTATIONS. All representations and
warranties made in, or in connection with this Agreement shall survive the
execution and delivery of this Agreement and the making of the Loans, and the
agreements contained in Section 8.4 hereof shall survive payment of the Notes.
8.6 ENTIRE AGREEMENT. This Agreement, together with the other
Principal Documents, contains the entire agreement between Lender and Debtor
related to the contemplated transactions, and neither this Agreement nor any
other Principal Document, nor any terms hereof, or thereof, may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of a change, waiver, discharge
or termination is sought.
8.7 BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of Debtor and Lender and (subject in the case of Debtor to the
restrictions set forth in Section 7 hereof) their respective successors and
assigns.
8.8 SEVERABILITY. Headings of Sections and paragraphs are for
convenience only, are not part of this Agreement and shall not be deemed to
affect the meaning or construction of any of the provisions hereof. Any
provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to
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such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent
permitted by law, Debtor waives any rights now or hereafter conferred by
statute or otherwise which limit or modify any of Lender's rights or remedies
under this Agreement and waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
8.9 NO OPTIONAL PREPAYMENT. Except for any prepayment required by
the terms of this Agreement or of any Note to be made by Debtor, the Notes
shall not (except as otherwise specifically agreed to in writing by Lender)
be subject to optional prepayment by Debtor in whole or in part.
8.10 COPIES AS FINANCING STATEMENTS: A copy of the Agreement or of
any Supplemental Security Agreement may be filed as a financing statement.
8.11 VENUE; GOVERNING LAW. Debtor agrees that at Secured Party's
sole election any suit, action or proceeding brought by Secured Party against
Debtor in connection with or arising out of this Agreement may be brought in
any federal or state court in the Commonwealth of Massachusetts, and Debtor
waives personal service of all process upon it and consents that service of
process may be made by mail or messenger directed to it at its address set
forth above and that service so made shall be deemed completed upon the
earlier of actual receipt or three (3) days after the same shall have been
posted to Debtor's said address. Nothing herein contained shall affect
Secured Party's right to serve legal process in any other manner permitted by
law or to bring any suit, action or proceeding against Debtor or its property
in the courts of any other jurisdiction This Agreement, the Notes and the
other Principal Documents shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, including all matters of
construction, validity and performance.
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THE ADDITIONAL TERMS AND CONDITIONS IN LOAN SCHEDULES AND IN ANY OTHER RIDERS
HERETO EXECUTED BY DEBTOR AND LENDER ARE INCORPORATED IN AND MADE PART OF
THIS AGREEMENT.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement by their duly authorized officers as of the date first above
written.
U.S. LONG DISTANCE, INC. BOT FINANCIAL CORPORATION
(Debtor) (Lender)
By: /s/ Kelly E. Simmons By: /s/ David A. Meehan
--------------------------------- --------------------------------
Title: VP Title: Senior Vice President
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CONTINUING CORPORATE GUARANTY
In consideration of, and as an inducement for BOT Financial Corporation
(hereinafter called the "Obligee") (a) to enter into a certain Master Loan and
Security Agreement dated as of December 31, 1993 (herein, as the same may be
supplemented or amended from time to time in accordance with its terms, being
called the "Loan Agreement") with U.S. Long Distance, Inc., with its principal
place of business at 9311 San Pedro, Suite 300, San Antonio, Texas 78216
(hereinafter called the "Obligor"), and (b) to make Loans from time to time to
the Obligor pursuant to the Loan Agreement (hereinafter individually and
collectively called the "Loan(s)") to finance the payment of the Cost of (or to
reimburse the Obligor for the payment of the Cost of) the Equipment identified
in the Supplemental Security Agreements from time to time executed by the
Obligor, and to which the Loans relate, the undersigned, U.S. Long Distance
Corp., a Delaware corporation (hereinafter called the "Guarantor"), with its
principal place of business at 9311 San Pedro, Suite 300, San Antonio, Texas
78216, does hereby unconditionally and irrevocable guarantee to the Obligee and
its successors and assigns, without offset or deduction, (i) the prompt payment
when due, whether by acceleration or otherwise, of all payments of the principal
of and interest on the promissory notes from time to time executed by the
Obligor evidencing the Loan(s) (hereinafter individually and collectively
called the "Note(s)"), and all other amounts whatsoever now or hereafter owing
and payable by the Obligor under, arising out of or in connection with the Loan
Agreement, any Note(s) evidencing the Loan(s), any Loan Schedule or
Supplemental Security Agreement, the guaranty under this clause (i)
constituting hereby a continuing guaranty of payment and not of collection, and
(ii) that the Obligor will perform punctually and faithfully each and every
duty, agreement, covenant and obligation of the Obligor under or pursuant to the
Loan Agreement, the Note(s) and each Loan Schedule and Supplemental Security
Agreement. The Guarantor does hereby agree that in the event that the Obligor
does not or is unable to pay or perform in accordance with the terms of any of
the Note(s) and/or the Loan Agreement or any Loan Schedule or Supplemental
Security Agreement for any reason (including, without limitation, the
liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for
the benefit of creditors, reorganization, arrangement, composition or
readjustment of, or other similar proceedings affecting the status, existence,
assets or obligations of, the Obligor) it will pay the installments of principal
and interest (and premium, if any) due on such Note(s) and all other amounts
whatsoever due under or pursuant to the Loan Agreement or any Loan Schedule or
Supplemental Security Agreement, or otherwise provide for and bring about
promptly when due such payment and the performance of such duties, agreements,
covenants and
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obligations of the Obligor. All of the liabilities and obligations of the
Obligor hereby guaranteed are hereinafter collectively referred to as the
"Obligations". Without limiting the generality of clause (i) of this
paragraph, the Guarantor specifically agrees that it shall not be necessary
or required, and that the Guarantor shall not be entitled to require, that
the obligee, or any successor or assignee of Obligee, file suit or proceed to
obtain or assert a claim for personal judgment against the Obligor for the
Obligations or make any effort at collection of the Obligations from the
Obligor or foreclose against or seek to realize upon any security now or
hereafter existing for the Obligations or file suit or proceed to obtain or
assert a claim for personal judgment against any other party liable for the
Obligations or make any effort at collection of the Obligations from any such
other party or exercise or assert any other right or remedy to which any of
them is or may be entitled in connection with the Obligations or any security
or other guaranty therefor or assert or file any claim against the assets
of the Obligor or other person liable for the Obligations, or any part
thereof, before or as a condition of enforcing the liability of the Guarantor
under this Guaranty or requiring payment of said Obligations by the
Guarantor hereunder, or at any time thereafter. The Guarantor agrees, upon
demand of the Obligee to either, at the Obligee's option, pay directly, or
reimburse the Obligee for the payment of, all costs, fees and expenses,
including, without limitation, attorneys' fees, incurred by the Obligee in
the enforcement or attempted enforcement of any of its rights hereunder.
The Guarantor specifically agrees that it shall not be necessary or
required in order to enforce the obligations of the Guarantor hereunder that
there be, and the Guarantor specifically waives: notice of the acceptance of
this Guaranty and of the performance or nonperformance of the any of the
Obligations; demand of payment from the Obligor except to the extent required
by the Note(s) and/or Loan Agreement; presentment for payment upon the
Obligor or the making of any protest; notice of the amount of the Obligations
outstanding at any time; and notice of nonpayment or failure to perform on
the part of the Obligor. The Guarantor further waives all defenses, offsets
and counterclaims which the Guarantor may at any time have to the payment or
performance of the Obligations. The obligations of the Guarantor under this
Guaranty shall be absolute and unconditional and shall remain in full force
and effect until the Obligor shall have fully and satisfactorily discharged
all of the Obligations and shall not be released or discharged by reason of:
(i) any waiver by the Obligee, or its successors or assigns, of the
performance or observance by the Obligor of any of the agreements,
covenants, terms or conditions contained in the Note(s) and/or Loan
Agreement or any Loan Schedule or Supplemental Security Agreement, or of any
Event of Default under the Loan Agreement; (ii) the extension of the time for
payment by the Obligor of any
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payment of principal and interest due on the Note(s) or other sums or any part
thereof owing or payable under or pursuant to the Note(s) and/or the Loan
Agreement or any Loan Schedule or Supplemental Security Agreement, or of the
time for performance by the Obligor of any other obligations under or pursuant
to the Note(s) and/or the Loan Agreement or any Loan Schedule or Supplemental
Security Agreement; (iii) any failure, omission or delay of the Obligee or its
successors or assigns to enforce, assert or exercise any right, power or remedy
conferred on the Obligee under or pursuant to the Note(s) and/or Loan Agreement
or any Loan Schedule or Supplemental Security Agreement, or any action on the
part of the Obligee or its successors or assigns granting any extension or
indulgence in any form to the Obligor; (iv) any compromise, settlement, release,
renewal, extension, indulgence, change in or waiver or modification of, any of
the Obligations or the release or discharge of the Obligor from the performance
or observance of any of the Obligations by operation of law; (v) any change in,
waiver or modification of, or amendment to, any of the terms or provisions of
the Note(s) and/or Loan Agreement or any Loan Schedule or Supplemental Security
Agreement; (vi) any consolidation or merger of Obligor or any leveraged buy-out
or other form of corporate reorganization that Obligor may become the subject of
or become engaged in, whether or not permitted under the terms of the Loan
Agreement or otherwise, or the sale, transfer or other disposition by the
Obligor or all or substantially all of the assets and liabilities of the
Obligor; (vii) any change in the ownership of any shares of capital stock of the
Obligor; (viii) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of the Obligor, or any
other similar proceeding affecting the status, existence, assets or obligations
of the Obligor; (ix) any fictitiousness, incorrectness, invalidity or
unenforceability, for any reason, of the Note(s) and/or Loan Agreement or any
Loan Schedule or Supplemental Security Agreement, or of any provision thereof,
or of any of the Obligations; (x) any transfer or assignment by the Obligor of
any of the Obligor's rights or obligations under the Loan Agreement or Note(s)
or any Loan Schedule or Supplemental Security Agreement, or any use of the
Collateral (as defined in the Loan Agreement) or any part thereof by any person
or party, or any sale, transfer, assignment, lease, mortgage, pledge,
hypothecation or further encumbering of the Collateral or any part thereof by
Obligor; or (xi) any other circumstance that might otherwise constitute a
legal or equitable discharge of the Obligor (including a discharge in
bankruptcy) or of the Guarantor.
The Guarantor hereby represents and warrants to Obligee that: (a) the
Guarantor is a corporation duly organized, validly existing and in good standing
under the laws of its state of
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incorporation set forth above; the Guarantor has the power and authority to
execute and perform this Guaranty, and has duly authorized the execution,
delivery and performance of this Guaranty; (b) the Guarantor is the owner
of, and so long as any of the Obligations remain to be paid or performed
the Guarantor will continue to be the owner of, of all of the issued and
outstanding capital stock of Obligor; (c) no approval is required from any
regulatory body, board, authority or commission, nor from any other
administrative or governmental agency, nor from any other person, firm or
corporation, with respect to the execution of this Guaranty by the Guarantor
and the payment and performance by the Guarantor of all of the Guarantor's
obligations hereunder; (d) this Guaranty constitutes the legal, valid and
binding obligations of the Guarantor, enforceable in accordance with its
terms, and the execution, delivery and performance of the same by the
Guarantor will not violate the Guarantor's Charter, Certificate of
Incorporation, or By-Laws, or any provision of law, any order of any court
or other agency of government, or any indenture, agreement or other instrument
to which the Guarantor is a party, or by or under which the Guarantor or any
of the Guarantor's property is bound, or be in conflict with, result in a
breach of, or constitute (with due notice and/or lapse of time) a default
under, any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the Guarantor's property or assets; (e) all balance
sheets, statements of profit and loss and other financial data that have been
delivered to Obligee with respect to the Guarantor (i) are complete and correct
in all material respects, (ii) accurately present the financial condition of the
Guarantor on the dates for which, and the results of its operations for the
periods for which, the same have been furnished, and (iii) have been certified
by the Guarantor's independent certified public accountants, in the case of the
audited financial statements, and by the Guarantor's chief financial officer,
in the case of any unaudited financial statements, and have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the period(s) covered thereby; all balance sheets disclose all known
liabilities, direct and contingent, as of their respective dates; and there has
been no change in the condition of the Guarantor, financial or otherwise, since
the date of the most recent financial statements delivered to Obligee with
respect to the Guarantor, other than changes in the ordinary course of business,
none of which changes has been materially adverse; (f) there are no suits or
proceedings pending, or, to the knowledge of the Guarantor threatened, in any
court or before any regulatory commission, board or other governmental agency
against or affecting the Guarantor, which, if decided adversely to the
Guarantor, will have a material adverse effect on the financial condition or
business of the Guarantor; (g) the Guarantor will furnish Obligee (i) as soon
as available, and in any event within
4
<PAGE>
120 days after the last day of each fiscal year of the Guarantor, a copy of the
consolidated balance sheet of the Guarantor and its consolidated subsidiaries as
of the end of such fiscal years, and related consolidated statements of income
and retained earnings of the Guarantor and its consolidated subsidiaries for
such fiscal year, certified by an independent certified public accounting firm
of recognized standing, each on a comparative basis with corresponding
statements for the prior fiscal year, (ii) within 45 days after the last day of
each fiscal quarter of the Guarantor (except the last such fiscal quarter), a
copy of the balance sheet as of the end of such quarter, and statement of income
and retained earnings of the Guarantor and its consolidated subsidiaries
covering the fiscal year to date, each on a comparative basis with the
corresponding period of this prior year, all in reasonable detail and certified
by the chief financial officer of the Guarantor, (iii) contemporaneously with
its transmittal to each stockholder of the Guarantor and to the Securities and
Exchange Commission, such reports as the Guarantor shall send to its
stockholders and to the Securities and Exchange Commission, (iv) as soon as
available to the Guarantor, the notice of any adjustment resulting from any
audit of the books and/or records of Guarantor by any taxing authority having
jurisdiction over Guarantor, and (v) such additional financial information a
Obligee may reasonably request concerning the Guarantor; and (h) the Guarantor
and its consolidated subsidiaries have filed all United States income tax
returns which are required to be filed and have paid or made provisions for
the payment of, all taxes which have or may become due pursuant to said returns
or pursuant to any assessment received by the Guarantor or such consolidated
subsidiaries, except such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided. Notwithstanding any
payment or payments made by the Guarantor hereunder, the Guarantor shall not be
entitled to be subrogated to any of the Obligee's rights against the Obligor or
the Collateral (or any part thereof) until all amounts owing to the Obligee by
the Obligor for or on account of the Obligations shall have been paid in full.
This Guaranty (a) may be assigned by the Obligee, without the consent of
the Guarantor, but may not be assigned by the Guarantor; (b) may be executed in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument; (c) shall inure to
the benefit of the Obligee, and its successors and assigns, and be binding upon
the successors and, subject to the restrictions of clause (a) of this paragraph,
assigns of the Guarantor; (d) may be modified only by an instrument in writing,
signed by the duly authorized representative of the party to be bound; and (e)
shall in all respects be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts.
5
<PAGE>
All capitalized terms used herein which are not otherwise defined herein
shall have the meanings given to such terms in the Loan Agreement. The
Guarantor hereby acknowledges receipt of a copy of the Loan Agreement as
executed by the Obligor and Obligee.
6
<PAGE>
IN WITNESS WHEREOF; the Guarantor has caused this Guaranty to be executed
by its duly authorized officer and its corporate seal to be affixed hereto this
31st day of December, 1993.
U.S. LONG DISTANCE CORP.
Attest:
/s/ Audie Long By: /s/ Kelly E. Simmons
- ------------------------------ -------------------------------
Secretary Its: V.P. & Treasurer
(corporate seal) -----------------------------
7
<PAGE>
PROMISSORY NOTE
$3,940,048.72 December 31, 1993
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. ("DEBTOR"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite 300,
San Antonio, Texas 78216 hereby promises to pay to the order of BOT Financial
Corporation ("Lender") at its office at 125 Summer Street, Boston, Massachusetts
02110 (or as Lender may otherwise designate) the principal sum of Three Million
Nine Hundred Forty Thousand Forty-Eight and 72/100 Dollars ($3,940,048.72),
together with interest on the principal balance from time to time remaining
unpaid at the rate of 6.75% per annum (computed on the basis of a 360-day year
of twelve 30-day months). Principal and interest shall be payable in sixty (60)
consecutive equal monthly installments of Seventy-Seven Thousand Five Hundred
Fifty-Three and 79/100 Dollars ($77,553.79) each (except that the last
installment shall be in an amount sufficient to discharge in full the accrued
interest on, and the entire unpaid principal of, this Note), with each
installment to be due and payable on the first day of each month, in arrears,
commencing on February 1, 1994. Each such installment shall be applied first to
the payment of any unpaid interest on the principal sum and then to the payment
of principal. After the maturity of any installment of principal, such
installment shall bear interest at a rate per annum equal to the higher of two
percent (2%) over the Prime Rate or fifteen percent (15%) (but not to exceed the
highest rate permitted by applicable law) until such installment is paid in
full. Any payment received after the maturity of any installment of principal
shall be applied first to the payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender an
installment of interest in an amount equal to the sum obtained by multiplying
$738.75 by the number of days then remaining in the calendar month in which this
Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and
Security Agreement dated as of December 31, 1993 between Debtor and Lender
(herein, as the same may from time to time be amended, supplemented or otherwise
modified, called the "Agreement"), is secured by, and entitled to the benefits
of, the Agreement and a Supplemental Security Agreement of even date herewith
between Debtor and Lender, and is subject to prepayment only as provided in the
Agreement.
<PAGE>
Debtor hereby waives presentment, demand for payment, notice of dishonor,
and any and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby consents
to any extensions of time, renewals, releases of any party to this Note,
waivers or modifications that may be granted or consented to by the holder
of this Note.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, the amounts then remaining unpaid on this Note together with
any interest accrued may be declared to be (or, with respect to certain Events
of Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the enforcement
or the collection of this Note, there shall be immediately due and payable, in
addition to the unpaid balance hereof, all late charges, and all costs and
expenses of such action, including attorneys' fees. Debtor hereby waives the
right to interpose any setoff, counterclaim or defense of any nature or
description whatsoever to the obligations evidenced by this Note.
Debtor agrees that its liability hereunder is absolute and unconditional
without regard to the liability of any other party and that no delay on the part
of the holder hereof in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right. This Note is not assignable by Debtor, but may be
assigned by Lender or any other holder hereof.
All capitalized terms used in this Note which are not otherwise defined in
this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ KELLY E. SIMMONS
--------------------------------
Title: VP
<PAGE>
PROMISSORY NOTE
$828,218.40 March 31, 1994
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. ("Debtor"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite 300,
San Antonio, Texas 78216 hereby promises to pay to the order of BOT Financial
Corporation ("Lender") at its office at 125 Summer Street, Boston, Massachusetts
02110 (or as Lender may otherwise designate) the principal sum of Eight Hundred
Twenty-Eight Thousand Two Hundred Eighteen and 40/100 Dollars ($828,218.40),
together with interest on the principal balance from time to time remaining
unpaid at the rate of 6.75% per annum (computed on the basis of a 360-day year
of twelve 30-day months). Principal and interest shall be payable in sixty (60)
consecutive equal monthly installments of Sixteen Thousand Three Hundred Two and
20/100 Dollars ($16,302.20) each (except that the last installment shall be in
an amount sufficient to discharge in full the accrued interest on, and the
entire unpaid principal of, this Note), with each installment to be due and
payable on the first day of each month, in arrears, commencing on May 1, 1994.
Each such installment shall be applied first to the payment of any unpaid
interest on the principal sum and then to the payment of principal. After the
maturity of any installment of principal, such installment shall bear interest
at a rate per annum equal to the higher of two percent (2%) over the Prime rate
or fifteen percent (15%) (but not to exceed the highest rate permitted by
applicable law) until such installment is paid in full. Any payment received
after the maturity of any installment of principal shall be applied first to the
payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender an
installment of interest in an amount equal to the sum obtained by multiplying
$155.29 by the number of days then remaining in the calendar month in which
this Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and Security
Agreement dated as of December 31, 1993 between Debtor and Lender (herein, as
the same may from time to time be amended, supplemented or otherwise modified,
called the "Agreement"), is secured by, and entitled to the benefits of, the
Agreement and a Supplemental Security Agreement of even date herewith between
Debtor and Lender, and is subject to prepayment only as provided in the
Agreement.
<PAGE>
Debtor hereby waives presentment, demand for payment, notice of dishonor,
and any and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this note and hereby consents
to any extensions of time, renewals, releases of any party to this Note, waivers
or modifications that may be granted or consented to by the holder of this Note.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, the amounts then remaining unpaid on this Note together with
any interest accrued may be declared to be (or, with respect to certain Events
of Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the enforcement
or the collection of this Note, there shall be immediately due and payable, in
addition to the unpaid balance hereof, all late charges, and all costs and
expenses of such action, including attorneys' fees. Debtor hereby waives the
right to interpose any setoff, counterclaim or defense of any nature or
description whatsoever to the obligations evidenced by this Note.
Debtor agrees that its liability hereunder is absolute and unconditional
without regard to the liability of any other party and that no delay on the part
of the holder hereof in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right. This Note is not assignable by Debtor, but may be
assigned by Lender or any other holder hereof.
All capitalized terms used in this Note which are not otherwise defined in
this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ KELLY E. SIMMONS
--------------------------------
Title: VP
-----------------------------
<PAGE>
PROMISSORY NOTE
$183,173.02 April 28, 1994
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. ("Debtor"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite 300,
San Antonio, Texas 78216 hereby promises to pay to the order of BOT Financial
Corporation ("Lender") at its office at 125 Summer Street, Boston, Massachusetts
02110 (or as Lender may otherwise designate) the principal sum of One Hundred
Eighty-Three Thousand One Hundred Seventy-Three and 02/100 Dollars
($183,173.02), together with interest on the principal balance from time to time
remaining unpaid at the rate of 8.0% per annum (computed on the basis of a
360-day year of twelve 30-day months). Principal and interest shall be payable
in sixty (60) consecutive equal monthly installments of Three Thousand Seven
Hundred Fourteen and 02/100 Dollars ($3,714.02) each (except that the last
installment shall be in an amount sufficient to discharge in full the accrued
interest on, and the entire unpaid principal of, this Note), with each
installment to be due and payable on the first day of each month, in arrears,
commencing on June 1, 1994. Each such installment shall be applied first to the
payment of any unpaid interest on the principal sum and then to the payment of
principal. After the maturity of any installment of principal, such installment
shall bear interest at a rate per annum equal to the higher of two percent (2%)
over the Prime rate or fifteen percent (15%) (but not to exceed the highest rate
permitted by applicable law) until such installment is paid in full. Any
payment received after the maturity of any installment of principal shall be
applied first to the payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender an
installment of interest in an amount equal to the sum obtained by multiplying
$40.66 by the number of days then remaining in the calendar month in which
this Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and Security
Agreement dated as of December 31, 1993 between Debtor and Lender (herein, as
the same may from time to time be amended, supplemented or otherwise modified,
called the "Agreement"), is secured by, and entitled to the benefits of, the
Agreement and a Supplemental Security Agreement of even date herewith between
Debtor and Lender, and is subject to prepayment
<PAGE>
only as provided in the Agreement.
Debtor hereby waives presentment, demand for payment, notice of dishonor,
and any and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to any extensions of time, renewals, releases of any party to this
Note, waivers or modifications that may be granted or consented to by the
holder of this Note.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, the amounts then remaining unpaid on this note together with
any interest accrued may be declared to be (or, with respect to certain Events
of Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the enforcement
or the collection of this Note, there shall be immediately due and payable, in
addition to the unpaid balance hereof, all late charges, and all costs and
expenses of such action, including attorneys' fees. Debtor hereby waives the
right to interpose any setoff, counterclaim or defense of any nature or
description whatsoever to the obligations evidenced by this Note.
Debtor agrees that its liability hereunder is absolute and unconditional
without regard to the liability of any other party and that no delay on the part
of the holder hereof in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right. This Note is not assignable by Debtor, but may be
assigned by Lender or any other holder hereof.
All capitalized terms used in this Note which are not otherwise defined in
this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ KELLY E. SIMMONS
--------------------------------
Title: VP & Treasurer
-----------------------------
<PAGE>
PROMISSORY NOTE
$2,685,140.47 March 29, 1995
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. ("Debtor"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite 300,
San Antonio, Texas 78216 hereby promises to pay to the order of BOT Financial
Corporation ("Lender") at its office at 125 Summer Street, Boston, Massachusetts
02110 (or as Lender may otherwise designate) the principal sum of Two Million
Six Hundred Eighty Five Thousand One Hundred Forty and 47/100 Dollars
($2,685,140.47), together with interest on the principal balance from time to
time remaining unpaid at the rate of 9.5% per annum (computed on the basis of a
360-day year of twelve 30-day months). Principal and interest shall be payable
in sixty (60) consecutive equal monthly installments of Fifty Six Thousand Three
Hundred Ninety Three and 32/100 Dollars ($56,393.32) each (except that the last
installment shall be in an amount sufficient to discharge in full the accrued
interest on, and the entire unpaid principal of, this Note), with each
installment to be due and payable on the first day of each month, in arrears,
commencing on May 1, 1995. Each such installment shall be applied first to the
payment of any unpaid interest on the principal sum and then to the payment of
principal. After the maturity of any installment of principal, such installment
shall bear interest at a rate per annum equal to the higher of two percent (2%)
over the Prime Rate or fifteen percent (15%) (but not to exceed the highest rate
permitted by applicable law) until such installment is paid in full. Any
payment received after the maturity of any installment of principal shall be
applied first to the payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender an
installment of interest in an amount equal to the sum obtained by multiplying
$708.88 by the number of days then remaining in the calendar month in which
this Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and Security
Agreement dated as of December 31, 1993 between Debtor and Lender (herein, as
the same may from time to time be amended, supplemented or otherwise, modified,
called the "Agreement"), is secured by, and entitled to the benefits of, the
Agreement and a Supplemental Security Agreement of even date herewith between
Debtor and Lender, and is subject to prepayment only as provided in the
Agreement.
<PAGE>
Debtor hereby waives presentment, demand for payment, notice of dishonor,
and any and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note and hereby
consents to any extensions of time, renewals, releases of any party to this
Note, waivers or modifications that may be granted or consented to by the
holder of this Note.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, the amounts then remaining unpaid on this note together with
any interest accrued may be declared to be (or, with respect to certain Events
of Default, automatically shall become) immediately due and payable as provided
therein.
In the event that any holder shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due
and payable, in addition to the unpaid balance hereof, all late charges, and
all costs and expenses of such action, including attorneys' fees. Debtor
hereby waives the right to interpose any setoff, counterclaim or defense of
any nature or description whatsoever to the obligations evidenced by this
Note.
Debtor agrees that its liability hereunder is absolute and unconditional
without regard to the liability of any other party and that no delay on the part
of the holder hereof in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any power or right
hereunder preclude other or further exercise thereof or the exercise of any
other power or right. This Note is not assignable by Debtor, but may be
assigned by Lender or any other holder hereof.
All capitalized terms used in this Note which are not otherwise defined in
this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ MICHAEL E. HIGGINS
--------------------------------
Title: Senior V.P. and CFO
-----------------------------
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. 1 dated December 31, 1993
This Supplemental Security Agreement is executed and delivered by U.S.
Long Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT FINANCIAL CORPORATION ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the
Notes and other Obligations, Debtor has, under the Agreement, granted to
Lender a continuing security interest in the Collateral. Without limiting
the generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral (hereinafter defined).
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $3,940,048.72, and to further secure the
payment and performance by Debtor of all other Obligations, Debtor hereby
grants to Lender (a) a continuing first priority security interest in the
items of equipment described on Schedule A attached hereto and made a part
hereof, including all accessories, parts, repairs, replacements,
substitutions, attachments, modifications, additions, improvements,
upgrades and accessions to, of or for such items of equipment, all of
Debtor's right, title and interest therein, and all Proceeds thereof and
therefrom (collectively the "Specific Collateral"), and (b) a security
interest in the Additional Collateral, if any, described on Schedule A
attached hereto and made a part hereof. The Specific Collateral and
Additional Collateral (if any) are each, and for all purposes of the
Agreement and this Supplemental Security Agreement shall be deemed to be, a
part of and included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and warranties set forth in Sections 4(i) and (j) of the
Agreement are true and correct as of the date hereof with respect to the
Specific Collateral and any Additional Collateral; (b) confirms its
covenants and agreements in Section 5 of the Agreement; (c) represents and
warrants that the principal amount of the Loan
1
<PAGE>
made this date and evidenced by Debtor's Note specified above is not
greater than the amount of the aggregate Cost of the item(s) of equipment
described on said Schedule A hereto and financed by Lender with the
proceeds of said Loan; (d) covenants and agrees to reimburse Lender
promptly upon demand for an amount equal to the original principal amount
of said Note plus accrued and unpaid interest thereon if Debtor's
representations and warranties in Section 4(i) and (j) of the Agreement are
untrue in whole or in part with respect to the Specific Collateral or any
Additional Collateral for any reason other than the failure of Lender to
file UCC-1 financing statements against Debtor; and (e) represents and
warrants that the Equipment has been delivered to it, duly assembled and in
good working order on December 31, 1993 and is located at See Attachment
"A".
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 31st day of December, 1993.
U.S. LONG DISTANCE, INC.
(Debtor)
By: /s/ Kelly E. Simmons
---------------------------------------------
Title: VP
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By: /s/ DAVID A. MEEHAN
---------------------------------------------
Title: Senior Vice President
2
<PAGE>
SCHEDULE A
[Equipment Discription]
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. 1 dated December 31, 1993
This Supplemental Security Agreement is executed and delivered by U.S.
Long Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT FINANCIAL CORPORATION ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the Notes
and other Obligations, Debtor has, under the Agreement, granted to Lender a
continuing security interest in the Collateral. Without limiting the
generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral (hereinafter defined).
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $828,218.40, and to further secure the payment
and performance by Debtor of all other Obligations, Debtor hereby grants to
Lender (a) a continuing first priority security interest in the items of
equipment described on Schedule A attached hereto and made a part hereof,
including all accessories, parts, repairs, replacements, substitutions,
attachments, modifications, additions, improvements, upgrades and
accessions to, of or for such items of equipment, all of Debtor's right,
title and interest therein, and all Proceeds thereof and therefrom
(collectively the "Specific Collateral"), and (b) a security interest in
the Additional Collateral, if any, described on Schedule A attached hereto
and made a part hereof. The Specific Collateral and Additional Collateral
(if any) are each, and for all purposes of the Agreement and this
Supplemental Security Agreement shall be deemed to be, a part of and
included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and warranties set forth in Sections 4(i) and (j) of the
Agreement are true and correct as of the date hereof with respect to the
Specific Collateral and any Additional Collateral; (b) confirms its
covenants and agreements in Section 5 of the Agreement; (c) represents and
warrants that the principal amount of the Loan made this date and evidenced
by Debtor's Note specified above is
1
<PAGE>
not greater than the amount of the aggregate Cost of the item(s) of
equipment described on said Schedule A hereto and financed by Lender with
the proceeds of said Loan; (d) covenants and agrees to reimburse Lender
promptly upon demand for an amount equal to the original principal amount
of said Note plus accrued and unpaid interest thereon if Debtor's
representations and warranties in Section 4(i) and (j) of the Agreement are
untrue in whole or in part with respect to the Specific Collateral or any
Additional Collateral for any reason other than the failure of Lender to
file UCC-1 financing statements against Debtor; and (e) represents and
warrants that the Equipment has been delivered to it, duly assembled and
in good working order on March 31, 1994 and is located at See Attachment A.
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 31st day of December, 1993.
U.S. LONG DISTANCE, INC.
(Debtor)
By: /s/ Kelly E. Simmons
---------------------------------------------
Title: VP
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By: NAME ILLEGIBLE
---------------------------------------------
Title: Vice President
2
<PAGE>
SCHEDULE A
[Equipment Discription]
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. 2 dated December 31, 1993
This Supplemental Security Agreement is executed and delivered by U.S.
Long Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT FINANCIAL CORPORATION ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the Notes
and other Obligations, Debtor has, under the Agreement, granted to Lender a
continuing security interest in the Collateral. Without limiting the
generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral (hereinafter defined).
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $183,173.02, and to further secure the payment
and performance by Debtor of all other Obligations, Debtor hereby grants to
Lender (a) a continuing first priority security interest in the items of
equipment described on Schedule A attached hereto and made a part hereof,
including all accessories, parts, repairs, replacements, substitutions,
attachments, modifications, additions, improvements, upgrades and
accessions to, of or for such items of equipment, all of Debtor's right,
title and interest therein, and all Proceeds thereof and therefrom
(collectively the "Specific Collateral"), and (b) a security interest in
the Additional Collateral, if any, described on Schedule A attached hereto
and made a part hereof. The Specific Collateral and Additional Collateral
(if any) are each, and for all purposes of the Agreement and this
Supplemental Security Agreement shall be deemed to be, a part of and
included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and warranties set forth in Sections 4(i) and (j) of the
Agreement are true and correct as of the date hereof with respect to the
Specific Collateral and any Additional Collateral; (b) confirms its
covenants and agreements in Section 5 of the Agreement; (c) represents and
warrants that the principal amount of the Loan made this date and evidenced
by Debtor's Note specified above is
1
<PAGE>
not greater than the amount of the aggregate Cost of the item(s) of
equipment described on said Schedule A hereto and financed by Lender with
the proceeds of said Loan; (d) covenants and agrees to reimburse Lender
promptly upon demand for an amount equal to the original principal amount
of said Note plus accrued and unpaid interest thereon if Debtor's
representations and warranties in Section 4(i) and (j) of the Agreement are
untrue in whole or in part with respect to the Specific Collateral or any
Additional Collateral for any reason other than the failure of Lender to
file UCC-1 financing statements against Debtor; and (e) represents and
warrants that the Equipment has been delivered to it, duly assembled and in
good working order on March 31, 1994 and is located at Zero Plus Dialing,
Inc., San Antonio, Texas, 78216.
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 28th day of April, 1994.
U.S. LONG DISTANCE, INC.
(Debtor)
By: /s/ Kelly E. Simmons
---------------------------------------------
Title: VP & Treasurer
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By: NAME ILLEGIBLE
---------------------------------------------
Title: Vice President
2
<PAGE>
SCHEDULE A
[Equipment Discription]
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. 3 dated March 1, 1995
This Supplemental Security Agreement is executed and delivered by U.S.
Long Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT FINANCIAL CORPORATION ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the Notes
and other Obligations, Debtor has, under the Agreement, granted to Lender a
continuing security interest in the Collateral. Without limiting the
generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral as described on the Schedule A attached hereto and made a part
hereof.
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $2,685,140.47, and to further secure the
payment and performance by Debtor of all other Obligations, Debtor hereby
grants to Lender (a) a continuing first priority security interest in the
items of equipment described on Schedule A attached hereto and made a part
hereof, including all accessories, parts, repairs, replacements,
substitutions, attachments, modifications, additions, improvements,
upgrades and accessions to, of or for such items of equipment, all of
Debtor's right, title and interest therein, and all Proceeds thereof and
therefrom (collectively the "Specific Collateral"), and (b) a security
interest in the Additional Collateral, if any, described on Schedule A
attached hereto and made a part hereof. The Specific Collateral and
Additional Collateral (if any) are each, and for all purposes of the
Agreement and this Supplemental Security Agreement shall be deemed to be, a
part of and included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and
1
<PAGE>
warranties set forth in Sections 4(i) and (j) of the Agreement are true and
correct as of the date hereof with respect to the Specific Collateral and
any Additional Collateral; (b) confirms its covenants and agreements in
Section 5 of the Agreement; (c) represents and warrants that the principal
amount of the Loan made this date and evidenced by Debtor's Note specified
above is not greater than the amount of the aggregate Cost of the item(s)
of equipment described on said Schedule A hereto and financed by Lender
with the proceeds of said Loan; (d) covenants and agrees to reimburse
Lender promptly upon demand for an amount equal to the original principal
amount of said Note plus accrued and unpaid interest thereon if Debtor's
representations and warranties in Section 4(i) and (j) of the Agreement are
untrue in whole or in part with respect to the Specific Collateral or any
Additional Collateral for any reason other than the failure of Lender to
file UCC-1 financing statements against Debtor; and (e) represents and
warrants that the Equipment has been delivered to it, duly assembled and in
good working order on December 31, 1993 and is located at the locations
listed on the Schedule A attached hereto and made a part hereof.
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 24 day of March, 1995.
U.S. LONG DISTANCE, INC.
(Debtor)
By: /s/ MICHAEL E. HIGGINS
---------------------------------------------
Title: Senior V.P. and CFO
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By: NAME ILLEGIBLE
---------------------------------------------
Title: Senior Vice President
2
<PAGE>
PROMISSORY NOTE
$1,729,659.93 June 28, 1995
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. (""Debtor"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite
300, San Antonio, Texas 78216 hereby promises to pay to the order of BOT
Financial Corporation ("Lender") at its office at 125 Summer Street, Boston,
Massachusetts 02110 (or as Lender may otherwise designate) the principal sum
of One Million Seven Hundred Twenty Nine Thousand Six Hundred Fifty Nine and
93/100 Dollars ($1,729,659.93), together with interest on the principal
balance from time to time remaining unpaid at the rate of 7.63% per annum
(computed on the basis of a 360-day year of twelve 30-day months). Principal
and interest shall be payable in sixty (60) consecutive equal monthly
installments of Thirty-Four Thousand, Seven Hundred Sixty-Six Dollars and
16/100 Dollars ($34,764.16) each (except that the last installment shall be
in an amount sufficient to discharge in full the accrued interest on, and the
entire unpaid principal of, this Note), with each installment to be due and
payable on the first day of each month, in arrears, commencing on August 1,
1995. Each such installment shall be applied first to the payment of any
unpaid interest on the principal sum and then to the payment of principal.
After the maturity of any installment of principal, such installment shall
bear interest at a rate per annum equal to the higher of two percent (2%)
over the Prime Rate or fifteen percent (15%) (but not to exceed the highest
rate permitted by applicable law) until such installment is paid in full. Any
payment received after the maturity of any installment of principal shall be
applied first to the payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender an
installment of interest in an amount equal to the sum obtained by
multiplying $366.69 by the number of days then remaining in the calendar
month in which this Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and
Security Agreement dated as of December 31, 1993 between Debtor and Lender
(herein, as the same may from time to time be amended, supplemented or
otherwise modified, called the "Agreement"), is secured by, and entitled to
the benefits of, the Agreement and a Supplemental Security Agreement of even
date herewith between Debtor and Lender, and is subject to prepayment only as
provided in the Agreement.
<PAGE>
Debtor hereby waives presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by
the holder of this Note.
Upon the occurrence of any one or more of the Events of Default
specified in the Agreement, the amounts then remaining unpaid on this Note
together with any interest accrued may be declared to be (or, with respect to
certain Events of Default, automatically shall become) immediately due and
payable as provided therein.
In the event that any holder shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due
and payable, in addition to the unpaid balance hereof, all late charges, and
all costs and expenses of such action, including attorneys' fees. Debtor
hereby waives the right to interpose any setoff, counterclaim or defense of
any nature or description whatsoever to the obligations evidenced by this
Note.
Debtor agrees that its liability hereunder is absolute and
unconditional without regard to the liability of any other party and that no
delay on the part of the holder hereof in exercising any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right hereunder preclude other or further exercise
thereof or the exercise of any other power or right. This Note is not
assignable by Debtor, but may be assigned by Lender or any other holder
hereof.
All capitalized terms used in this Note which are not otherwise defined
in this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ Kelly E. Simmons
---------------------------------
Title: Vice President
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. 3 dated March 1, 1995
This Supplemental Security Agreement is executed and delivered by U.S.
Long Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT FINANCIAL CORPORATION ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the Notes
and other Obligations, Debtor has, under the Agreement, granted to Lender a
continuing security interest in the Collateral. Without limiting the
generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral as described on the Schedule A attached hereto and made a part
hereof.
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $1,729,659.93, and to further secure the
payment and performance by Debtor of all other Obligations, Debtor hereby
grants to Lender (a) a continuing first priority security interest in the
items of equipment described on Schedule A attached here to and made a part
hereof, including all accessories, parts, repairs, replacements,
substitutions, attachments, modifications, additions, improvements,
upgrades and accessions to, of or for such items of equipment, all of
Debtor's right, title and interest therein, and all Proceeds thereof and
therefrom (collectively the "Specific Collateral"), and (b) a security
interest in the Additional Collateral, if any, described on Schedule A
attached hereto and made a part hereof. The Specific Collateral and
Additional Collateral (if any) are each, and for all purposes of the
Agreement and this Supplemental Security Agreement shall be deemed to be,
a part of and included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and
1
<PAGE>
warranties set forth in Sections 4(i) and (j) of the Agreement are true
and correct as of the date hereof with respect to the Specific Collateral
and any Additional Collateral; (b) confirms its covenants and agreements in
Section 5 of the Agreement; (c) represents and warrants that the principal
amount of the Loan made this date and evidenced by Debtor's Note specified
above is not greater than the amount of the aggregate Cost of the item(s)
of equipment described on said Schedule A hereto and financed by Lender
with the proceeds of said Loan; (d) covenants and agrees to reimburse
Lender promptly upon demand for an amount equal to the original principal
amount of said Note plus accrued and unpaid interest thereon if Debtor's
representations and warranties in Section 4(i) and (j) of the Agreement are
untrue in whole or in part with respect to the Specific Collateral or any
Additional Collateral for any reason other than the failure of Lender to
file UCC-1 financing statements against Debtor; and (e) represents and
warrants that the Equipment has been delivered to it, duly assembled and in
good working order on December 31, 1993 and is located at the locations
listed on the Schedule A attached hereto and made a part hereof.
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 28 day of June, 1995.
U.S. LONG DISTANCE, INC.
(Debtor)
By: /s/ Kelly E. Simmons
---------------------------------------------
Title: VP
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By: NAME ILLEGIBLE
---------------------------------------------
Title: Vice President
2
<PAGE>
SCHEDULE A
[Equipment Discription]
<PAGE>
PROMISSORY NOTE
$1,286,653.37 September 29, 1995
FOR VALUE RECEIVED, U.S. LONG DISTANCE, INC. ("Debtor"), a Delaware
corporation, with its principal place of business at 9311 San Pedro, Suite
300, San Antonio, Texas 78216 hereby promises to pay to the order of BOT
Financial Corporation ("Lender") at its office at 125 Summer Street,
Boston, Massachusetts 02110 (or as Lender may otherwise designate) the
principal sum of One Million Two Hundred Eighty Six Thousand Six Hundred
Fifty-Three and 32/100 Dollars ($1,286,653.37), together with interest on
the principal balance from time to time remaining unpaid at the rate of
7.76% per annum (computed on the basis of a 360-day year of twelve 30-day
months). Principal and interest shall be payable in sixty (60) consecutive
equal monthly installments of Twenty-Five Thousand, Nine Hundred Forty-One
and 51 /100 Dollars ($25,941.51) each (except that the last installment
shall be in an amount sufficient to discharge in full the accrued interest
on, and the entire unpaid principal of, this Note), with each installment
to be due and payable on the first day of each month, in arrears,
commencing on November 1, 1995. Each such installment shall be applied
first to the payment of any unpaid interest on the principal sum and then
to the payment of principal. After the maturity of any installment of
principal, such installment shall bear interest at a rate per annum equal
to the higher of two percent (2%) over the Prime Rate or fifteen percent
(15%) (but not to exceed the highest rate permitted by applicable law)
until such installment is paid in full. Any payment received after the
maturity of any installment of principal shall be applied first to the
payment of interest on said principal.
If this Note is dated other than the first day of a calendar month,
Debtor shall, on the first day of the next succeeding month, pay to Lender
an installment of interest in an amount equal to the sum obtained by
multiplying $277.92 by the number of days then remaining in the calendar
month in which this Note is dated, including the date hereof.
This Note is one of the Notes referred to in the Master Loan and
Security Agreement dated as of December 31, 1993 between Debtor and Lender
(herein, as the same may from time to time be amended, supplemented or
otherwise modified, called the "Agreement") is secured by, and entitled
to the benefits of, the Agreement and a Supplemental Security Agreement of
even date herewith between Debtor and Lender, and is subject to prepayment
only as provided in the Agreement.
<PAGE>
Debtor hereby waives presentment, demand for payment, notice of
dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by
the holder of this Note.
Upon the occurrence of any one or more of the Events of Default
specified in the Agreement, the amounts then remaining unpaid on this Note
together with any interest accrued may be declared to be (or, with respect to
certain Events of Default, automatically shall become) immediately due and
payable as provided therein.
In the event that any holder shall institute any action for the
enforcement or the collection of this Note, there shall be immediately due
and payable, in addition to the unpaid balance hereof, all late charges, and
all costs and expenses of such action, including attorneys' fees. Debtor
hereby waives the right to interpose any setoff, counterclaim or defense of
any nature or description whatsoever to the obligations evidenced by this
Note.
Debtor agrees that its liability hereunder is absolute and unconditional
without regard to the liability of any other party and that no delay on the
part of the holder hereof in exercising any power or right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof or the
exercise of any other power or right. This Note is not assignable by Debtor,
but may be assigned by Lender or any other holder hereof.
All capitalized terms used in this Note which are not otherwise defined
in this Note shall have the respective meanings given to such terms in the
Agreement.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts.
U.S. LONG DISTANCE, INC.
By: /s/ Kelly E. Simmons
----------------------------------
Title: VP
<PAGE>
SUPPLEMENTAL SECURITY AGREEMENT
Relating to Loan Schedule No. Four dated September 14, 1995
This Supplemental Security Agreement is executed and delivered by U.S. Long
Distance, Inc. ("Debtor") pursuant to the terms of a Master Loan and
Security Agreement (the "Agreement") dated as of December 31, 1993 between
Debtor and BOT Financial Corporation ("Lender"). All capitalized terms
used herein which are not otherwise defined herein shall have the
respective meanings given to such terms in the Agreement.
In order to provide security for the payment by Debtor of the Notes and
other Obligations, Debtor has, under the Agreement, granted to Lender a
continuing security interest in the Collateral. Without limiting the
generality of said grant, Debtor intends by this Supplemental Security
Agreement to grant to Lender a continuing security interest in the Specific
Collateral (hereinafter defined).
1. To further secure the payment by Debtor of all installments of
principal and interest on Debtor's Note of even date herewith in the
original principal amount of $1,286,653.37, and to further secure the
payment and performance by Debtor of all other Obligations, Debtor hereby
grants to Lender (a) a continuing first priority security interest in the
items of equipment described on Schedule A attached hereto and made a part
hereof, including all accessories, parts, repairs, replacements,
substitutions, attachments, modifications, additions, improvements,
upgrades and accessions to, of or for such items of equipment, all of
Debtor's right, title and interest therein, and all Proceeds thereof and
therefrom (collectively the "Specific Collateral"), and (b) a security
interest in the Additional Collateral, if any, described on Schedule A
attached hereto and made a part hereof. The Specific Collateral and
Additional Collateral (if any) are each, and for all purposes of the
Agreement and this Supplemental Security Agreement shall be deemed to be, a
part of and included in the Collateral.
2. Debtor hereby (a) affirms that the representations and warranties
set forth in Section 4 of the Agreement are true and correct as of the date
hereof and, without limiting the generality of the foregoing, that the
representations and warranties set forth in Sections 4(i) and (j) of the
Agreement are true and correct as of the date hereof with respect to the
-1-
<PAGE>
Specific Collateral and any Additional Collateral; (b) confirms its
covenants and agreements in Section 5 of the Agreement; (c) represents and
warrants that the principal amount of the Loan made this date and evidenced
by Debtor's Note specified above is not greater than the amount of the
aggregate Cost of the item(s) of equipment described on said Schedule A
hereto and financed by Lender with the proceeds of said Loan; (d) covenants
and agrees to reimburse Lender promptly upon demand for an amount equal to
the original principal amount of said Note plus accrued and unpaid interest
thereon if Debtor's representations and warranties in Section 4(i) and (j)
of the Agreement are untrue in whole or in part with respect to the
Specific Collateral or any Additional Collateral for any reason other than
the failure of Lender to file UCC-1 financing statements against Debtor;
and (e) represents and warrants that the Equipment has been delivered to
it, duly assembled and in good working order on 9/29/95, 19__ and is located
at the various locations indicated on the Schedule A attached hereto add
made a part hereof.
3. This Supplemental Security Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, Debtor has executed and delivered this
Supplemental Security Agreement this 29th day of September, 1995.
U.S. Long Distance, Inc.
By: NAME ILLEGIBLE
-------------------------------
Name: NAME ILLEGIBLE
-------------------------------
Title: VP
-------------------------------
Accepted and Agreed to:
BOT FINANCIAL CORPORATION
(Lender)
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
-2-
<PAGE>
SCHEDULE A
[Equipment Discription]
<PAGE>
CONTINUING CORPORATE GUARANTY
In consideration of, and as an inducement for BTM CAPITAL CORPORATION
(formerly known as BOT Financial Corporation) (hereinafter called
"Obligee") to consent to the separation of certain billing and
telecommunications groups of U.S. Long Distance Corp. ("USLD") guarantor
under that certain Continuing Corporate Guaranty dated as of December 31,
1993 in favor of Obligee, executed pursuant to certain Master Loan and
Security Agreement dated as of December 31, 1993 (the "Loan Agreement")
between Obligee and U.S. Long Distance, Inc., into two new subsidiaries,
the undersigned, BILLING INFORMATION CONCEPTS, INC., a Delaware corporation
("Guarantor") with its principal place of business at 9311 San Pedro, Suite
200, San Antonio, Texas 78216, does hereby unconditionally and irrevocably
guarantee to Obligee and its successors and assigns, without offset or
deduction, (i) the prompt payment when due, whether by acceleration or
otherwise of all payments of the principal of and interest on the
promissory notes from time to time executed by Obligor (the "Notes"), and
all other amounts whatsoever now or hereafter owing and payable by Obligor
under, arising out of or in connection with the Loan Agreement, any Notes,
any Loan schedule or Supplemental Security Agreement, the guaranty under
this clause (i) constituting hereby a continuing guaranty of payment and
not of collection, and (ii) that Obligor will perform punctually and
faithfully each and every duty, agreement, covenant and obligation of
Obligor under or pursuant to the Loan Agreement, the Notes and each Loan
Schedule and Supplemental Security Agreement. Guarantor does hereby agree
that in the event that Obligor does not or is unable to pay or perform in
accordance with the terms of any of the Notes and/or the Loan Agreement or
any Loan Schedule or Supplemental Security Agreement for any reason
(including, without limitation, the liquidation, dissolution, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other
similar proceedings affecting the status, existence, assets or obligations
of, Obligor) it will pay the installments of principal and interest (and
premium, if any) due on such Notes and all other amounts whatsoever due
under or pursuant to the Loan Agreement or any Loan Schedule or
Supplemental Security Agreement, or otherwise provide for and bring about
promptly when due such payment and the performance of such duties,
agreements, covenants and obligations of Obligor. All of the liabilities
and obligations of "Obligor hereby guaranteed are hereinafter collectively
referred to as the "Obligations". Without limiting the generality of clause
(i) of this paragraph, Guarantor specifically agrees that it shall not be
necessary or required, and that Guarantor shall not be entitled to require,
that Obligee or any successor or assignee of obligee, file suit or
<PAGE>
proceed to obtain or assert a claim for personal judgment against Obligor
for the Obligations or make any effort at collection of the Obligations
from Obligor or foreclose against or seek to realize upon any security now
or hereafter existing for the Obligations or file suit or proceed to obtain
or assert a claim for personal judgment against any other party liable for
the Obligations or make any effort at collection of the Obligations from
any such other party or exercise or assert any other right or remedy to
which any of them is or may be entitled in connection with the Obligations
or any security or other guaranty therefor or assert or file any claim
against the assets of Obligor or other person liable for the Obligations,
or any part thereof, before or as a condition of enforcing the liability
of Guarantor under this Guaranty or requiring payment of said Obligations
by Guarantor hereunder, or at any time thereafter. Guarantor agrees, upon
demand of Obligee to either, at Obligee's option, pay directly, or
reimburse Obligee for the payment of, all costs, fees and expenses,
including, without limitation, attorneys' fees, incurred by Obligee in the
enforcement or attempted enforcement of any of its rights hereunder.
Guarantor specifically agrees that it shall not be necessary or
required in order to enforce the obligations of Guarantor hereunder that
there be and Guarantor specifically waives: notice of the acceptance of
this Guaranty and of the performance or nonperformance of the any of the
Obligations; demand of payment from Obligor except to the extent required
by the Notes and/or Loan Agreement; presentment for payment upon Obligor or
the making of any protest; notice of the amount of the Obligations
outstanding at any time; and notice of nonpayment or failure to perform on
the part of obligor. Guarantor further waives all defenses, offsets and
counterclaims which Guarantor may at any time have to the payment or
performance of the Obligations. The obligations of Guarantor under this
guaranty shall be absolute and unconditional and shall remain in full force
and effect until Obligor shall have fully and satisfactorily discharged all
of the Obligations and shall not be released or discharged by reason of:
(i) any waiver by Obligee, or its successors or assigns, of the performance
or observance by Obligor of any of the agreements, covenants, terms or
conditions contained in the Notes and/or Loan Agreement or any Loan
Schedule or Supplemental Security Agreement, or of any Event of Default
under the Loan Agreement; (ii) the extension of the time for payment by
Obligor of any payment of principal and interest due on the Notes or other
sums or any part thereof owing or payable under or pursuant to the Notes
and/or the Loan Agreement or any Loan schedule or Supplemental Security
Agreement, or of the time for performance by Obligor of any other
obligations under or pursuant to the Notes and/or the Loan Agreement or any
Loan Schedule or Supplemental Security Agreement; (iii) any failure,
omission or delay of Obligee or its successors or assigns to enforce,
assert or exercise any right, power or remedy conferred
2
<PAGE>
on Obligee under or pursuant to the Notes and/or Loan Agreement or any Loan
Schedule or Supplemental Security Agreement, or any action on the part of
Obligee or its successors or assigns granting any extension or indulgence
in any form to Obligor; (vi) any sale by Obligor, or its successors or
assigns, of the Equipment or any Item thereof; (v) any compromise
settlement, release, renewal, extension, indulgence, change in or waiver or
modification of, any of the Obligations or the release or discharge of
Obligor from the performance or observance of any of the Obligations by
operation of law; (vi) any change in, waiver or modification of, or
amendment to, any of the terms or provisions of the Notes and/or Loan
Agreement or any Loan Schedule or Supplemental Security Agreement; (vii)
any consolidation or merger of Obligor, or any leveraged buy-out or other
form of corporate reorganization that Obligor may become the subject of or
become engaged in, whether or not permitted under the terms of the Loan
Agreement or otherwise, or the sale, transfer or other disposition by
Obligor or all or substantially all of the assets and liabilities of
Obligor; (viii) any change in the ownership of any shares of capital stock
of Obligor; (ix) the voluntary or involuntary liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of
Obligor, or any other similar proceeding affecting the status, existence,
assets or obligations of Obligor; (x) any fictitiousness, incorrectness,
invalidity or unenforceability, for any reason, of the Notes and/or Loan
Agreement or any Loan Schedule or Supplemental Security Agreement, or of
any provision thereof, or of any of the obligations; (xi) any transfer or
assignment by Obligor of any of Obligor's rights or obligations under the
Loan Agreement or Notes or any Loan Schedule or Supplemental Security
Agreement, or any use of the Collateral (as defined in the Loan Agreement)
or any part thereof by any person or party, or any sale, transfer,
agreement lease, mortgage, pledge, hypothecation or further encumbering of
the Collateral or any part thereof by Obligor; or (xiii) any defect in
Obligor's title to the Equipment or any item thereof; or (xiv) any other
circumstance that might otherwise constitute a legal or equitable discharge
of Obligor (including a discharge in bankruptcy) or of Guarantor.
Guarantor hereby represents and warrants to Obligee and its successors
and assigns that: (a) Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation
set forth, above and will take such steps as may be necessary to preserve
its corporate existence; Guarantor has the power and authority to execute
and perform this Guaranty and has duly authorized the execution, delivery
and performance of this Guaranty; (b) Guarantor is the owner of, and so
long as any of the Obligations remain to be paid or performed Guarantor
will continue to be the owner of, all of the issued and outstanding capital
stock of obligor; (c) no approval is required
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from any regulatory body, board, authority or commission, nor from any
other administrative or governmental agency, nor from any other person,
firm or corporation, with respect to the execution of this Guaranty by
Guarantor and the payment and performance by Guarantor of all of
Guarantor's obligations hereunder; (d) this Guaranty constitutes the legal,
valid and binding obligations of Guarantor, enforceable in accordance with
its terms, and the execution, delivery and performance of the same by
Guarantor will not violate Guarantor's Charter, Certificate of
Incorporation, or By-Laws, or any provision of law, any order of any court
or other agency of government, or any indenture, agreement or other
instrument to which Guarantor is a party, or by or under which Guarantor or
any of Guarantor's property is bound, or be in conflict with, result in a
breach of, or constitute (with due notice and/or lapse of time) a default
under, any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of Guarantor's property or assets; (e) all balance
sheets, statements of profit and loss and other financial data that have
been delivered to obligee with respect to Guarantor (i) are complete and
correct in all material respects, (ii) accurately present the consolidated
financial condition of Guarantor on the dates for which, and the results of
its operations for the periods for which, the same have been furnished, and
(iii) have been certified by Guarantor's independent certified public
accountants, in the case of the audited financial statements, and by
Guarantor's chief financial officer, in the case of any unaudited financial
statements, and have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the period(s)
covered thereby; all balance sheets disclose all known material
liabilities, direct and contingent, as of their respective dates; and there
has been no change in the condition of Guarantor, financial or otherwise,
since the date of the most recent financial statements delivered to Obligee
with respect to Guarantor, other than changes in the ordinary course of
business, none of which changes has been materially adverse; (f) there are
no suits or proceedings pending, or, to the knowledge of Guarantor
threatened, in any court or before any regulatory commission, board or
other administrative governmental agency against or affecting Guarantor,
which, if decided adversely to Guarantor, will have a material adverse
effect on the financial condition or business of Guarantor; (g) Guarantor
will furnish Obligee (i) as soon as available, in any event within 120 days
after the last day of each fiscal year of Guarantor, a copy of the
consolidated balance sheet of Guarantor and its consolidated subsidiaries
as of the end of such fiscal years, and related consolidated statements of
income and retained earnings of Guarantor and its consolidated subsidiaries
for such fiscal year, certified by an independent certified public
accounting firm of recognized standing, each on a comparative basis with
corresponding statements for the prior fiscal year, and a copy of
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Guarantor's form 10-K if applicable filed with the Securities and Exchange
Commission for such fiscal year, (ii) within 45 days after the last day of
each fiscal quarter of Guarantor (except the last such fiscal quarter), a
copy of the balance sheet as of the end of each quarter, and statement of
income and retained earnings of Guarantor and its consolidated subsidiaries
covering the fiscal year to date, each on a comparative basis with the
corresponding period of the prior year, all in reasonable detail and
certified by the treasurer or principal financial officer of Guarantor,
together with a copy of Guarantor's form 10Q, if applicable, filed with the
Securities and Exchange Commission for such quarterly period, (iii)
contemporaneously with its transmittal to each stockholder of Guarantor and
to the Securities and Exchange Commission, all such other financial
statements and reports as Guarantor shall send to its stockholders and to
the Securities and Exchange Commission, (iv) as soon as available to
Guarantor, the notice of any adjustment resulting from any audit of the
books and/or records of Guarantor by any taxing authority having
jurisdiction over Guarantor, and (v) such additional financial information
as Obligee may reasonably request concerning Guarantor; and (h) Guarantor
and its consolidated subsidiaries have filed all United States income tax
returns which are required to be filed and have paid, or made provisions
for the payment of, all taxes which have or may become due pursuant to said
returns or pursuant to any assessment received by Guarantor or such
consolidated subsidiaries, except such taxes, if any, as are being
contested in good faith and as to which adequate reserves have been
provided; and (i) Guarantor has not failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the ownership
of its property or to the conduct of its business the existence or
violation or failure of which, individually or in the aggregate, materially
adversely affects or might in the future (so far as Guarantor now believes)
materially adversely affect the business, operations, affairs, properties
or condition of Guarantor and its subsidiaries on a consolidated basis.
Notwithstanding any payment or payments made by Guarantor hereunder,
Guarantor shall not be entitled to be subrogated to any of Obligee's rights
against Obligor or the Collateral (or any part thereof), and Guarantor
hereby waives any right of subrogation, reimbursement or indemnity
whatsoever against Obligor as a result of any payment or performance by
Guarantor hereunder.
This Guaranty (a) may be assigned by Obligee, without the consent of
Guarantor, but may not be assigned by Guarantor, and in the event of any
such assignment each of Obligee's successors or assigns shall have and may
enforce against Guarantor all of the rights of Obligee hereunder with
respect to the guaranty of the payment and performance of such of the
Obligations as are covered by such assignment; (b) may be executed in
several
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<PAGE>
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument; (c) shall inure to
the benefit of Obligee, and its successors and assigns, and be binding upon
the successors and, subject to the restrictions of clause (a) of this
paragraph, assigns of Guarantor; and (d) may be amended or modified only by
an instrument in writing, signed by the duly authorized representative of
the party to be bound.
Guarantor agrees that at Obligee's sole election any suit, action or
proceeding brought by Obligee against Guarantor in connection with or
arising out of this Guaranty may be brought in any federal or state court
located in the Commonwealth of Massachusetts, and Guarantor waives personal
service of all process upon it and consents that service of process may be
made by mail or messenger directed to it at its address set forth above and
that service so made shall be deemed to be completed upon the earlier of
actual receipt or three (3) days after the same shall have been posted to
Guarantor's said address. Nothing herein contained shall affect Obligee's
right to serve legal process in any other manner permitted by law or to
bring any suit, action or proceeding against Guarantor or its property in
the courts of any other jurisdiction. This Guaranty shall in all respects
be governed by, and construed in accordance with the laws of the
Commonwealth of Massachusetts, including all matters of construction,
validity and performance.
Any provision of this Guaranty which is prohibited or unenforceable in
any jurisdiction (including, without limitation, by reason of any change in
the Obligations or any event described in the second paragraph hereof)
shall, as to such jurisdiction, be ineffective to the extent of such
unenforceability without invalidating or diminishing Obligee's rights under
the remaining provisions hereof or Obligee's rights hereunder before giving
effect to such change in the Obligations or such event, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
All capitalized terms used herein which are not otherwise defined
herein shall have the meanings given to such terms in the Loan Agreement.
Guarantor hereby acknowledges receipt of a copy of the Loan Agreement, as
executed by Obligor and Obligee.
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IN WITNESS WHEREOF, Guarantor has caused the Guaranty to be executed
by its duly authorized officer this ___ day of __________________ , 1996.
BILLING INFORMATION CONCEPTS CORP.
By:
-------------------------------------
Title:
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OFFICE BUILDING LEASE AGREEMENT
LANDLORD: MEDICAL PLAZA PARTNERS, LTD.
TENANT: BILLING INFORMATION CONCEPTS, INC.
****
DATED: JULY 12, 1996
<PAGE>
TABLE OF CONTENTS
BASIC LEASE INFORMATION
I. PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. LEASE TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
III. BASIC RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
IV. EXPANSION OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
V. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . . 5
VI. RENEWAL OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
VII. TENANT'S PROPORTIONATE SHARE . . . . . . . . . . . . . . . . . . . . . 6
VIII. PERMITTED USE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IX. PARKING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
X. TENANT'S SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
OFFICE BUILDING LEASE AGREEMENT
1. DEFINITIONS AND BASIC PROVISIONS. . . . . . . . . . . . . . . 1
2. LEASE GRANT . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. LANDLORD'S OBLIGATIONS. . . . . . . . . . . . . . . . . . . . 2
5. BASIC RENTAL AND EXCESS BASIC COST. . . . . . . . . . . . . . 5
6. LEASEHOLD IMPROVEMENTS AND ALLOWANCES . . . . . . . . . . . . 11
7. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. TENANT'S REPAIRS AND ALTERATIONS. . . . . . . . . . . . . . . 12
9. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . 13
10. INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . 15
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12. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . 16
13. INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . 16
15. FIRE OR OTHER CASUALTY. . . . . . . . . . . . . . . . . . . . 17
16. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . 17
17. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
18. TENANT DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . 19
(a) EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 19
(b) REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 19
19. LANDLORD DEFAULTS . . . . . . . . . . . . . . . . . . . . . . 21
(a) EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 21
(b) REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 21
20. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . 21
21. MECHANIC'S LIENS. . . . . . . . . . . . . . . . . . . . . . . 22
22. NO SUBROGATION-LIABILITY INSURANCE. . . . . . . . . . . . . . 22
23. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . 23
24. CHANGE OF BUILDING NAME . . . . . . . . . . . . . . . . . . . 23
25. ENVIRONMENTAL PROVISIONS. . . . . . . . . . . . . . . . . . . 23
26. TENANT'S ADDITIONAL RIGHTS. . . . . . . . . . . . . . . . . . 25
27. ESTOPPEL CERTIFICATES . . . . . . . . . . . . . . . . . . . . 26
28. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
29. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . 27
30. SEPARABILITY. . . . . . . . . . . . . . . . . . . . . . . . . 27
31. AMENDMENTS; BINDING EFFECT. . . . . . . . . . . . . . . . . . 27
32. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . 27
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33. GENDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
34. ATTORNEYS FEES. . . . . . . . . . . . . . . . . . . . . . . . 27
35. PERSONAL LIABILITY. . . . . . . . . . . . . . . . . . . . . . 28
36. CERTAIN RIGHTS RESERVED BY LANDLORD . . . . . . . . . . . . . 28
37. NOTICE TO LENDER. . . . . . . . . . . . . . . . . . . . . . . 29
38. CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
39. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 29
40. LENDER APPROVAL . . . . . . . . . . . . . . . . . . . . . . . 30
41. EXHIBITS AND ATTACHMENTS. . . . . . . . . . . . . . . . . . . 30
EXHIBIT "A" DESCRIPTION OF LAND . . . . . . . . . . . . . . . . . . . . . 32
EXHIBIT "B" SITE PLAN (DESIGNATING COMMON AREAS, PARKING, ETC.) . . . . . 33
EXHIBIT "C" BOMA STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . 34
EXHIBIT "D" CONSTRUCTION RIDER . . . . . . . . . . . . . . . . . . . . . 35
EXHIBIT "E" TENANT'S SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBIT "F" CLEANING SPECIFICATIONS . . . . . . . . . . . . . . . . . . . 45
EXHIBIT "G-1" RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT "G-2" PARKING RULES . . . . . . . . . . . . . . . . . . . . . . . . 55
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BASIC LEASE INFORMATION
Lease Date: July 12, 1996
Tenant: BILLING INFORMATION CONCEPTS, INC., a Delaware corporation
Address of Tenant: 9311 San Pedro, Suite 400
San Antonio, Texas 78216
Address of Tenant
after occupancy: 7411 John Smith Drive, Suite ______
San Antonio, Texas 78240
Contact: Mr. Kelly E. Simmons, Senior Vice President -
Chief Financial Officer
Landlord: Medical Plaza Partners, Ltd.
Address of 100 N.E. Loop 410, Suite 1500
Landlord: San Antonio, Texas 78216
I.
PREMISES. The Premises includes all of floors 2, 3, 4, 5, 6, 7, 8, 9
and 15 of the building containing a total of 196,174 Rentable Square Feet
("Building"), situated at 7411 John Smith Drive, San Antonio, Texas, on the
land ("land") described in EXHIBIT A hereto. The Premises shall be leased by
Tenant in three (3) Phases as provided below:
PHASE I: Phase I of the Premises shall comprise floors 2 through
6, inclusive, containing 71,465 Rentable Square Feet.
PHASE II: Phase II of the Premises shall include floor 7 of the
Building, containing 14,641 Rentable Square Feet and floor 15 of the Building
containing 13,148 Rentable Square Feet.
PHASE III: Phase III of the Premises shall include floors 8 and 9
of the Building, containing 29,282 Rentable Square Feet. By written notice
to Landlord no later than August 1, 1997, Tenant shall also have the right to
elect to include floor 10 of the Building within Phase III, in which event
Phase III shall include floors 8 through 10, inclusive, and contain 43,923
rentable square feet.
The Premises also includes the non-exclusive right to use those portions
of the Building, the attached garage ("Garage"), and the surface parking lot
or lots situated on the land and/or across John Smith Drive from the Building
("Surface Parking Lot"), depicted as common areas on the site plan attached
hereto as EXHIBIT B and incorporated herein for all purposes (which common
areas may be changed from time-to-time by Landlord provided
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that any material changes will be made only with Tenant's prior approval,
which approval may not be unreasonably withheld), for the use and benefit of
all tenants of the Building, or as may otherwise be specifically provided for
in this Lease.
II.
LEASE TERM. The lease term ("Primary Term") as to the respective Phases
shall be as follows:
PHASE I: The Primary Term for Phase I shall commence on the date
(the "Commencement Date") described below and shall terminate on the last day
of the one hundred twentieth (120th) month following the Commencement Date
("Primary Term Expiration Date"):
(a) With regard to the 4th floor of the Building, the Commencement
Date shall be November 1, 1996, by which date Landlord shall have completed
the Tenant Improvements (defined in EXHIBIT D) to that floor and the Base
Building Improvements (defined in EXHIBIT D) to the extent necessary to
permit Tenant's occupancy and the 4th floor shall be ready for occupancy by
Tenant; and
(b) With regard to the remaining floors in Phase I, the
Commencement Date shall be the Completion Date as shown on EXHIBIT D attached
hereto and incorporated herein for all purposes, by which date the remaining
floors shall be ready for occupancy by Tenant.
Unless otherwise expressly provided herein, all references in this
Lease to the "Commencement Date" shall refer to the Commencement Date
referred to in SUBPARAGRAPH (b) of this ARTICLE II.
PHASE II: The Primary Term for the 15th floor of the Building shall
commence on February 1, 1997 and terminate on the Primary Term Expiration
Date. The Primary Term for the 7th floor of the Building shall commence on
June 1, 1997 and terminate on the Primary Term Expiration Date.
PHASE III: The Primary Term for Phase III shall commence on March
1, 1998 and shall terminate on the Primary Term Expiration Date.
III.
BASIC RENTAL.
(a) Beginning on the Commencement Date (as to Phase I), February
1, 1997 (as to floor 15) and on June 1, 1997 (as to floor 7), and continuing
throughout the remainder of the Primary Term until and including the Primary
Term Expiration Date, the Basic Rental for Phases I and II shall be the
product of $13.90 multiplied times the Rentable Square Feet (as defined
below) of Phases I and II of the Premises per year, payable in equal monthly
installments. Beginning on March 1, 1998 and continuing throughout the
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remainder of the Primary Term until and including the Primary Term Expiration
Date, the Basic Rental for Phase III of the Premises shall be $14.25
multiplied times the Rentable Square Feet of Phase III per year, payable in
equal monthly installments.
Notwithstanding the foregoing, if Landlord has not completed
the Tenant Improvements or the Base Building Improvements and the Premises
(or the floor thereof, if applicable) are not ready for occupancy by Tenant
by the dates described herein, then, for every day that construction is
delayed beyond such date, Tenant shall have one (1) day free rent with regard
to the portion of the Premises that is required to be complete but is
incomplete (if the construction that is delayed is the Tenant Improvements)
or with regard to all of the portions of the Premises which Tenant is not
able to occupy by the dates described herein (if the construction that is
delayed is the Base Building Improvements).
(b) In the event Tenant exercises its expansion option, its right
of first refusal and/or its renewal options (as hereinafter provided), the
Basic Rental payable by Tenant hereunder shall be increased to include the
Basic Rental payable for such expansion space and/or right of first refusal
space, or adjusted during the renewal option periods, all as hereinafter set
forth.
(c) As used herein, the term "Rentable Square Feet" of the
Premises shall mean the floor area of the Premises (or the applicable
portions thereof) calculated in accordance with the following schedule:
Total Rentable Total Usable
Floor Square Feet Square Feet
----- -------------- ------------
(Full Floor) (Full Floor)
1 9,583 8,738
2 12,901 11,764
3 14,641 13,351
4 14,641 13,351
5 14,641 13,351
6 14,641 13,351
7 14,641 13,351
8 14,641 13,351
9 14,641 13,351
10 14,641 13,351
11 14,641 13,351
12 14,641 13,351
14 14,132 12,886
15 13,148 11,989
------- -------
TOTAL 196,174 178,884
Landlord hereby represents and warrants that the above Rentable Square Feet
were measured substantially in accordance with the standards of the Building
Owners and
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Managers Association ("BOMA"), a copy of which BOMA standards are attached
hereto as EXHIBIT C incorporated herein for all purposes.
IV.
EXPANSION OPTION. Provided Tenant is not in default either at the time
of giving notice of Tenant's desire to expand or upon the Expansion Date (as
hereinafter defined), Tenant shall have the right to lease an additional full
floor of the Building not then leased to Tenant ("Expansion Space"), provided
that Tenant gives written notice ("Expansion Notice") to Landlord not later
than the first day of the sixty-sixth (66th) month following the Commencement
Date. In the event Tenant delivers the Expansion Notice to Landlord within
the time period provided, Landlord shall provide Tenant with an additional
full floor within the Building as selected by Landlord, provided that such
floor shall be contiguous to a floor of Tenant's then-existing Premises if a
contiguous floor is available or if through reasonable good faith efforts a
contiguous floor can be made available, and Tenant shall lease such Expansion
Space from Landlord, commencing as soon after the Expansion Date as the
Expansion Space is ready for Tenant's occupancy, but in no event later than
the first day of the seventy-sixth (76th) month following the Commencement
Date ("Expansion Date"). Landlord shall include a relocation clause in its
standard lease form for the Building and will use reasonable efforts to
include the clause in future Leases of space in the Building. Landlord shall
cause improvements to be made to the Expansion Space in substantially the
same manner as the Tenant Improvements and in accordance with the
Construction Rider attached hereto as EXHIBIT D. In the event that the
Expansion Space is in shell condition as of the date of the Expansion Notice,
Landlord shall perform the same Tenant Improvements to the Expansion Space as
Landlord provided in connection with Phase I, Phase II and Phase III of the
Premises. In the event the Expansion Space has been previously finished-out
for one or more tenants, Landlord shall pay the first $6.00 per Rentable
Square Feet of the Expansion Space for Tenant Improvements desired by Tenant,
with Tenant being responsible for the cost of any Tenant Improvements in
excess of such amount. Upon the Expansion Date, the Expansion Space shall
become a part of the Premises for all purposes under this Lease on the same
terms, conditions and provisions as the balance of the Premises, except that
the Basic Rental for the Expansion Space between the Expansion Date and the
Primary Term Expiration Date shall be an amount equal to the lesser of (i)
$15.50 multiplied times the Rentable Square Feet of the Expansion Space with
all terms and conditions remaining the same and inclusive of the Base Year
Basic Cost, or (ii) the "Market Rent" (as hereinafter defined) of the
Expansion Space inclusive of a new base year expense stop or the then current
equivalent thereof for the Expansion Space, based on the calendar year of the
Expansion Notice, notwithstanding that SECTION 5(b) of this Lease provides
for an expense stop based on the calendar year of 1997, but in no event will
the Basic Rental be less than $14.25 per square foot inclusive of the Base
Year Basic Cost based on 1997.
For purposes of this Lease, the phrase "Market Rent" shall mean the
prevailing rate per Rentable Square Feet per year being charged to tenants
for comparable, non-medical office space in the "Market Area" (as hereinafter
defined), taking into account all relevant factors including full market
concessions and allowances, as more particularly described herein. "Market
Rent" shall be based on the rent charged to tenants occupying
comparable-sized space as the Expansion Space at the time of the respective
Expansion Notice. The
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"Market Area" shall mean an area in San Antonio, Texas located on or west of
IH-10, on or east of Babcock Road, north of Loop 410, and south of Loop 1604.
Comparable buildings ("Comparable Buildings") shall be office buildings
situated within the Market Area constructed between the years of 1982 through
1988, inclusive. Landlord and Tenant agree to negotiate in good faith
concerning the Market Rent for the Expansion Space, but if Landlord and
Tenant cannot agree to the Market Rent within sixty (60) days following the
date of the Expansion Notice, upon either Landlord's or Tenant's request,
they shall each select a MAI (or successor designation of the American
Institute of Real Estate Appraisers) appraiser. The two appraisers shall
determine the Market Rent based on their analysis of Comparable Buildings.
If the two appraised values determined by the two appraisers are 5% or less
apart then the Market Rent shall be the average of the two appraised
values.If the two appraised values are more than five percent (5%) apart,
then both appraisers shall inform the parties that selected them and upon
direction by either Landlord or Tenant, the two appraisers shall select a
third MAI appraiser, and the Market Rent shall be the mean amount of the two
appraised values which are closest to each other, which value shall be
determined within one hundred twenty (120) days following the date of the
Expansion Notice. Landlord and Tenant shall each pay their own appraisers'
fees and shall equally divide the fees of the third appraiser.
V.
RIGHT OF FIRST REFUSAL. Beginning on the Commencement Date and
continuing throughout the Primary Term with respect to the first (1st) floor
of the Building, and beginning on the Commencement Date and continuing until
the expiration of the sixtieth (60th) month following the Commencement Date
with respect to the tenth (10th) floor of the Building (such periods being
referred to herein as the "RFR Periods"), Tenant shall have the right of
first refusal to lease all or a part of the 1st floor or the 10th floor, as
applicable ("RFR Premises"), in accordance with this ARTICLE V, provided that
Tenant is not in default at the time that Landlord would be required to
provide notice to Tenant as hereinafter provided. In the event that during
the RFR Period as to the respective floors (as provided above), Landlord
receives an offer to lease all or a part of the RFR Premises, which offer
Landlord desires to accept, Landlord shall provide written notice to Tenant
("RFR Notice") which RFR Notice shall include the basic terms, conditions and
provisions upon which Landlord desires to lease the portion of the RFR
Premises covered by the offer. Tenant shall have fifteen (15) days following
its receipt of the RFR Notice to deliver written notice to Landlord
exercising Tenant's right of first refusal to lease such RFR Premises on the
terms, conditions and provisions set forth in the RFR Notice. Failure by
Tenant to deliver such written notice to Landlord within such fifteen (15)
day period shall constitute Tenant's waiver of its right to lease the space
covered by the RFR Notice and Landlord shall be free to Lease the space
covered by the RFR Notice to third parties in accordance therewith, but
Tenant's right of first refusal shall survive and not terminate as to (i) any
future leases of all or a portion of the RFR Premises which Landlord may
desire to enter into during the applicable RFR Periods, and (ii) all or any
portion of the RFR Premises covered by a proposed lease which is not
consummated for any reason after Tenant waives its right to lease the space
covered by the RFR Notice.
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VI.
RENEWAL OPTIONS. Provided that Tenant is not in default either at the
time of giving notice of extension or upon commencement of a Renewal Term,
Tenant shall have the right to renew the term of this Lease ("Renewal
Options") for four (4) successive periods of five (5) years each ("Renewal
Terms") by giving written notice to Landlord no less than one hundred eighty
(180) days prior to the expiration of the Primary Term with respect to the
first Renewal Option or prior to the expiration of the then effective Renewal
Term with respect to the subsequent Renewal Options. The Renewal Terms shall
be on the same terms, conditions and provisions as apply to the Primary Term
of this Lease, with the exception that the Basic Rental during the first
Renewal Term shall be equal to the lesser of (i) the product of $15.50
multiplied times the Rentable Square Feet of the Premises, or (ii) the Market
Rent in effect as of the commencement date of the first Renewal Term; and the
Basic Rental during the subsequent Renewal Terms shall be the Market Rent in
effect as of the commencement date of each such subsequent Renewal Term. For
purposes of this ARTICLE VI, "Market Rent" shall have the same meaning as
defined in ARTICLE IV above, except that in addition to the other criteria
included within such definition, there shall also be a requirement that the
Basic Rental be based upon the rent charged to tenants occupying comparable
sized space as the Premises at the time of the respective Renewal Term.
Landlord and Tenant agree to negotiate in good faith concerning the Market
Rent for the Renewal Terms, but if Landlord and Tenant cannot agree to the
Market Rent for a Renewal Term within ninety (90) days before the
commencement date of such Renewal Term, upon either Landlord's or Tenant's
request, they shall each select an MAI (or successor designation of the
American Institute of Real Estate Appraisers) appraiser. The two appraisers
shall determine the Market Rent. If the two appraised values determined by
the two appraisers are five percent (5%) or less apart then the Market Rent
shall be the average of the two appraised values. If the two appraised
values are more than five percent (5%) apart, then both appraisers shall
inform the parties that selected them and upon direction by either Landlord
or Tenant, the appraisers shall select a third MAI appraiser, and the Market
Rent shall be the mean amount of the two appraised values which are closest
to each other, which values shall be determined within fifteen (15) days
prior to the commencement date of the Renewal Term. Landlord and Tenant
shall each pay their own appraiser's fees and shall equally divide the fees
of the third appraiser.
VII.
TENANT'S PROPORTIONATE SHARE. The percentage which expresses the ratio
between the number of Rentable Square Feet comprising the Premises as of the
date of the calculation and the number of Rentable Square Feet of the Building
(196,174). Tenant's Proportionate Share shall be adjusted from time-to-time to
reflect the total Rentable Square Feet of the Premises as modified due to (i)
the increase of the Rentable Square Feet deemed to be within the Premises or the
Building (for purposes of calculation of rent) pursuant to the respective Phases
of occupancy, or following Tenant's exercise of its expansion rights or rights
of first refusal as provided herein, and (ii) any decrease of the Rentable
Square Feet deemed to be within the Premises or the Building.
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VIII.
PERMITTED USE. Tenant may use the Premises for general office use and/or
a high-density, customer-service oriented, and/or telecommunications call
center office use, or other similar office use. Landlord covenants and
agrees not to lease any other space in the Building to any tenant for any use
that emits noxious odors or overburdens the Building's electrical or other
capacities. In addition, Landlord covenants and agrees that it will not
lease any space in the Building to any other tenants for storage purposes,
except with regard to such storage as is incidental to the office use of
particular tenants of the Building. In addition, notwithstanding the
foregoing, Landlord may lease certain space that is located in the Garage as
reasonably designated by Landlord, provided that the items so stored in the
Garage may only be motor vehicles if the tenant is not a tenant in the
Building, and provided that such storage space (i) is unobtrusive and not an
"eyesore," (ii) does not contain highly flammable or other materials that
would endanger the Building or its tenants (including Tenant) or their guests
and invitees, (iii) is consolidated as much as possible in one area of the
Garage as designated by Landlord from time-to-time, and (iv) does not
interfere with Tenant's use of the Premises (including, without limitation,
Tenant's parking rights as described herein).
IX.
PARKING RIGHTS. Tenant shall have the right to use the following
parking spaces:
(a) Parking spaces located in the Garage:
(i) Beginning on the Commencement Date and continuing through
February 28, 1998, Landlord shall provide Tenant with one (1) parking space
for each 100 Usable Square Feet occupied by Tenant within Phase I and Phase
II as defined in ARTICLE I AND III of this Basic Lease Information. At least
one hundred eighty-six (186) of the parking spaces provided shall be reserved
parking spaces in the covered Garage (which Garage consists of 284 total
covered spaces);
(ii) Beginning on March 1, 1998 and continuing throughout the
remainder of the term of this Lease, Landlord shall provide Tenant with one
(1) parking space for each 130 Usable Square Feet occupied by Tenant within
Phases I, II and III as defined in ARTICLE I AND III of this Basic Lease
Information. In the event Tenant leases Usable Square Feet in addition to
that included within Phases I, II and III pursuant to either ARTICLE IV or
ARTICLE V of this Basic Lease Information, Landlord will provide Tenant with
one (1) parking space for each 160 Usable Square Feet occupied by Tenant
within such additional portions of the Premises. Landlord shall have the
right to designate specific parking spaces for Tenant within the Garage and
the Surface Parking Lot; provided that the number of spaces allocated to
Tenant in the Garage shall be no fewer than Tenant's Proportionate Share of
the total number of spaces within the Garage, with the balance of the parking
spaces to which Tenant is entitled being located within the Surface Parking
Lot.
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(iii) In addition to the above, subject to Landlord's rights set
forth in SUBPARAGRAPH (b) below, Tenant shall have the non-exclusive right to
use at least forty-two (42) non-reserved parking spaces in the Garage.
(b) General: Tenant's parking spaces in the Garage and the Surface
Parking Lot as described above are designated on EXHIBIT B. Tenant shall be
provided its proportionate share of the parking spaces located close to the
elevators. All parking shall be provided by Landlord to Tenant at no
additional cost or expense to Tenant. In the event that another tenant or
tenants occupying the Building need a specific number of Tenant's
non-reserved covered parking spaces located in the Garage to provide them
with their proportionate share of the reserved covered parking spaces in the
Garage, Tenant shall give up a portion of Tenant's non-reserved parking
spaces in favor of such tenant or tenants.
In addition to the above parking spaces for Tenant's use, Landlord shall
also provide (i) at least twenty (20) parking spaces designated as "visitor"
parking spaces, as depicted on EXHIBIT B, for use by Tenant's customers and
other visitors, and (ii) three (3) space(s) as shown on EXHIBIT B for use by
a courier van servicing the tenants of the Building.
Landlord hereby represents that the Building, the Parking Garage, the
Surface Parking Lot and the land together comply with all applicable parking
codes, regulations and ordinances of any governmental or quasi-governmental
authority with jurisdiction, and shall continue to so comply throughout the
Term of this Lease.
X.
TENANT'S SIGNAGE. Tenant may install its customary signage and logos in
the elevator lobbies of those floors on which Tenant leases the entire floor.
Landlord shall provide sufficient space on the building directory to list the
corporate name as well as the names of appropriate executives.
In addition, Tenant shall have the right, at Tenant's expense, to place
its company name and/or logo on two sides of the outside of the Building;
provided that the name and/or logo, size, color, materials used, location on
the Building and the method of installation of such signage are subject to
Landlord's approval, which approval shall not be unreasonably withheld or
delayed. Landlord recognizes that one of the major considerations for the
execution of the Lease by Tenant is that the "Tenant's Name" be prominently
featured in the graphics of the Building during the Primary Term and any
renewal term. Landlord and Tenant will mutually agree upon the graphics and
signage for the Building which shall be depicted on an EXHIBIT E to be
attached to this Agreement when it is deemed approved for all purposes.
Landlord and Tenant shall mutually agree upon all remaining identification
and graphics programs for use in the public areas of the Building. All such
agreed upon graphics and identification signage shall be installed at
Tenant's expense. All exterior signage, the installation thereof, the
maintenance and repair thereof, including the proper lighting thereof, and
the removal thereof shall be at Tenant's sole cost and expense, subject to
Landlord's approval which shall not be unreasonably withheld or delayed.
Landlord agrees that it will approve or disapprove of such signage within ten
(10) business days following receipt from Tenant of a request for approval
coupled with copies of detailed
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design drawings and specifications for the signage for which approval is
being sought. The Tenant's name shall be prominently displayed on the
Building directory, and Tenant shall be allocated its Proportionate Share of
space on such directory. Landlord shall have the right, subject to Tenant's
approval which shall not be unreasonably withheld or delayed to permit one
other tenant or occupant to place a sign on the first level of the outside of
the Building. Except for the foregoing sign, no other tenant or other
occupant shall have the right to place its name and/or logo on the outside of
the Building.
Tenant may (i) change the signs to conform to any change in Tenant's
name or logo or (ii) otherwise substitute similar signs at Tenant's
discretion, without Landlord's prior approval, provided that the signs and
the method of installation are otherwise the same as the original signs.
Subject to Landlord's approval of the name and/or logo, size, color,
materials used, location on the Building and method of installation which
approval shall not be unreasonably withheld or delayed, any subtenant or
assignee of Tenant shall have the same rights as described herein with regard
to such subtenant's or assignee's signs to the extent the same are in
substitution of and not in addition to Tenant's signs (including, without
limitation, the right to erect its signs outside on the Building as described
herein), based on the same criteria described above except for the different
name and logo. Notwithstanding the foregoing in the event the subtenant or
assignee is a parent, subsidiary or affiliate of Tenant, Landlord's approval
shall not be required.
Upon termination of this Lease, Tenant shall remove all of its signage
from the Building at Tenant's sole cost and expense, and repair any damage to
the Building caused by such removal, unless the damage is the result of
Landlord's failure to maintain the Building.
The foregoing Basic Lease Information is hereby incorporated into and made a
part of the lease identified hereinabove. Each reference in the lease to any
of the information and definitions set forth in the Basic Lease Information
shall mean and refer to the information and definitions hereinabove set forth
and shall be used in conjunction with and limited by all references thereto
in the provisions of the lease.
LANDLORD: TENANT:
MEDICAL PLAZA PARTNERS, LTD. BILLING INFORMATION CONCEPTS, INC.
BY: ORION PARTNERS MEDICAL PLAZA, BY:
LTD., ITS GENERAL PARTNER ---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
BY: ORION PARTNERS, INC.,
ITS GENERAL PARTNER
BY:
-------------------------------
NAME:
-----------------------------
TITLE:
----------------------------
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OFFICE BUILDING LEASE AGREEMENT
THIS LEASE AGREEMENT ("Lease") is entered into as of the 12th day of
July, 1996, by and between Medical Plaza Partners, Ltd. (hereinafter called
"Landlord") and Billing Information Concepts, Inc. (hereinafter called
"Tenant").
WITNESSETH:
1. DEFINITIONS AND BASIC PROVISIONS. The definitions and basic
provisions set forth in the Basic Lease Information (the "Basic Lease
Information") executed by Landlord and Tenant contemporaneously herewith are
incorporated herein by reference for all purposes and shall be used in
conjunction with and limited by the reference thereto in the provisions of
this Lease.
2. LEASE GRANT. Landlord, in consideration of the rent to be paid and
the other covenants and agreements to be performed by Tenant and upon the
terms hereinafter stated, does hereby lease, demise and let unto Tenant, and
Tenant does hereby lease from Landlord, the Premises, as defined in the Basic
Lease Information, for the term set forth in the Basic Lease Information,
unless sooner terminated as herein provided, it being expressly understood
that this Lease and the rights and liabilities of the parties hereunder
(other than the payment of rent as herein provided) shall be effective from
and after the date hereof. Within ten (10) days after the Completion Date
(as defined in the Construction Rider attached hereto as EXHIBIT D) upon
written request of Landlord, Tenant agrees to give Landlord a letter
certifying that Tenant has accepted delivery of the Premises and that the
condition of the Premises complies with Landlord's obligations hereunder (or
list those items which are required to cause the Premises to be so completed,
after the completion of which Tenant will provide such letter).
3. RENT. In consideration of this Lease, and the performance by
Landlord of its obligations set out herein, Tenant promises and agrees to pay
Landlord the Basic Rental defined in the Basic Lease Information (subject to
adjustment as hereinafter provided), for each month of the entire lease term.
Such monthly installments shall be payable by Tenant to Landlord without
demand beginning on the Commencement Date and continuing thereafter on or
before the first day of each succeeding calendar month during the term
hereof. Rent for any fractional month during the lease term shall be
prorated based on one three hundred sixty-fifth (1/365) of the then current
annual Basic Rental for each day of the partial month this Lease is in
effect. In the event any installment of the Basic Rental, or any other sums
which become owing by Tenant to Landlord under the provisions hereof is not
received within five (5) days after the due date thereof (without in any way
implying Landlord's consent to such late payment), Tenant, to the extent
permitted by law, agrees to pay, in addition to said installment of the Basic
Rental or such other sums owed, a late payment charge equal to five percent
(5%) of the amount due, it being understood that said late payment charge
shall constitute liquidated damages and shall be for the purpose of
reimbursing Landlord for the additional costs and expenses which Landlord
presently expects to incur in connection with the handling and processing of
late installment payments of the Basic Rental and such other sums which
become owing by Tenant to
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Landlord hereunder. Landlord and Tenant expressly covenant and agree that in
the event of any such late payment(s) by Tenant, the damages so resulting to
Landlord will be difficult to ascertain precisely, and that the foregoing
charge constitutes a reasonable and good faith estimate by the parties of the
extent of such damages. Notwithstanding the foregoing, the foregoing late
charges shall not apply to any sums which may have been advanced by Landlord
to or for the benefit of Tenant pursuant to the provisions of this Lease, it
being understood that such sums shall bear interest, which Tenant hereby
agrees to pay to Landlord, at the maximum rate of interest permitted by law
to be charged Tenant for the use or forbearance of such money.
4. LANDLORD'S OBLIGATIONS.
(a) Subject to the limitations hereinafter set forth, during the
term of this Lease, Landlord agrees to furnish Tenant the following services:
(i) water (hot, cold and refrigerated) at those points of supply provided
for general use of tenants in the Building; (ii) sewer; (iii) cable
television to the extent that Landlord has cable television access and at
Tenant's expense; (iv) heated and refrigerated air conditioning in season, at
such temperatures and in such amounts to maintain space conditions between 68
degrees Fahrenheit and 76 degrees Fahrenheit and 25% to 65% relative humidity
under normal office use conditions; such service at hours other than from
7:00 a.m. to 7:00 p.m. from Monday through Friday and 8:00 a.m. to 1:00 p.m.
on Saturday shall be accessible to Tenant without notice to Landlord; Tenant
shall bear the entire cost for such "after hours" services to the Premises
(or relevant portion thereof) only; (v) janitorial service to the Premises in
accordance with the Cleaning Specifications attached hereto as EXHIBIT F and
incorporated herein for all purposes; (vi) operatorless passenger elevators
for ingress and egress to the floors on which the Premises are located, in
common with other tenants, provided that Landlord may reasonably limit the
number of elevators to be in operation at times other than during customary
business hours for the Building and on holidays; (vii) building service
personnel for the Building; and (viii) one (1) security guard on duty between
the hours of 7:00 a.m. and 7:00 p.m. The parties hereto acknowledge that the
security required to be provided by Landlord as specified herein as between
Landlord and Tenant shall be the extent of Landlord's responsibility with
respect thereto, and so long as Landlord provides the security equipment
and/or personnel required hereby, Landlord shall not be deemed to assure or
otherwise be responsible for the safety of Tenant, its employees or invitees
from events, circumstances or actions that are the responsibility of the
security guard to prevent. Tenant may, at its sole option and expense,
provide additional security personnel for the Premises and/or Building.
Landlord shall provide controlled access cards to Tenant to permit access to
the Building at all times, including "after hours" and on weekends, and shall
provide adequate lighting in all common areas of the Building, the elevators,
the Garage, and the Surface Parking Lot. In addition, upon request by Tenant
Landlord shall work with Tenant in good faith to provide any additional or
different services to Tenant and the Building which may be necessary in the
future based on changes in technology provided that any such changes
requested by Tenant shall be at Tenant's cost. If Tenant shall desire any of
the services specified in this SECTION 4 at any time other than times herein
designated, such service or services shall be supplied to Tenant promptly
following the written request of Tenant delivered to Landlord, and Tenant
shall pay to Landlord as additional rent the cost of such service or services
immediately upon receipt of
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a bill therefor. The items will be billed at the lesser of Landlord's actual
cost, provided such services or goods are obtained from unaffiliated or
unrelated parties in arms length transactions, or the prevailing charge for
such goods and services in the San Antonio market. Landlord and Tenant shall
each have the option, at the sole cost and expense of the party which
exercises this option, to install one or more separate meters to measure the
utilities used by Tenant in the Building independent of the utility usage of
other tenants of the Building, in which event Tenant shall pay the full
amount of any such separately metered utility charges.
(b) Landlord shall make available to Tenant facilities to provide
all electrical services, water, sewer and cable television (to the extent
that Landlord has cable television access and at Tenant's expense) required
by Tenant in its use and occupancy of the Premises to the extent specified in
this Lease (including EXHIBIT D hereto) and further shall make available
electric lighting and services for the common areas of the Building in the
manner and to the extent described in this Lease (including EXHIBIT D
hereto). The obligation of Landlord hereunder to make available such
utilities shall be subject to the rules and regulations of the supplier of
such utilities or governmental authority regulating the business of providing
such utility service. Landlord shall not in anywise be liable or responsible
to Tenant for any loss or damage or expense which Tenant may sustain or incur
if either the quantity or character of any utility service is changed or is
no longer available or is no longer suitable for Tenant's requirements unless
such loss is attributable to the negligence or acts or omissions of Landlord.
At any time when Landlord is making such utility service available to the
Premises pursuant to this Section, Landlord may, at its option, upon not less
than thirty (30) days prior written notice to Tenant, discontinue the
availability of such utility service only if Landlord makes all the necessary
arrangements with the public utility supplying the utilities to the
neighborhood with respect to obtaining such utility service to the Premises
sufficient in quality and amount necessary for Tenant's use of the Premises,
including paying the cost of a meter, cost of installation, and any deposit
required, but in such event Tenant will contract directly with such public
utility for the supplying of such utility service to the Premises.
(c) In the event that any utility service is separately metered to
any tenant's premises, Tenant's proportionate share for purposes of computing
charges for utilities for which Tenant is not separately metered shall be
adjusted by Landlord so that it shall be a fraction, the numerator of which
is the number of Rentable Square Feet comprising Tenant's Premises not
separately metered and the denominator of which is the number of Rentable
Square Feet comprising the premises of all tenants not separately metered
with respect to such utility.
(d) Landlord agrees to inform Tenant of the capacity of existing
feeders to the Building or the risers or wiring installations, and Tenant
covenants and agrees that at all times its use of electric service shall
never exceed such capacity. Any riser or risers or wiring to meet Tenant's
excess electrical requirements will be installed by Landlord at the sole cost
and expense of Tenant (if, in Landlord's reasonable judgment, the same are
necessary and will not cause permanent damage or injury to the Building or
the Premises or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations, repairs or expense or interfere with
or disturb other tenants or occupants). In
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the event Tenant's use of electrical service (which use shall be averaged
over the entire then-existing Premises if separate meters are installed on
each floor of the Premises) (i) exceeds 2.5 volt-amperes demand per square
foot of net rentable floor space for power (exclusive of HVAC) and 2
volt-amperes demand per square foot of net rentable floor space for lighting,
then Tenant shall also pay on demand the cost of any such excess. Tenant
shall notify Landlord prior to situating any data processing or computer
equipment in the Premises or any other equipment which shall require for its
use other than the normal electrical service or other utility service.
Whenever heat generating machines or equipment other than general office
machines (such as personal computers, laser printers, copiers, fax machines,
customary telecommunications equipment, typewriters, dictating equipment,
desk model adding machines and the like) are used in the Premises by Tenant
which, in Landlord's reasonable determination, could adversely affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, other than Landlord's obligations herein with respect
to the Upgraded HVAC System Landlord shall have the right, upon prior written
notice to Tenant, to install supplemental air conditioning units or other
supplemental equipment in the Premises, and the cost thereof, including the
cost of installation, operation, use and maintenance, shall be paid by Tenant
to Landlord on demand.
(e) Tenant will be billed monthly for all above standard utility
service and other sums due and all such charges shall be considered due upon
delivery of such bill and be deemed as so much additional rent due from
Tenant to Landlord. The rate charged by Landlord shall not exceed Landlord's
cost therefor.
(f) Any slowdown, stoppage or interruption of, these defined
services resulting from any cause other than Landlord's negligence or acts or
omissions (including, but not limited to, Landlord's compliance with (i) any
voluntary or similar governmental or business guidelines now or hereafter
published or (ii) any requirements now or hereafter established by any
governmental agency, board or bureau having jurisdiction over the operation
and maintenance of the Building) shall not render Landlord liable in any
respect for damages to either person, property or business, nor, except as
provided below, be construed an eviction of Tenant or work an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement
hereof. Should any equipment or machinery furnished by Landlord break down
or for any cause cease to function properly, Landlord shall use its
reasonable good faith efforts to repair same promptly, but except as
otherwise provided herein, Tenant shall have no claim for abatement of rent
or damages on account of any interruption in service occasioned thereby or
resulting therefrom unless due to Landlord's negligence or acts or omissions.
In the event that any portion of any floor of the Premises is unusable for
Tenant's purposes by reason of the interruption of Landlord's services and
such interruption continues for two (2) consecutive days for a material
portion of any one or more floors of the Premises following written notice
from Tenant to Landlord, then rent under this Lease shall be abated with
respect to such unusable portion of the Premises for the period of such
interruption.
(g) Tenant's obligations to pay any and all additional rent
pursuant to this SECTION 4 shall commence on the earlier of (i) Tenant's
occupancy of the Premises, or (ii) the Commencement Date, and shall continue
and shall cover all periods up to such early expiration or termination date
of this Lease; provided however, if Landlord terminates this Lease without
waiving Landlord's right to seek damages against Tenant, Tenant's obligation
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to pay any and all additional rent pursuant to this SECTION 4 shall not
terminate as a result thereof. Tenant's obligation to pay any and all
additional rent or other sums owing by Tenant to Landlord under this Lease
shall survive any expiration or termination of this Lease.
(h) For purposes of this Section, the building services to be
provided by Landlord will be subject to additional charges for non-standard
services or standard services during non-building hours, and will be
available on a 24-hour per day, seven days a week basis upon the request of
Tenant (except as otherwise specified in subparagraph (a) hereof). All
additional charges and Basic Costs shall be charged to Tenant at the lesser
of Landlord's cost from an unaffiliated or unrelated third party, or the
prevailing charge for similar goods and services in the San Antonio market.
(i) Landlord shall, at its sole cost and expense, maintain the
Building and all electrical, mechanical, life safety and other systems within
the Premises, Building, and make any necessary repairs to the Building,
Garage, Surface Parking Lot and other common areas, except to the extent that
Tenant is responsible for maintenance of or repairs to the Premises, as
described in this Lease, in accordance with the standard of a first class
office building in San Antonio, Texas. Landlord shall, at its sole cost and
expense, maintain the Upgraded HVAC System (as defined herein) to be
installed for the sole benefit of Tenant. Without in any way limiting the
obligations of Landlord set forth above, at Landlord's sole cost and expense,
throughout the Term hereof, Landlord shall perform at least one (1)
inspection each year of the Premises, Building, Garage, Surface Parking Lot,
and other common areas and will undertake any necessary additional work that
may be or become necessary and perform all necessary maintenance to ensure
that those areas and the electrical, mechanical, life safety and other
systems within those areas are operating properly and efficiently and
otherwise in accordance with the terms of this Lease (including, without
limitation, SECTION 25(h) hereof). Landlord shall provide Tenant with copies
of all such inspection reports within twenty-four (24) hours following
written request by Tenant.
5. BASIC RENTAL AND EXCESS BASIC COST. Tenant hereby agrees to pay to
Landlord the Basic Rental specified in the Basic Lease Information, together
with any Excess (as defined in SUBPARAGRAPH 5(b) below) of Basic Cost,
calculated in the following manner:
(a) For the purposes of this Lease the term "Basic Cost" shall
mean any and all costs, expenses and disbursements of every kind and
character (subject to the limitations set forth below) which Landlord shall
pay in connection with the operation, maintenance, repair, replacement, and
security of the Building, the Garage and Surface Parking Lot (collectively,
the "Property"), determined in accordance with accepted accounting principles
consistently applied, including but not limited to the following:
(i) Wages and salaries (including management fees not to exceed
five percent (5%) of gross rents of all on-site employees engaged in the
operation, repair, replacement, maintenance, and security of the Property,
including taxes, insurance and benefits relating thereto.
(ii) All supplies and materials used in the operation,
maintenance, repair, replacement, and security of the Property including
replacement of building
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standard lightbulbs described in subparagraph 7(a)(1) of Schedule 1 to
the Construction Rider attached hereto.
(iii) Annual cost of (x) all capital improvements made to the
Property which although capital in nature can reasonably be expected to
reduce the normal operating costs of the Property, but only to the extent
of such cost savings from year-to-year, (y) capital improvements which,
though capital for accounting purposes, are properly considered maintenance
and repair items, such as painting of common areas and replacement of
carpeting in elevator lobbies, and (z) capital improvements which are not
the responsibility of a specific tenant and made in order to comply with
any statutes, rules, regulations or directives hereafter promulgated by any
governmental authority relating to energy conservation, or public safety,
provided that the cost of the capital improvements pursuant to this clause
(z) shall be included only to the extent of the annual amortization of such
cost over a period equal to the greater of (i) the remaining term of the
lease, or (ii) the useful life of such improvement.
(iv) Cost of all utilities, other than the cost of electricity
supplied to tenants of the Building which is actually reimbursed to
Landlord by such tenants, and other than the cost of operating the Upgraded
HVAC System allocated to Tenant in SUBPARAGRAPH (g) of this SECTION 5.
(v) Cost of all maintenance and service agreements on equipment,
including alarm service, window cleaning and elevator maintenance.
(vi) Cost of casualty and liability insurance applicable to the
Property and Landlord's personal property located in or on the Property.
(vii) "Taxes" as defined in SECTION 17.
(viii) Cost of non-capital repairs and general maintenance of
the Property, other than repair or replacement of the foundation and
exterior walls of the Building.
(ix) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement, or
security of the Property.
There are specifically excluded from the definition of the term "Basic
Cost" the following:
(1) repairs or other work occasioned by fire, windstorm or other
casualty, the costs of which are reimbursed or reimbursable to Landlord by
insurers or by governmental authorities in eminent domain;
(2) leasing commissions, attorney's fees, costs and
disbursements and other expenses incurred in connection with negotiations
or disputes with tenants, other occupants, or prospective tenants or other
occupants of the Building;
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(3) costs incurred in renovating or otherwise improving or
decorating or redecorating space for tenants or other occupants in the
Building or vacant space in the Building;
(4) costs of correcting defects in the construction of the
Building (including latent defects in the Building) or in the Building
equipment, except that for the purposes of this subparagraph, conditions
resulting from ordinary wear and tear and use and not occasioned by
construction defects shall not be deemed defects;
(5) Landlord's costs of electricity and other services sold to
tenants (other than electricity and other services to the common areas) for
which Landlord is entitled to be reimbursed by tenants (whether or not
actually collected by Landlord) as a separate additional charge or rental;
(6) costs of a capital nature, including but not limited to,
capital repairs, capital equipment and capital tools all in accordance with
generally accepted accounting principles, consistently applied except as
set forth in SUBPARAGRAPH 5(a)(iii) above;
(7) expenses in connection with services or other benefits of a
type which are not building standard but which are provided to another
tenant or occupant, and the excess cost of any work or services performed
for a facility furnished to any tenant of the Building to a greater extent
or in a manner more favorable to such tenant than that performed for or
delivered to Tenant;
(8) costs incurred due to the violation by Landlord or any
tenant of the terms and conditions of any lease pertaining to the Building
or of any valid, applicable Building code, regulation, or law or incurred
due to the Building being in violation of any such code, regulation or law
which exists as of the date construction of the Building commences;
(9) overhead and profit increment paid to subsidiaries or
affiliates of Landlord for services on or to the Building, to the extent
that the costs of such services exceed competitive costs for such services
rendered by persons or entities of similar skill, competence and
experience;
(10) interest on debt or amortization payments on any mortgage or
mortgages, and rental under any ground or underlying leases or lease
pertaining to the Building, Garage or Surface Parking Lot or the land
(except to the extent the same may be made to pay real property taxes);
(11) costs of Landlord's general corporate overhead and general
administrative expenses, which would not be chargeable to operating
expenses of the Building in accordance with generally accepted accounting
principles, consistently applied. However, Tenant acknowledges Landlord's
right to manage the Building and impute management fees to the Basic Costs
which are considered standard in
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Comparable Buildings. These fees, however, may not exceed five percent
(5%) of the gross aggregate rental income for the Building for any given
year;
(12) any compensation paid to clerks, attendants or other persons
in commercial concessions operated by Landlord;
(13) rentals and other related expense, if any, incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial and landscaping services and which is not affixed to
the Building;
(14) all items and services for which Tenant or another tenant
reimburses Landlord pursuant to other provisions of this Lease, or for
which Tenant or another tenant pays third persons;
(15) costs incurred in advertising and promotional activities for
the Building;
(16) costs incurred in installing operating and maintaining any
specialty such as an observatory, broadcasting facility (other than the
Building's music system, life support and security system), luncheon club,
athletic or recreation club;
(17) any other expenses which, under generally accepted
accounting principles, consistently applied would not be rendered as a
normal maintenance or operating expense of the Building other than as set
forth in SUBPARAGRAPH 5(a)(iii) above;
(18) any fee payable to the operator of the parking facilities
located within or connected to the building;
(19) any costs attributable to electrical consumption in the
Building by other tenants, which consumption is in excess of the amounts of
allocation of electrical capacity set out in SECTION 4(d) of this Lease for
such other tenant space, regardless of whether such other tenant is
actually charged for such excess consumption;
(20) the cost of removing any hazardous waste or asbestos or of
correcting any other environmental condition existing on the date of this
Lease or caused by Landlord or other tenants in order to comply with any
environmental law or ordinance;
(21) the cost of alterations in space for other tenants;
(22) income, excess profits or franchise taxes or other such
taxes (other than sales taxes) imposed on or measured by the income of
Landlord from the
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operation of the Building, and charges for Landlord's income tax, excess
profits tax, franchise tax or similar tax;
(23) Landlord shall apply and use all reasonable efforts to cause
the Building to be operated in an efficient and economical manner in
keeping with the usual standard for comparable first-class office buildings
in San Antonio, Texas under similar conditions, to take all reasonable
available discounts, to resist with all reasonable efforts any increases in
valuation for ad valorem tax purposes, and to negotiate with all reasonable
efforts any contract for services or supplies pertaining to the Building
and its operation. Any discounts or cost savings resulting from such
negotiations shall be passed on to tenants. If any expenditure relates to
any period beyond the then current year (whether the base year or any
subsequent year), the portion of the expenditure attributable to the then
current year shall be allocated in accordance with accepted accounting
principles for the purpose of determining the portion thereof to constitute
Basic Costs for the then current year, and allocated to subsequent year or
years upon the same basis for determining Basic Costs for those years;
(24) During the first two (2) Lease Years only Tenant shall not
be responsible for ANY increase over ten percent (10%) of the Basic Costs
charged during the previous year, with the exception of the tax, insurance,
and utility components of the Basic Costs."
(b) Tenant shall during the term of this Lease pay as additional rent
an amount (per each Rentable Square Foot within the Premises during the
applicable period) equal to the excess ("Excess") from time to time of actual
Basic Cost per Rentable Square Foot in the Building over the actual Basic Costs
for calendar year 1997, adjusted as necessary to reflect a ninety-five percent
(95%) occupied Building as provided in SUBPARAGRAPH (d) below ("Base Year Basic
Cost"). For purposes of calculating the 95% factor, Basic Costs shall be
adjusted upwards only with regard to those components to the Basic Costs that
fluctuate with the occupancy level of the Building, including, without
limitation, janitorial services, janitorial supplies, trash hauling, project
maintenance, utilities (including, without limitation, water, sewer, and
electricity), and management fees. The following components of the Basic Costs
shall be conclusively deemed not to fluctuate with the occupancy of the
Building: property taxes and assessments, amortized capital improvement costs,
insurance premiums, pest control, landscaping services, security services and
costs associated with the operation and maintenance of the parking garage area.
Landlord shall be entitled to include any and all other components of the Basic
Costs in the upward adjustment if Landlord reasonably determines that such an
inclusion is appropriate based on the relationship of such components to the
occupancy level of the Building.
Landlord, at its option, may collect such additional rent in a lump sum, to be
due and payable within thirty (30) days after Landlord furnishes to Tenant a
statement of actual Basic Cost for the previous year per SUBPARAGRAPH (c) below,
or beginning with January 1, 1999, and on each January 1 thereafter, Landlord
shall also have the option to make a good faith estimate of the Excess for each
upcoming calendar year and upon thirty (30) days' written notice to Tenant may
require the monthly payment of such additional rent equal to 1/12 of
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such estimate, which monthly payments shall, if requested by Landlord,
commence on January 1, 1998. Any amounts paid based on such an estimate
shall be subject to adjustment pursuant to SUBPARAGRAPH (c) when actual Basic
Cost is available for each calendar year. For the purposes of calculating
the additional rental payment hereunder with respect to any fractional
calendar year during the term of this Lease, Landlord may either (i) estimate
Basic Cost for the portion of the lease term during such partial year based
upon the prorata portion of the Basic Costs for the prior year, or (ii)
estimate Basic Cost for the entire calendar year and reduce the same to an
amount bearing the same proportion to the full amount of estimated Basic Cost
for such year as the number of days in such fractional calendar year bears to
the total number of days in such full calendar year.
(c) By April 1 of each calendar year following 1997 during
Tenant's occupancy, or as soon thereafter as practicable, Landlord shall
furnish to Tenant a statement of Landlord's actual Basic Cost for the
previous year adjusted as provided in SUBPARAGRAPH (d). If for any calendar
year additional rent collected for the prior year as a result of Landlord's
estimate of Basic Cost is in excess of the additional rent actually due
during such prior year, then Landlord shall give a credit to Tenant against
future rent coming due hereunder in the amount of any overpayment, except any
refund due for the last year of the Term shall be paid in cash by Landlord to
Tenant. Likewise, Tenant shall pay to Landlord, on demand, any underpayment
with respect to the prior year.
(d) With respect to any calendar year or partial calendar year
during the term of this Lease in which the Building is not occupied to the
extent of ninety-five percent (95%) of the Rentable Square Feet thereof, the
Basic Cost for such period shall, for the purposes hereof, be increased to
the amount which would have been incurred had the Building been occupied to
the extent of ninety-five percent (95%) of the Rentable Square Feet thereof.
(e) Tenant shall have the right to examine or have its accountant
examine at the Building the books and records of Landlord from which
Landlord's calculation of Basic Costs has been prepared. If any error
amounting to more than 5% of the Basic Cost is found, Landlord shall bear
Tenant's cost of the audit. If after Tenant's audit, it is determined that
Tenant has paid an amount in expenses in excess of the excess of Basic Costs
for which it was responsible under this Lease, Tenant shall be refunded the
excess amount paid by Tenant immediately upon Tenant's demand therefor.
(f) The tax component of the Basse Year Basic Cost shall be
established based on the greater of the following:
(1) the actual 1997 tax rate for the land, the Building, the
Garage and the Surface Parking Lot;
(2) the applicable 1997 tax rate based on an agreed aggregate
value of $6,750,000.00 for the land, the Building, the
Garage and the Surface Parking Lot; or
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(3) the applicable 1997 tax rate based on the average of the
greater of (A) the 1996 assessment or (B) the 1997
assessment, for each of the following buildings:
(i) Kelly Bank Tower, 6100 Bandara Road (136,603
rentable square feet);
(ii) Corporate Square Office Building, 4801 N.W. Loop 410
(190,198 square feet);
(iii) 8401 Datapoint Building, 8401 Datapoint (152,918
rentable square feet); and
(iv) One Data Center, 8415 Datapoint Drive (147,769
rentable square feet).
(g) UTILITY COSTS FOR UPGRADED HVAC SYSTEM. Landlord shall pay all
utility costs pertaining to the operation of the HVAC System existing in the
Building on the date of this Lease (the "Base System") during the building
operation hours set forth in SECTION 4(a) of this Lease. In addition, Landlord
has agreed to upgrade the existing HVAC Systems for floors 2-10 of the Building
to meet the requirements set forth in paragraph 3 of Schedule 2 of the
Construction Rider attached hereto (the "Upgraded HVAC System"). The Upgraded
HVAC System will be separately metered. Landlord shall pay for the cost of
operating the Upgraded HVAC System during the building operating hours provided
that Landlord's annual cost of operating the Upgraded HVAC System shall not
exceed $0.41 per Rentable Square Foot for floors leased by Tenant (excluding any
floors other than 2-10). All costs of operating the Upgraded HVAC System which
exceed $0.41 per Rentable Square Foot for the floors leased to Tenant shall be
paid in the same manner in which the Excess provided for in SUBPARAGRAPH (b)
above is paid by Tenant to Landlord and shall be in addition to the Excess (if
any) provided for herein.
6. LEASEHOLD IMPROVEMENTS AND ALLOWANCES. Landlord shall construct,
at its sole cost and expense, Leasehold Improvements in the Premises and the
Building in accordance with the Construction Rider attached hereto as EXHIBIT D.
7. USE. Tenant shall use the Premises only for the permitted use (as
defined in the Basic Lease Information). Tenant will not occupy or use the
Premises, or permit any portion of the Premises to be occupied or used, for
any business or purpose other than the permitted use or for any use or
purpose which is unlawful in part or in whole or deemed to be disreputable in
any manner or extra hazardous on account of fire, nor permit anything to be
done which will in any way increase the rate of insurance on the Building or
contents; and in the event that, by reason of acts of Tenant, there shall be
any increase in rate of insurance on the Building or contents created by
Tenant's acts or conduct of business, then Tenant shall be deemed to have
failed to comply with the provisions of this Lease and Tenant hereby agrees
to pay to Landlord the amount of such increase on demand and acceptance of
such payment shall not constitute a waiver of any of Landlord's other rights
provided herein. Tenant will conduct its business and use reasonable and
diligent efforts
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to control its agents, employees and invitees in such a manner as not to
create any nuisance, nor interfere with, annoy or disturb other tenants or
Landlord in the management of the Building. Tenant will maintain the
Premises in a clean condition and except with respect to Landlord's
obligations hereunder, will comply with all laws, ordinances, orders, rules
and regulations (state, federal, municipal and other agencies or bodies
having any jurisdiction thereof) with reference to the use, condition or
occupancy of the Premises.
8. TENANT'S REPAIRS AND ALTERATIONS. Tenant will not in any manner
deface or injure the Building, the Garage or the Surface Parking Lot
(excluding ordinary wear and tear), and will pay the cost of repairing any
such damage or injury done by Tenant or Tenant's agents or employees to the
extent the same is not required to be covered by Landlord's insurance
pursuant hereto. Tenant shall throughout the lease term take good care of
the Premises. Tenant agrees to keep the Premises, including all fixtures
included in Tenant's Improvements described in Schedule 1 to the Construction
Rider or installed by Tenant and any plate glass and special store fronts, in
good condition and make all necessary non-structural repairs except those
which are resulting from acts or omissions of Landlord, its employees, agents
or contractors or caused by fire, casualty or acts of God. The performance
by Tenant of its obligations to maintain and make repairs shall be conducted
only by contractors and subcontractors approved in writing by Landlord which
approval shall not be unreasonably withheld, it being understood that Tenant
shall procure and maintain and shall cause such contractors and
subcontractors engaged by or on behalf of Tenant to procure and maintain
insurance coverage against such risks, in such amounts and with such
companies as Landlord may require in connection with any such maintenance and
repair as may be customary for tenants of Comparable Buildings (as defined in
Article IV of this Lease). If Tenant fails to make such repairs within
fifteen (15) days after the occurrence of such damage or injury, Landlord may
at its option make such repair, and Tenant shall, upon demand therefor, pay
Landlord for the cost thereof. At the end or other termination of this
Lease, Tenant shall deliver up the Premises with all improvements located
thereon (except as otherwise herein provided) in good repair and condition,
reasonable wear and tear and casualty loss excepted, and shall deliver to
Landlord all keys to the Premises. Tenant shall have the right to make
non-structural alterations or additions to the Premises without the consent
of Landlord so long as such alterations or additions (i) do not exceed a cost
of Ten Thousand and No/100 Dollars ($10,000.00); (ii) except for signage
approved hereunder, are not visible from the exterior of the Premises; (iii)
are in compliance with all governmental requirements; (iv) do not adversely
affect the structure, plumbing, electrical or other building systems of the
Building; (v) are performed in a manner which substantially conform to plans
and specifications certified to by a licensed architect and delivered to
Landlord prior to Tenant's commencing construction thereof; (vi) are
performed by qualified contractors reasonably acceptable to Landlord; and
(vii) Tenant pays the full cost thereof and no liens are permitted to attach
to the Premises or the Building in connection therewith. Except as provided
above, Tenant will not make or allow to be made any alterations or physical
additions in or to the Premises without the prior written consent of
Landlord. All alterations, additions, improvements or fixtures (other than
as described below) (whether temporary or permanent in character) made in or
upon the Premises, either by Landlord or Tenant, shall be Landlord's property
on termination of this Lease and shall remain on the Premises without
compensation to Tenant. Provided Tenant is not in default under this Lease,
all furniture, movable trade
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fixtures, equipment and machinery installed by Tenant may be removed by
Tenant at the termination of this Lease or at any time during the term of
this Lease if Tenant so elects, and shall be so removed if required by
Landlord, or if abandoned upon the end of the term of this Lease shall, at
the option of Landlord, become the property of Landlord. All installations,
removals and restoration shall be accomplished in a good workmanlike manner
so as not to damage the Premises or the primary structure or structural
qualities of the Building or the plumbing, electrical lines or other
utilities.
9. ASSIGNMENT AND SUBLETTING.
(a) Except as described herein, Tenant shall not, without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed, (i) assign or in any manner transfer this Lease or any
estate or interest therein, or (ii) permit any assignment of this Lease or
any estate or interest therein, by operation of law, or (iii) sublet the
Premises or any part thereof, or (iv) grant any license, concession or other
right of occupancy of any portion of the Premises, or (v) permit the use of
the Premises by any parties other than Tenant, its agents, employees and
invitees and any such act without Landlord's prior written consent (which
shall not be unreasonably withheld or delayed) shall be void and of no
effect. Consent by Landlord to one or more assignments or sublettings shall
not operate as a waiver of Landlord's rights as to any subsequent assignments
and sublettings. Notwithstanding any assignment or subletting, Tenant shall
at all times remain fully responsible and liable for the payment of the rent
herein specified and for compliance with all of Tenant's other obligations
under this Lease.
Notwithstanding the foregoing, Tenant may assign its interest in
this Lease or sublease all or any portion of the Premises to an entity which
is a parent, subsidiary, or other affiliate of Tenant, without Landlord's
consent.
If an event of default (after the expiration of any applicable cure
period described in this Lease), as hereinafter defined, should occur while
the Premises or any part thereof are then assigned or sublet, Landlord, in
addition to any other remedies herein provided or provided by law, may at its
option collect directly from such assignee or sublessee all rents becoming
due to Tenant under such assignment or sublease and apply such rent against
any sums due to Landlord by Tenant hereunder, and Tenant hereby authorizes
and directs any such assignee or sublessee to make such payments of rent
directly to Landlord upon receipt of notice from Landlord. No direct
collection by Landlord from any such assignee or sublessee shall be construed
to constitute a novation or a release of Tenant or any guarantor of Tenant
from the further performance of its obligations hereunder. Receipt by
Landlord of rent from any assignee, sublessee or occupant of the Premises
shall not be deemed a waiver of the covenant of this Lease contained against
assignment and subletting or a release of Tenant under this Lease. The
receipt of rent by Landlord from any such assignee or sublessee obligated to
make payments of rent shall be a full and complete release, discharge, and
acquittance to such assignee or sublessee to the extent of any such amount of
rent so paid to Landlord. Where Landlord receives sums from an assignee or
sublessee, Landlord is authorized and empowered, on behalf of Tenant, to
endorse the name of Tenant upon any check, draft, or other instrument payable
to Tenant evidencing payment of rent, or any part thereof, and to receive and
apply the proceeds
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therefrom in accordance with the terms hereof. Tenant shall not mortgage,
pledge or otherwise encumber its interest in this Lease or in the Premises.
(b) If Tenant requests Landlord's consent to an assignment of the
lease or subletting of all or a part of the Premises, prior to any such
assignment or sublease, Tenant shall submit to Landlord, in writing, the name
of the proposed assignee or subtenant and the nature and character of the
business of the proposed assignee or subtenant, the term, use, rental rate
and other particulars of the proposed subletting or assignment.
(c) If Landlord consents to any subleasing or assignment by
Tenant, Tenant shall be entitled to fifty percent (50%) and Landlord shall be
entitled to fifty percent (50%) of the profits from subleasing all or a
portion of the Premises, or from the assignment of all of the Lease, as the
case may be, to a party who is not a parent, subsidiary and/or affiliate of
Tenant, and Landlord shall not be entitled to any of the profits in the case
of a sublease or assignment to a parent, subsidiary and/or affiliate of
Tenant. For purposes of computing the profits from a subleasing or
assignment of the Premises, described above, Tenant shall be entitled to
first apply the rental receipts from such third party sublease or assignment
to (i) the Basic Rental and additional rental due by Tenant to Landlord for
such area (based on a per Rentable Square Foot allocation) during the term of
the sublease or following the assignment; and (ii) to reimburse Tenant for
its actual out-of-pocket expenses paid by Tenant to locate the subtenant or
assignee into the Premises such as commissions, tenant finish-out costs, the
amount of Base Rental and additional rental relating to such space paid by
Tenant while such space was unoccupied by Tenant for the purpose of making
the space ready for sublease or assignment, and attorneys fees relating to
the portion of the Premises subleased or assigned. At such time as Tenant
has recovered all of such costs described above, the remaining rentals
received by Tenant in connection with such sublease or assignment shall be
split between Landlord and Tenant as described above.
(d) Landlord shall have the right to transfer, assign or convey,
in whole or in part, the Building and any and all of its rights under this
Lease, and in the event Landlord assigns its rights under this Lease other
than in a transaction which is primarily intended to avoid liability for
Landlord's obligations under this Lease, Landlord shall thereby be released
from any further obligations hereunder, and Tenant agrees to look solely to
such successor in interest of Landlord for performance of such obligations.
10. INDEMNITY. Landlord shall not be liable for and Tenant will
indemnify and save harmless Landlord of and from all fines, suits, claims,
demands, losses and actions (including attorney's fees) for any injury to
person or damage to or loss of property on or about the Premises caused by
the gross negligence or willful misconduct of, or breach of this Lease by,
Tenant, its employees, invitees or other persons entering the Premises, the
Building, the Garage or the Surface Parking Lot under express or implied
invitation of Tenant, or arising out of Tenant's use of the Premises but only
to the extent insurance payable to Landlord as a result of such injury or
damage is not sufficient to satisfy Landlord's losses or claims against it.
Tenant shall not be liable for and Landlord will indemnify and save harmless
Tenant of and from all fines, suits, claims, demands, losses and actions
(including attorney's fees) for any injury to person or damage to or loss of
property on or about the Premises caused by the gross negligence or willful
misconduct of, or breach of
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this Lease by, Landlord, its employees, invitees or other persons entering
the Premises, the Building, the Garage or the Surface Parking Lot under
express or implied invitation of Landlord, or arising out of Landlord's use
of the Premises but only to the extent insurance payable to Tenant as a
result of such injury or damage is not sufficient to satisfy Tenant's losses
or claims against it. Landlord shall not be liable or responsible for any
loss or damage to any property or death or injury to any person occasioned by
theft, fire, act of God, public enemy, criminal conduct of third parties,
injunction, riot, strike, insurrection, war, court order, requisition or
other action by any governmental body or authority, by other tenants of the
Building or any other matter beyond the control of Landlord.
11. SUBORDINATION. Landlord shall provide Tenant with a Subordination,
Attornment and Non-Disturbance Agreement in the form reasonably required by
Landlord's mortgagee as may be reasonably approved by Tenant
("Non-Disturbance Agreement") pursuant to which the Lienholder agrees not to
disturb Tenant's possession of the Premises so long as Tenant is not in
default hereunder, fully executed by the Lienholder to which this Lease is to
be subordinated, then this Lease and all rights of Tenant hereunder shall
hereafter be subject and subordinate to any deeds of trust, mortgages or
other instruments of security, as well as to any ground leases or primary
leases, to which any such Non-Disturbance Agreement relates, and to any and
all advances made on the security relating to the instrument to which this
Lease has been subordinated, and to any and all increases, renewals,
modifications, consolidations, replacements and extensions of any of such
deeds of trust, mortgages, instruments of security or leases on the terms and
conditions set out within any such Non-Disturbance Agreement. Tenant shall,
however, upon demand at any time or times execute, acknowledge and deliver to
Landlord any and all instruments and certificates that in the judgment of
Landlord or Landlord's mortgagee may be reasonably necessary or proper to
confirm or evidence such subordination; provided that the same are consistent
with the Non-Disturbance Agreement described above. Notwithstanding the
generality of the foregoing provisions of this SECTION 11, Tenant agrees that
any such mortgagee shall have the right at any time to subordinate any such
deeds of trust, mortgages or other instruments of security to this Lease on
such terms and subject to such conditions as such mortgagee may deem
appropriate in its discretion. Provided that the Non-Disturbance Agreement
is in effect and except as otherwise provided therein, Tenant further
covenants and agrees upon demand by Landlord's mortgagee at any time, before
or after the institution of any proceedings for the foreclosure of any such
deeds of trust, mortgages or other instruments of security, or sale of the
Building pursuant to any such deeds of trust, mortgages or other instruments
of security, to attorn to such purchaser upon any such sale and to recognize
such purchaser as Landlord under this Lease. The agreement of Tenant to
attorn upon demand of Landlord's mortgagee contained in the immediately
preceding sentence shall survive any such foreclosure sale or trustee's sale.
Provided that Landlord's mortgagee is in compliance with all of the
requirements of the Non-Disturbance Agreement referred to above, Tenant shall
upon demand at any time or times, before or after any such foreclosure sale
or trustee's sale, execute, acknowledge and deliver to Landlord's mortgagee
any and all instruments and certificates that in the judgment of Landlord's
mortgagee may be necessary or proper to confirm or evidence such attornment,
and Tenant hereby irrevocably authorizes Landlord's mortgagee to execute,
acknowledge and deliver any such instruments and certificates on Tenant's
behalf in accordance with the terms of the Non-Disturbance Agreement.
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12. RULES AND REGULATIONS. Tenant and Tenant's agents, employees, and
invitees will comply fully with all requirements of the rules and regulations
of the Building and related facilities which are attached hereto as EXHIBIT
G-1 AND G-2 and made a part hereof as though fully set out herein provided
such rules and regulations are consistent with the rules and regulations for
Comparable Buildings (defined in Article IV hereof) and provided such rules
and regulations are fairly and consistently applied to all tenants of the
Building. Landlord shall at all times have the right to change such rules
and regulations or to promulgate other rules and regulations in such manner
as may be deemed advisable for safety, care, or cleanliness of the Building
and related facilities or premises, and for preservation of good order
therein, all of which rules and regulations, changes and amendments will be
forwarded to Tenant in writing and shall be carried out and observed by
Tenant, provided such rules and regulations are fairly and consistently
applied to all tenants of the Building and are consistent with the rules and
regulations for similar buildings in San Antonio, Texas. Tenant shall
further be responsible for the compliance with such rules and regulations by
the employees, servants, agents, visitors and invitees of Tenant. To the
extent that any provision of the Rules and Regulations conflicts with
provisions contained herein, the Lease provisions shall be controlling.
13. INSPECTION. Landlord or its officers, agents and representatives
shall have the right to enter into and upon any and all parts of the Premises
between the hours of 7:00 a.m. and 7:00 p.m., Monday through Friday, after
providing at least 24 hours advance notice to Tenant (except that, in the
case of an emergency, Landlord may enter at any hour and without advance
notice to Tenant), in a manner which is not unreasonably disruptive to
Tenant's business operations to (a) inspect same or clean or make repairs or
alterations or additions as Landlord may be authorized to make or obligated
to make herein or (b) show the Premises to prospective purchasers or lenders
or, within the final twelve (12) months of the term of the lease, to
prospective tenants; and Tenant shall not be entitled to any abatement or
reduction of rent by reason thereof, nor shall such be deemed to be an actual
or constructive eviction.
14. CONDEMNATION.
(a) If the Premises or any part thereof, or if the Building or
Garage or any portion of the Building or Garage leaving the remainder of the
Building unsuitable for use as an office building comparable to its use on
the Commencement Date of this Lease, shall be taken or condemned in whole or
in part for public purposes, or sold in lieu of condemnation, then the lease
term shall, at the option of either Landlord or Tenant, forthwith cease and
terminate; all compensation awarded for any taking (or sale proceeds in lieu
thereof) shall be the property of Landlord, and Tenant shall have no claim
thereto, the same being hereby expressly waived by Tenant, other than any
payment or award made for Tenant's leasehold estate, personal property,
equipment and fixtures.
(b) In the event a portion of the Premises or the parking permits
relating thereto shall be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private sale in lieu thereof, and this Lease is not terminated as provided in
SUBPARAGRAPH (a) above, Landlord shall, at Landlord's sole risk and expense,
restore and reconstruct the Building and other
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improvements situated on the land, and which the Premises is a part, to the
extent necessary to make it reasonably tenantable. The rent payable under
this Lease during the unexpired portion of the term shall be reduced in
proportion to the Rentable Square Feet of the Premises and/or available
parking permits for the Premises remaining after the taking to the Rentable
Square Feet of the Premises and the available parking permits for the
Premises, as the case may, before the taking.
(c) Landlord and Tenant shall decide within thirty (30) days from
the date of condemnation whether this Lease shall terminate as provided in
(a) above.
15. FIRE OR OTHER CASUALTY. In the event that the Building should be
totally destroyed by fire, tornado or other casualty or in the event the
Premises or the Building should be so damaged that rebuilding or repairs
cannot be completed within one hundred eighty (180) days after the date of
such damage, either Landlord or Tenant may at their option terminate this
Lease by written notice to the other within thirty (30) days following such
casualty, in which event the rent shall be abated during the unexpired
portion of this Lease effective with the date of such damage. In the event
the Building or the Premises should be damaged by fire, tornado or other
casualty covered by Landlord's insurance, but only to such extent that
rebuilding or repairs can be completed within one hundred eighty (180) days
after the date of such damage, or if the damage should be more serious but
Landlord or Tenant do not elect to terminate this Lease, in either such event
Landlord shall within sixty (60) days after the date of such damage and the
receipt of the insurance proceeds commence to rebuild or repair the Building
and the Premises and shall proceed with reasonable diligence to restore the
Building and/or Premises to substantially the same condition in which it was
immediately prior to the happening of the casualty, except that Landlord
shall not be required to rebuild, repair or replace any part of the
furniture, equipment, fixtures and other improvements which may have been
placed by Tenant or other tenants within the Building or the Premises.
Landlord shall allow Tenant a fair diminution of rent during the time the
Premises are unfit for occupancy. Notwithstanding the foregoing, in the
event any mortgagee under a deed of trust, security agreement or mortgage on
the Building should require that any insurance proceeds be used to retire the
mortgage debt, Landlord shall have no obligation to rebuild and this Lease
shall terminate effective upon the occurrence of any such casualty. Except as
hereinafter provided, any insurance which may be carried by Landlord or
Tenant against loss or damage to the Building or to the Premises shall be for
the sole benefit of the party carrying such insurance and under its sole
control. Landlord shall carry and maintain at all times "all-risk" casualty
coverage insurance covering the Building and the Garage for not less than
eighty percent (80%) of the full replacement cost thereof.
16. HOLDING OVER. Should Tenant, or any of its successors in interest,
hold over the Premises, or any part thereof, unless otherwise agreed in
writing by Landlord, such holding over shall constitute and be construed as a
tenancy at will only, at a daily rental equal to the daily rent payable for
the last month of the lease term (before the addition to the terms provided
by this Section) plus fifty percent (50%) of such amount. The inclusion of
the preceding sentence shall not be construed as Landlord's consent for
Tenant to hold over.
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17. TAXES.
(a) Landlord shall pay before they become delinquent all ad
valorem taxes, assessments or governmental charges (hereinafter collectively
referred to as "Taxes") lawfully levied or assessed against the Building, the
Garage and the Surface Parking Lot, and the land, parking areas, driveways
and alleys around the Building. In addition, the term "Taxes" shall include
any reasonable fees, expenses and costs incurred by Landlord in its efforts
to insure a fair and equitable tax burden on the land, the Building, the
Garage and the Surface Parking Lot and in connection with any protest by
Landlord of any assessments, levies or the tax rate provided such fees if
paid to a person or affiliate related to landlord do not exceed market rate
for such services. Tenant shall have the right to participate in all
negotiations of tax assessments. If Landlord does not elect to contest the
validity of the amount of any tax or assessment levied against the Building,
the Garage, the Surface Parking Lot or the land, then Tenant shall have the
right to do so on Landlord's behalf with Landlord's consent, which consent
shall not be unreasonably withheld or delayed, and Tenant may defer payment
of its tax obligations if payment would operate as a bar to such contest, pay
same under protest, or take such other steps as Tenant may deem appropriate;
provided, however, that Tenant shall indemnify Landlord from and pay for any
expense (including attorney's fees, penalties or interest) or liabilities
arising out of such deferral of payment contest or protest, pursue such
contest in good faith and with due diligence, post any bond or security
required by law in connection with such contest, give Landlord written notice
of its intention to contest, and take no action which will cause or allow the
institution of any foreclosure proceedings or similar action against the
Premises, the Garage, the Building, the Surface Parking Lot or the land.
Tenant shall further indemnify, defend and hold Landlord harmless from and
pay for any increase in taxes which may result from Tenant's deferral of
payment, contest or protest. Landlord shall, at Tenant's expense, cooperate
in the institution and prosecution of any such proceedings initiated by
Tenant and will execute any documents which Landlord may be required to
execute in connection with such proceedings. Should any proceeding result in
reducing the total annual real estate tax and assessment liability against
the Premises, Tenant shall be entitled to receive its proportionate share of
all refunds paid by the taxing authorities after payment of all of the
Tenant's and Landlord's expenses incurred by any such proceeding in which a
refund is paid.
(b) If at any time during the term of this Lease, the present
method of taxation shall be changed so that in lieu of the whole or any part
of any tax assessments or governmental charges levied, assessed or imposed on
real estate and the improvements thereon described in (a) above, there shall
be levied, assessed or imposed on Landlord a capital levy or other tax
directly on the rents received therefrom and/or a franchise tax, assessment,
levy or charge measured by or based, in whole or in part, upon such rents for
the present or any future building on the Premises, then all such taxes,
assessments, levies or charges, or the part thereof so measured or based,
shall be deemed to be included within the term "Taxes" for the purposes
hereof.
(c) Tenant shall be liable for all taxes levied or assessed
against personal property, furniture or fixtures placed by Tenant in the
Premises. If any such taxes for which Tenant is liable are levied or
assessed against Landlord or Landlord's property and if
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Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of personal property, furniture or
fixtures placed by Tenant in the Premises, and Landlord elects to pay the
taxes based on such increases, Tenant shall pay to Landlord upon demand that
part of such taxes for which Tenant is primarily liable hereunder.
18. TENANT DEFAULT.
(a) EVENTS OF DEFAULT. The following events shall be deemed to be
events of default by Tenant under this Lease:
(1) Tenant shall fail to pay when due any rental or other
sums payable by Tenant hereunder (or under any other lease now or hereafter
executed by Tenant in connection with space in the Building), and Tenant
fails to cure such default within ten (10) days following written notice by
Landlord; provided that Landlord shall not be required to provide Tenant with
more than two (2) notices of default during any calendar year.
(2) Tenant shall fail to comply with or observe any other
provisions of this Lease, and Tenant fails to cure such failure within thirty
(30) days after receipt of written notice from Landlord or if such obligation
is not capable of being cured within such thirty (30) day period, Tenant
fails to commence to cure such failure within such thirty (30) day period and
thereafter diligently pursues the same to completion.
(3) Tenant shall make an assignment for the benefit of
creditors.
(4) Any petition shall be filed by or against Tenant under
any section or chapter of the National Bankruptcy Act, as amended, or under
any similar law or statute of the United States or any State thereof and the
same is not vacated within one hundred twenty (120) days thereafter; or
Tenant shall be adjudged bankrupt or insolvent in proceedings filed
thereunder.
(5) A receiver or Trustee shall be appointed for all or
substantially all of the assets of Tenant for the benefit of any creditor of
Tenant.
(b) REMEDIES. Upon the occurrence of any event of default
specified in this Lease, Landlord shall have the option to pursue any one or
more of the following remedies without any notice or demand whatsoever:
(1) Terminate this Lease in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession and expel or
remove Tenant and any other person who may be occupying said Premises or any
part thereof, without being liable for prosecution or any claim for damages
therefor; and Tenant agrees to pay to Landlord on demand the amount of all
loss and damage which Landlord may suffer by reason of such termination,
whether through inability to relet the Premises on satisfactory terms or
otherwise, including the loss of rental for the remainder of the lease term
based on the difference between the net present value of the rent and other
sums due for the remainder of the lease term and the rent that
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Landlord reasonably expects to receive for the Premises for the remainder of
the lease term, such net present value to be based on a discount rate of six
percent (6%) per annum.
(2) Enter upon and take possession of the Premises and expel
or remove Tenant and any other person who may be occupying the Premises or
any part thereof, without being liable for prosecution or any claim for
damages therefor, and if Landlord so elects, relet the Premises on such terms
as Landlord shall deem advisable and receive the rent therefor; and Tenant
agrees to pay to Landlord on demand any deficiency that may arise by reason
of such reletting for the remainder of the lease term.
(3) Enter upon the Premises without being liable for
prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may reasonably incur in
thus effecting compliance with Tenant's obligations under this Lease, and
Tenant further agrees that Landlord shall not be liable for any damages
resulting to Tenant from such action.
(4) Any sums of money owed by Tenant to Landlord or to be
paid by Tenant for the benefit of Landlord as provided herein and not paid by
Tenant as provided above, may be paid by Landlord and Tenant shall repay such
sums to Landlord, upon demand by Landlord, along with interest on such sums
at rate of two percent (2%) over the prime rate of Citibank, N.A., but not to
exceed the highest rate allowable by law for such transactions.
(5) Any and all other such actions Landlord may be entitled
to at law or in equity.
No re-entry or taking possession of the Premises by Landlord shall be
construed as an election on its part to terminate this Lease, unless a
written notice of such intention be given to Tenant. Notwithstanding any
such reletting or re-entry or taking possession, Landlord may at any time
thereafter elect to terminate this Lease for a previous default which has not
then been cured. Pursuit of any of the foregoing remedies shall not preclude
pursuit of any of the other remedies herein provided or any other remedies
provided by law, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any damages
occurring to Landlord by reason of the violation of any of the terms,
provisions and covenants herein contained. Landlord's acceptance of rent
following an event of default hereunder shall not be construed as Landlord's
waiver of such event of default. No waiver by Landlord of any violation or
breach of any of the terms, provisions, and covenants herein contained shall
be deemed or construed to constitute a waiver of any other violation or
default. The loss or damage that Landlord may suffer by reason of any
reletting as provided for above shall include the expense of repossession and
any repairs or remodeling undertaken by Landlord following repossession.
Should Landlord at any time repossess the Premises for any default, in
addition to any other remedy Landlord may have, Landlord may recover from
Tenant all damages Landlord may be legally entitled to at law or in equity by
reason of such default.
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19. LANDLORD DEFAULTS.
(a) EVENTS OF DEFAULT. The following events shall be events of
default by Landlord:
(1) Landlord fails to pay any sums of money payable to Tenant or
Tenant's appropriate designees in breach of Landlord's obligations hereunder,
including, but not limited to, all allowances, concessions and fees mentioned
previously, when due and the failure to pay continues for ten (10) days after
written notice from Tenant to Landlord.
(2) Landlord fails to comply with any other obligation of
Landlord contained in this Lease and does not cure such failure within thirty
(30) days after receipt of written notice from Tenant or, if such obligation is
not capable of being cured within such thirty (30) day period, Landlord or its
lender fails to commence to cure such failure within such thirty (30) day period
and thereafter diligently pursue the same to completion.
(b) REMEDIES. In the event of default by Landlord and Landlord or
its lender having failed to cure such default within the time periods specified
above, Tenant shall have the right to pursue the following remedies:
(1) Any sums of money owed by Landlord to Tenant, designees or
any other entity deemed a party to this transaction and not paid by Landlord as
provided above, may be offset against any monies thereafter payable by Tenant.
(2) If any substantial portion of the Rentable Square Feet of
the Premises becomes or remains unfit for normal business use as a result of
such default, and Tenant has ceased to occupy such portions, rent shall abate on
such portions.
(3) Tenant, after proper written notice and expiration of the
cure period set forth above, may cure Landlord's event of default for Landlord.
Any reasonable expenses incurred by Tenant in connection with such cure shall be
due from Landlord on demand. If Landlord fails to promptly pay such sums to
Tenant, Tenant may offset and withhold such sums from rent payable by Tenant.
(4) Any sums of money owed by Landlord to Tenant or to be paid
by Landlord for the benefit of Tenant as provided herein and not paid by
Landlord as provided above, may be paid by Tenant and Landlord shall repay such
sums to Tenant, upon demand by Tenant, along with interest on such sums at rate
of two percent (2%) over the prime rate of Citibank, N.A., but not to exceed the
highest rate allowable by law for such transactions.
(5) Any and all other such actions Tenant may be entitled to at
law or in equity.
20. SURRENDER OF PREMISES. No act or thing done by Landlord or its agents
during the term hereby granted shall be deemed an acceptance of a surrender of
the Premises, and
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no agreement to accept a surrender of the Premises shall be valid unless the
same be made in writing and signed by Landlord.
21. MECHANIC'S LIENS. Tenant will not permit any mechanic's lien or liens
to be placed upon the Premises or the Building or improvements thereon during
the lease term caused by or resulting from any work performed, materials
furnished or obligation incurred by or at the request of Tenant, and in the case
of the filing of any such lien Tenant will promptly pay same. If default in
payment thereof shall continue for twenty (20) days after written notice thereof
from Landlord to Tenant, Landlord shall have the right and privilege at
Landlord's option of paying the same or any portion thereof without inquiry as
to the validity thereof, and any amounts so paid, including expenses and
interest, shall be so much additional indebtedness hereunder due by Tenant to
Landlord and shall be repaid to Landlord immediately on rendition of a bill
therefor.
22. NO SUBROGATION-LIABILITY INSURANCE.
(a) Except to the extent such waiver will cause an insurance policy
to be provided hereunder, or otherwise carried by such party, to be void or
voidable by the insurance company issuing such policy, each party hereto hereby
waives any cause of action it might have against the other party on account of
any loss or damage that is insured against under any insurance policy (to the
extent that such loss or damage is recoverable under such insurance policy) that
covers the Building, the Garage, the Surface Parking Lot, the Premises,
Landlord's or Tenant's fixtures, personal property, leasehold improvements or
business and which names Landlord or Tenant, as the case may be, as a party
insured, it being understood and agreed that this provision is cumulative of
SECTION 10 hereof. Each party hereto agrees that it will request its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party. The parties
will use their best efforts to secure such waivers of subrogation and all
policies of insurance pertaining to the Premises provided such efforts shall not
require Landlord or Tenant to incur any additional costs to obtain such waiver.
If it is impossible to obtain the mutual waivers of subrogation, as provided
above, then the provisions of this paragraph shall be of no further force and
effect until such waivers may otherwise be obtained.
(b) Tenant shall procure and maintain throughout the lease term a
policy or policies of insurance at its sole cost and expense and in amounts of
not less than a combined single limit of $5,000,000.00, insuring Tenant and
Landlord against any and all liability to the extent obtainable for injury to or
death of a person or persons or damage to property occasioned by or arising out
of or in connection with the use, operation and occupancy of the Premises which
may be provided by means of one or more blanket umbrella policies. Upon written
notice from Landlord, Tenant shall furnish a certificate of insurance and such
other evidence satisfactory to Landlord of the maintenance of all insurance
coverage required hereunder, and Tenant shall obtain a written obligation on the
part of each insurance company to notify Landlord at least thirty (30) days
prior to cancellation of any such insurance. Such certificates or other
evidence of insurance coverage to be delivered no later than the date on which
Tenant takes possession of the leased Premises for any purpose and thereafter no
later than ten (10) days prior to expiration
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of existing policies. All insurance policies required of Tenant shall be
written on an occurrence basis, and shall name Landlord and its designated
mortgagee(s) as additional insured thereunder.
(c) Landlord shall maintain throughout the Lease term a policy or
policies of insurance in amounts of not less than a combined single limit of
$5,000,000.00, insuring Landlord against any and all liability to the extent
obtainable for injury to or death of a person or persons or damage to property
occasioned by or arising out of or in connection with the use, operation and
occupancy of the Building, the Garage, the Surface Parking Lot and the land.
23. BROKERAGE.
(a) Landlord agrees to pay a real estate commission to The Pinnacle
Group and Orion Partners, Inc. in connection with this Lease pursuant to that
one certain Brokerage Commission Agreement previously entered into between
Landlord, Orion Partners, Inc. and The Pinnacle Group. Tenant and Landlord each
warrants to the other that it has had no dealing with any other broker or agent
in connection with the negotiation or execution of this Lease, and Tenant and
Landlord each agrees to indemnify the other party against all costs, expenses,
attorneys' fees or other liabilities for commissions or other compensation or
charges claimed by any broker or agent claiming the same by, through or under
the indemnifying party.
(b) In consideration of the services rendered heretofore by The
Pinnacle Group, Tenant irrevocably and exclusively designates The Pinnacle Group
as its Broker for years 11-15 of this Lease. Accordingly, pursuant to the above
referenced agreement between The Pinnacle Group and Landlord, The Pinnacle Group
has earned and will be paid a commission by Landlord should Tenant renew or
extend this Lease through exercise of a renewal option, amendment of the Lease
prior to the original expiration of the primary term, or otherwise.
24. CHANGE OF BUILDING NAME. As of the date of the execution of this
Lease, the name of the Building is "One Technology Center." Landlord reserves
the right at any time to change the name by which the Building is designated;
provided that (i) Landlord may not change the name of the Building without
obtaining Tenant's prior written consent, which consent shall not be
unreasonably withheld or delayed (but it is hereby stipulated that it shall be
reasonable for Tenant to object to the name of any competitor of Tenant), and
(ii) Landlord shall not modify Tenant's signage rights as provided in ARTICLE X
of the Basic Lease Information.
25. ENVIRONMENTAL PROVISIONS.
(a) Prior to the execution of this Lease, Landlord has delivered to
Tenant copies of all environmental assessments, documents and correspondence in
Landlord's possession relating to the environmental conditions of the Premises,
the Building, the Garage, the Surface Parking Lot, the land, or neighboring
properties. Tenant is authorized at any time to perform further environmental
investigations or assessments of the Premises,
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the Building, the Garage, the Surface Parking Lot, or the land, provided the
same does not damage such property or interfere with the use and occupancy
thereof by Landlord or other tenants or their invitees.
(b) Landlord hereby represents and warrants to Tenant that Landlord
has no actual knowledge that there are underground storage tanks or Hazardous
Materials (as hereafter defined) on, in, at, under, or about the Premises, the
Building, the Surface Parking Lot, or the land which may impose liability upon
Landlord or Tenant under applicable Environmental Laws (defined below) except as
indicated in the environmental reports provided to Tenant pursuant to the
immediately preceding paragraph. Landlord represents, warrants and agrees that
it shall comply with the Environmental Laws. Landlord shall immediately provide
Tenant with copies of any order, notice, permit, application or any other
communication from or to Landlord and from or to any entity or person, including
governmental agencies, regarding a violation or alleged violation of
Environmental Laws with respect to the Premises, the Building, the Garage, the
Surface Parking Lot, or the land.
(c) Landlord shall defend, indemnify and hold Tenant harmless from
and against all claims, losses, damages, liabilities, judgments, penalties,
fines, costs or expenses, whatsoever, including, without limitation, attorney's
fees and costs, expert and engineering fees and costs, testing, surveying, and
analytical fees, (a) from Hazardous Materials existing on, in, at, under, or
about the Premises on the date of occupancy by Tenant and (b) thereafter, from
Hazardous Materials placed in, at, under or about the Premises by Landlord, its
employees, agents, representatives or contractors.
(d) In the event Hazardous Materials are discovered on the Premises,
the Garage, the Surface Parking Lot, or the land, in violation of the
Environmental Laws, Tenant shall have the following rights, unless such
violation was caused by Tenant, its employees, agents, representatives or
contractors: (a) Landlord shall, promptly upon receipt of written notice from
Tenant, or the governmental entity having jurisdiction, investigate and
remediate any contamination in accordance with the Environmental Laws, (b) if
such remediation deprives Tenant of the use of a portion of the Premises which
adversely affects the operation of its business on the Premises, Tenant shall
have the right to abate rent relating to such portion of the Premises until it
regains full use of such portion, and (c) if such Hazardous Materials or such
remediation shall render the Premises unsuitable for Tenant's occupancy and such
remediation is not promptly commenced or not diligently prosecuted to
completion, Tenant may, upon sixty (60) days written notice to Landlord,
terminate this Lease unless such condition is cured within such sixty (60) day
period.
(e) Tenant represents, warrants and agrees that Tenant shall comply
with the Environmental Laws. Tenant shall immediately provide Landlord with
copies of any order, notice, permit, application or any other communication from
or to Tenant and from or to any entity or person including governmental agencies
regarding a violation or alleged violation of Environmental Laws with respect to
the Premises, the Building, the Garage, the Surface Parking Lot, or the land.
If Tenant or any of its employees, agents, representatives or contractors uses,
releases, generates, stores, treats, discharges or disposes of Hazardous
Materials on the Premises, in violation of the Environmental Laws, Tenant shall
remediate such contamination in accordance with the Environmental Laws. Tenant
shall indemnify,
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defend and hold Landlord harmless from and against all claims, loss, damage,
liabilities, judgments, penalties, fines, costs or expenses, whatsoever,
including attorneys' fees and costs, expert and engineering fees and costs,
testing, surveying, and analytical fees, resulting from Hazardous Materials
placed in, at, or about the Premises by Tenant, its employees, agents,
representatives or contractors.
(f) The "Environmental Laws" include the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
from time to time (42 U.S.C. Section 9601, ET SEQ.), the Hazardous Materials
Transportation Act, as amended from time to time (49 U.S.C. Appx. Section
1801, ET SEQ.), the Resource Conservation and Recovery Act, as amended from
time to time (42 U.S.C. Section 6901, ET SEQ.), the Toxic Substances Control
Act, as amended from time to time (15 U.S.C. Section 2601, ET SEQ.), the
Clean Water Act, as amended from time to time (33 U.S.C. Section 1251, ET
SEQ.), the Clean Air Act, as amended from time to time (42 U.S.C. Section
7401, ET SEQ.), and all other applicable federal, state and local laws,
rules, regulations, codes, and ordinances.
(g) "Hazardous Materials" include asbestos, polychlorinated
biphenyls, petroleum products and constituents or derivatives thereof, any
flammable explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances or related materials as defined or
described in or regulated pursuant to the Environmental Laws.
(h) Landlord represents and warrants to Tenant that, as of the date
of the execution of this Lease and throughout the Term hereof, the air and water
quality of the Premises (including, without limitation, the heating and air
conditioning, ventilation and filtering systems, minimum ventilation rates,
carbon dioxide levels, and other indicators of proper outside air ventilation,
drainage from air handling condensate trays, air filters, air pressure flows,
and similar items within the Premises and the Building) shall meet or exceed
current legal requirements.
(i) This SECTION 26 shall survive the termination or expiration of
this Lease.
26. TENANT'S ADDITIONAL RIGHTS.
(a) Tenant shall have the right at no cost, to utilize approximately
10,000 square feet of vacant space in the Building for storage purposes only,
provided such space is available (the "Storage Space"). Landlord shall have the
right to designate the location of the Storage Space. Tenant agrees to remove
all stored property from the Storage Space and to relocate to a substituted
Storage Space at Tenant's sole cost and expense on or before fifteen (15) days
following receipt of written notice from Landlord. It is agreed that Landlord
will have no obligations with respect to providing utility services to the
Storage Space.
(b) Throughout the Term of this Lease, Tenant may, at its sole cost
and expense, perform any inspections or assessments of the Premises, the
Building, the Garage, the Surface Parking Lot, the land, and the other common
areas to verify their condition and Landlord's compliance with the terms of
this Lease in relation thereto, provided that Tenant provides Landlord with no
less than three (3) days prior written notice thereof and Tenant
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shall not damage such property in connection therewith nor materially
interfere with the use and occupancy thereof by Landlord and other tenants
and their invitees.
(c) Subject to approval by applicable governmental authorities and
the rights of other existing tenants which operate satellite dishes and antennas
on the roof of the Building, Landlord hereby grants to Tenant, at Tenant's sole
cost and expense, the right to install, maintain, and operate one satellite dish
and antenna on the roof of the Building without payment of any additional rent
or other compensation to Landlord. Landlord shall have the right to approve the
plans, location and method of installation of the satellite dish and antenna on
the roof and such approval shall not be unreasonably withheld or delayed.
Tenant agrees that it will operate its equipment in a manner which will not
interfere with Landlord's existing communications systems or the existing
equipment of any other tenant sharing the use of this location. Should such
harmful interference be identified as being caused by Tenant's equipment, Tenant
shall immediately take every reasonable step to mitigate and eliminate said
interference. Tenant shall be required to coordinate with Landlord and with
each of Landlord's existing tenants to insure that their frequencies and antenna
locations will be compatible with other tenants so as to prevent such harmful
interference. The location of the satellite dish and antenna to be agreed to by
Landlord and Tenant shall constitute part of the Premises herein for all
purposes, except that Tenant shall not be obligated to pay any additional rent
for use of the satellite dish and antenna area.
27. ESTOPPEL CERTIFICATES. Tenant agrees to furnish from time to time
when requested by Landlord, the holder of any deed of trust or mortgage or the
lessor under any ground lease covering all or any part of the Building or the
improvements therein or the Premises or any interest of Landlord therein (but
not more often than two times per twelve-month period) a certificate signed by
Tenant confirming and containing such factual certifications and representations
deemed appropriate by Landlord, the holder of any deed of trust or mortgage or
the improvements therein or the Premises or any interest of Landlord therein and
a statement clarifying or correcting any misstatements which may be contained in
such certificate, and Tenant shall within five (5) business days following
receipt of said proposed certificate from Landlord, return a fully executed copy
of said certificate to Landlord.
28. NOTICES.
(a) All rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord in Bexar County, Texas, at the
address set forth in the Basic Lease Information or at such other address as
Landlord may specify from time to time by written notice delivered in accordance
herewith.
(b) Any notice or document required to be delivered hereunder shall
be addressed to the parties hereto at the respective addresses set forth in the
Basic Lease Information or at such other address as either of said parties have
theretofore specified by written notice delivered in accordance herewith.
Notices shall either be (i) by certified mail, return receipt requested, or (ii)
by telecopier, overnight delivery service, or personal delivery, provided that
receipt of such telecopied, overnight delivery service or personal delivery
notice is appropriately confirmed. Notice under the terms of this Lease shall
be
26
<PAGE>
deemed delivered upon the earlier of (i) the date of actual receipt by such
party, or (ii) three (3) business days after the notice is duly mailed as
provided above, or (iii) where delivery is by overnight delivery service, the
next business day following the date of deposit with such overnight delivery
service and marked for delivery on the following business day to the address
provided above.
29. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant (except with respect to the payment of
Basic Rental or additional rent), Landlord or Tenant shall not be liable or
responsible for, and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions any
other causes of any kind whatsoever which are beyond the reasonable control of
Landlord or Tenant, as the case may be.
30. SEPARABILITY. If any clause or provision of this Lease is illegal,
invalid or unenforceable under present or future laws effective during the lease
term, then and in that event, it is the intention of the parties hereto that the
remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added as a
part of this Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
31. AMENDMENTS; BINDING EFFECT. This Lease may not be altered, changed or
amended, except by instrument in writing signed by both parties hereto. No
provision of this Lease shall be deemed to have been waived by Landlord or
Tenant, as the case may be, unless such waiver be in writing, nor shall any
custom or practice which may evolve between the parties in the administration of
the terms hereof be construed to waive or lessen the right of such party to
insist upon the performance by the other party in strict accordance with the
terms hereof. The terms and conditions contained in this Lease shall apply to,
inure to the benefit of, and be binding upon the parties hereto, and upon their
respective successors in interest and legal representatives, except as otherwise
herein expressly provided.
32. QUIET ENJOYMENT. Provided Tenant has performed all of the terms and
conditions of this Lease, including the payment of rent, to be performed by
Tenant, Landlord covenants and agrees that Tenant shall peaceably and quietly
hold and enjoy the Premises for the lease term, without hindrance, subject to
the terms and conditions of this Lease.
33. GENDER. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires.
34. ATTORNEYS FEES. Should either party to this Lease employ an attorney
or attorneys to enforce the provisions hereof or to protect its interests in any
manner arising under this Lease, or to recover damages for breach of this Lease,
the non-prevailing party in any such action or suit in a court of competent
jurisdiction (the finality of which is not
27
<PAGE>
legally contested) agrees to pay the prevailing party all reasonable court
costs, legal expenses, including attorneys fees, expended or incurred in
connection therewith.
35. PERSONAL LIABILITY. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the
interest of Landlord in the Building, the Garage and the Surface Parking Lot and
any insurance proceeds relating to the Building, Garage and the Surface Parking
Lot, this Lease or the operations of the Building to the extent such insurance
proceeds are received by Landlord and not paid or applied, as required by this
Lease, and Landlord shall not otherwise be personally liable for any deficiency.
This clause shall not be deemed to limit or deny any remedies which Tenant may
have in the event of default by Landlord hereunder which do not involve the
personal liability of Landlord.
36. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord shall have the
following rights:
(a) To decorate and make repairs, alterations, additions, changes or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof, and for such purposes to enter the Premises and, during the
continuance of any such work, to temporarily close doors, entry-ways, public
space and corridors in the Building, to interrupt or temporarily suspend
Building services and facilities and to change the arrangement and location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets, or other public parts of the Building, all without abatement of rent or
affecting any of Tenant's obligations hereunder, so long as (i) the Premises are
reasonably accessible by Tenant, its employees, agents and invitees and (ii)
Landlord provides Tenant with reasonable prior written notice of any significant
repairs, alterations, additions, changes or improvements, whether structural or
otherwise, in or about the Building.
(b) To have and retain a paramount title to the real property upon
which the Premises are situated free and clear of any act of Tenant purporting
to burden or encumber them beyond Tenant's leasehold rights pursuant to this
Lease.
(c) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, provided such exclusive right shall
not operate to exclude Tenant from the use expressly permitted herein.
(d) To prohibit the placing of vending or dispensing machines of any
kind in or about the Premises, except for the sole use of Tenant, its employees
and invitees, without the prior written permission of Landlord.
(e) To have access for Landlord and other tenants of the Building to
any mail chutes located on the Premises according to the rules of the United
States Postal Service.
(f) To take all such reasonable measures as Landlord may deem
advisable for the security of the Building and its occupants, including without
limitation, the search of all persons entering or leaving the Building, the
evacuation of the Building for cause, suspected cause, or for drill purposes,
the temporary denial of access to the Building, and
28
<PAGE>
the closing of the Building after normal business hours and on Saturdays,
Sundays and holidays, subject, however, to Tenant's right to admittance when
the Building is closed after normal business hours under such reasonable
regulations as Landlord may prescribe from time to time consistently applied
to all tenants and as otherwise described herein, which may include by way of
example but not of limitation, that persons entering or leaving the Building,
whether or not during normal business hours, identify themselves to a
security officer by registration or otherwise and that such persons establish
their right to enter or leave the Building.
All of the other provisions of this SECTION 37, notwithstanding,
Landlord shall exercise its rights under this SECTION 37 without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or possession
of the Premises or its rights under the terms of this Lease. In the event
Landlord exercises any such rights described in this SECTION 37, in the manner
which will effect an eviction, constructive or actual, or disturb Tenant's use
or possession of the Premises, Landlord shall have breached its obligations to
Tenant under the terms of this Lease.
37. NOTICE TO LENDER. As provided in the Non-Disturbance Agreement
described in SECTION 11 above, if the Premises or the Building or any part
thereof are at any time subject to a first mortgage or a first deed of trust or
other similar instruments and this Lease or the rentals are assigned to such
mortgagee, trustee or beneficiary and Tenant is given written notice thereof,
including the post office address of such assignee, then Tenant shall not abate
rentals or exercise any rights or remedies it may have for any default on the
part of Landlord without first giving written notice by certified or registered
mail, return receipt requested to such assignee, specifying the default in
reasonable detail, and affording such assignee a reasonable opportunity to make
performance, at its election, for and on behalf of Landlord, during the same
period as Landlord shall have the right to cure any such default hereunder.
38. CAPTIONS. The captions contained in this Lease are for convenience of
reference only, and in no way limit or enlarge the terms and conditions of this
Lease.
39. MISCELLANEOUS.
(a) Any approval by Landlord or Landlord's architects and/or
engineers of any of Tenant's drawings, plans and specifications which are
prepared in connection with any construction of improvements in the Premises
shall not in any way be construed or operate to bind Landlord or to constitute a
representation or warranty of Landlord as to the adequacy or sufficiency of such
drawings, plans and specifications, or the improvements to which they relate,
for any use, purpose, or condition, but such approval shall merely be the
consent of Landlord as may be required hereunder in connection with Tenant's
construction of improvements in the leased Premises in accordance with such
drawings, plans and specifications.
(b) There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in the leased Premises or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold
29
<PAGE>
estate hereby created or any interest in this Lease or in such leasehold
estate as well as the fee estate in the leasehold Premises or any interest in
such fee estate.
(c) Neither Landlord nor Landlord's agents or brokers have made any
representations or promises with respect to the Premises, the Building or the
land except as herein expressly set forth and no rights, easements or licenses
are acquired by Tenant by implication or otherwise except as expressly set forth
in the provisions of this Lease.
(d) The submission of this Lease to Tenant shall not be construed as
an offer, nor shall Tenant have any rights with respect thereto unless and until
Landlord shall, or shall cause its managing agent to, execute a copy of this
Lease and deliver the same to Tenant.
(e) Landlord and Tenant each represent and warrant to the other that
this Lease has been duly authorized by all necessary parties and that the same
represents the binding obligation of such party, enforceable in accordance with
its terms.
40. LENDER APPROVAL. This Lease is subject to Landlord's obtaining
financing for the construction of improvements to the Building on terms
acceptable to Landlord in its sole and absolute discretion on or before fifteen
(15) days after the date of execution of this Lease. If Landlord fails to
obtain such financing, or can obtain said financing only upon the basis of
modifications of the terms and provisions of this Lease and Tenant refuses to
approve in writing any such modification within five (5) days after Landlord's
request therefor, either Landlord or Tenant shall have the right to cancel this
Lease by written notice to the other party. If such right to cancel is
exercised, this Lease shall thereafter be null and void, and any security
deposited hereunder shall be returned to Tenant and neither party shall have any
liability to the other by reason of such cancellation.
41. EXHIBITS AND ATTACHMENTS. All exhibits, attachments, riders and
addenda referred to in this Lease and the exhibits listed hereinbelow are
incorporated into this Lease and made a part hereof for all intents and
purposes.
Exhibit A: Description of Land
Exhibit B: Site Plan (designating common areas, parking, etc.)
Exhibit C: BOMA Standards
Exhibit D: Construction Rider
Exhibit E: Tenant's Signage
Exhibit F: Cleaning Specifications
Exhibit G-1: Rules and Regulations
Exhibit G-2: Parking Rules
30
<PAGE>
DATED AS OF THE DATE FIRST ABOVE WRITTEN.
LANDLORD:
MEDICAL PLAZA PARTNERS, LTD.
BY: ORION PARTNERS MEDICAL PLAZA,
LTD., ITS GENERAL PARTNER
BY: ORION PARTNERS, INC.,
ITS GENERAL PARTNER
BY:
--------------------------------
NAME:
------------------------------
TITLE:
-----------------------------
TENANT:
BILLING INFORMATION CONCEPTS, INC.
BY:
--------------------------------
NAME:
------------------------------
TITLE:
-----------------------------
31
<PAGE>
Exhibit A
[Description of Land]
<PAGE>
Exhibit B
[Site Plan (designating common areas, parking, etc.)]
<PAGE>
Exhibit C
[Boma Standards]
<PAGE>
Exhibit D
[Construction Rider]
<PAGE>
Exhibit E
[Tenant's Signage]
<PAGE>
Exhibit F
[Cleaning Specifications]
<PAGE>
Exhibit G-1
[Rules and Regulations]
<PAGE>
Exhibit G-2
[Parking Rules]
<PAGE>
ANNEX 1
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934 (Amendment No. 2)
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
/ / Definitive Information Statement
U.S. LONG DISTANCE CORP.
- --------------------------------------------------------------------------------
(Name of Registrant As Specified In Charter)
U.S. LONG DISTANCE CORP.*
- --------------------------------------------------------------------------------
(Name of Person(s) Filing the Information Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
14,839,486
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11** Pro forma book value per share of
the Common Stock to be distributed was $2.32 as of March 31, 1996
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$34,427,607
------------------------------------------------------------------------
5) Total fee paid:
$6,885.52
------------------------------------------------------------------------
/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.
<PAGE>
[LETTERHEAD OF U.S. LONG DISTANCE CORP.]
, 1996
To the Stockholders of U.S. Long Distance Corp.:
The Board of Directors of U.S. Long Distance Corp. ("USLD") has approved the
distribution of the outstanding shares of common stock of its wholly owned
subsidiary, Billing Information Concepts Corp. ("Billing"), to holders of USLD
Common Stock. Billing will operate the third party billing clearinghouse and
information management services business formerly operated by USLD through
certain of its subsidiaries and will be a third-party billing clearinghouse for
records resulting from telephone calls and other transactions carried by its
customers. These customers consist primarily of direct dial long distance
telephone companies and operator services and information services providers.
The enclosed Information Statement contains information about the distribution
and related transactions and other important financial and other information
about Billing, its organization, business, management and other matters.
If you are a holder of USLD Common Stock of record at the close of business
on , 1996, you will receive as a dividend one share of Billing Common
Stock for each share of USLD Common Stock you hold. We expect to mail the
Billing Common Stock certificates on or about , 1996.
The Board of Directors believes that the spinoff will enhance value to
USLD's stockholders. The spinoff will provide Billing with more efficient access
to capital markets to finance the anticipated growth of its business. 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
<PAGE>
[LETTERHEAD OF BILLING INFORMATION CONCEPTS CORP.]
, 1996
To the Stockholders of U.S. Long Distance Corp.:
The enclosed Information Statement contains important financial and other
information about Billing Information Concepts Corp. (the "Company"), the
corporation of which you will become a stockholder if you own shares of U.S.
Long Distance Corp. as of the record date for the distribution. We want to
welcome you as a stockholder and invite you to learn more about our company.
The Company 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
<PAGE>
INFORMATION STATEMENT
BILLING INFORMATION CONCEPTS CORP.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Information Statement is being furnished in connection with the
distribution (the "Distribution") by U.S. Long Distance Corp. ("USLD") to
holders of record of USLD common stock ("USLD Common Stock") as of the close of
business on , 1996 (the "Record Date"), of one share of common stock,
par value $.01 per share (together with the associated rights issued pursuant to
a stockholder rights plan, collectively the "Billing Common Stock"), of Billing
Information Concepts Corp. ("Billing" or the "Company"), for each share of USLD
Common Stock owned as of the close of business on the Record Date, pursuant to
the terms of a Distribution Agreement between Billing and USLD dated July 10,
1996. This Information Statement will first be mailed to USLD Stockholders on or
about , 1996.
Billing is a wholly owned subsidiary of USLD that will, upon the
effectiveness of the Distribution, own the business and assets of, and will be
responsible for the liabilities associated with, the third party billing
clearinghouse and information management services business currently owned by
USLD. See "Special Factors" and "Business." The Distribution will result in 100%
of the outstanding shares of Billing Common Stock being distributed to holders
of USLD Common Stock on a pro rata basis. No consideration will be paid by
USLD's stockholders for shares of Billing Common Stock. The Distribution is
scheduled to occur on , 1996 (the "Distribution Date"). See "The
Distribution."
There is no current public market for the Billing Common Stock, although it
is expected that a "when-issued" trading market will develop prior to the
Distribution Date. Billing Common Stock has made application to list and
believes that the Billing Common Stock will be approved for listing on the
Nasdaq National Market subject to official notice of issuance. See "The
Distribution -- Listing and Trading of the Billing Common Stock."
------------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION,
NO PROXIES ARE BEING SOLICITED, AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
Stockholders of USLD with inquiries related to the Distribution should
contact Investor Relations, USLD, 9311 San Pedro, Suite 100, San Antonio, Texas
78216, Telephone: (210) 525-6228; or the Billing Common Stock Transfer Agent,
Montreal Trust Company of Canada, Montreal Trust Centre, 510 Burrard Street,
Vancouver, British Columbia V6C 3B9, Telephone: (604) 661-0275. Montreal Trust
is also acting as Distribution Agent for the Distribution.
------------------------
The date of this Information Statement is July , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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........................................................................................ 32
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................................................ 46
Seasonality.............................................................................................. 48
Effect of Inflation...................................................................................... 48
New Accounting Standards................................................................................. 48
U.S. Long Distance Corp.................................................................................. 48
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
BUSINESS................................................................................................... 49
<S> <C>
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
</TABLE>
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
<PAGE>
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
<TABLE>
<S> <C>
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 , 1996.
Distribution Date................. , 1996.
Mailing Date...................... Certificates representing the shares of Billing Common
Stock to be distributed pursuant to the Distribution
will be delivered to the Distribution Agent on the
Distribution Date. The Distribution Agent will mail
certificates representing the shares of Billing Common
Stock to holders of USLD Common Stock as soon as
practicable thereafter. Holders of USLD Common Stock
should not send stock certificates to USLD, Billing or
the Distribution Agent. See "The Distribution -- Manner
of Effecting the Distribution."
Distribution Agent and Transfer
Agent............................ Montreal Trust Company of Canada.
Conditions to the Distribution.... The Distribution is conditioned upon, among other
things, declaration of the special dividend by the Board
of Directors of USLD (the "USLD Board"). The USLD Board
has reserved the right to waive any conditions to the
Distribution or, even if all of the conditions to the
Distribution are satisfied, to
</TABLE>
4
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<TABLE>
<S> <C>
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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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;
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
(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.
</TABLE>
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
<PAGE>
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)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
--------- ----------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
8
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
FISCAL YEAR ENDED ENDED
SEPTEMBER 30, 1995(5) MARCH 31, 1996(5)
--------------------- -----------------
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, (5)
1996
-------------
<S> <C>
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
</TABLE>
- ------------------------
(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
<PAGE>
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
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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
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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
<PAGE>
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
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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
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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
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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
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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
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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
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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
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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. Accordingly,
the Staff noted that the Billing Common Stock would 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
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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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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:
<TABLE>
<S> <C> <C>
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
</TABLE>
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
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
<PAGE>
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.
30
<PAGE>
TAX EFFECT OF OPTION ADJUSTMENT. USLD believes 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 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
31
<PAGE>
(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 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.
32
<PAGE>
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.
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
33
<PAGE>
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.
34
<PAGE>
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.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
ACTUAL PRO FORMA (1)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
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
--------- -------------
--------- -------------
</TABLE>
- ------------------------
(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."
35
<PAGE>
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:
<TABLE>
<S> <C>
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
-----------
-----------
</TABLE>
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.
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<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
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
---------- ----------------- -----------
---------- ----------------- -----------
</TABLE>
37
<PAGE>
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)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------- ------------- -----------
<S> <C> <C> <C>
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
</TABLE>
38
<PAGE>
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)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------- -------------- -----------
<S> <C> <C> <C>
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
</TABLE>
- ------------------------
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
<PAGE>
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.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, PRO FORMA (1)
----------------------------------------------------- MARCH 31, MARCH 31,
1991 1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------
(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
<PAGE>
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
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
---------------------------------- ----------------------
AS A PERCENTAGE OF REVENUES 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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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
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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
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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
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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
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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
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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
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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-
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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
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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
<PAGE>
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:
<TABLE>
<CAPTION>
DIRECTOR INITIAL TERM EXPIRES
- ------------------------------------------------------------------------------------ ---------------------
<S> <C>
Parris H. Holmes, Jr................................................................ 1999
Alan W. Saltzman.................................................................... 1999
Lee Cooke........................................................................... 1998
James E. Sowell..................................................................... 1997
</TABLE>
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
<PAGE>
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 $15,000 per year, to each outside director of
Billing. See "Executive Compensation -- Employee Benefit Plans -- Stock Option
and Grant Plans."
STOCK OPTIONS. Pursuant to Billing's Director Plan, each outside director
automatically will be granted a stock option to purchase certain shares of
Billing Common Stock. See "Executive Compensation -- Employee Benefit Plans --
Stock Option and Grant Plans." Options automatically received under the Billing
Director Plan are in addition to any stock option elected to be received in
payment of the Annual Director Fee.
The following table sets forth certain information regarding options granted
during the period October 1, 1994 through September 30, 1995 to outside
directors of USLD, who will be outside directors of Billing. For information
concerning the treatment of USLD options held by Billing directors after the
Distribution, see "Relationship Between Billing and USLD after the Distribution
- -- Benefit Plans and Employment Matters Allocation Agreement."
<TABLE>
<CAPTION>
UNREALIZED
SECURITIES VALUE OF
UNDERLYING EXERCISE OPTIONS AT
PRESENTLY PRICE SEPTEMBER 30,
DIRECTOR EXERCISABLE OPTIONS PER SHARE 1995 ($)(1)
- ------------------------------------------------- ------------------- ------------- ---------------
<S> <C> <C> <C>
Lee Cooke........................................ 15,000 $ 11.125 $ 59,063
10,000 $ 12.00 $ 30,625
</TABLE>
- ------------------------
(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
<PAGE>
"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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
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)
</TABLE>
- ------------------------
(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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
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 (#)
- ------------------------------ ----------- ------------ ----------- ----------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ------------------------------ --------------
<S> <C>
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
</TABLE>
- ------------------------------
(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 $1,795
in USLD deferred compensation contributions made on behalf of Mr. Gehri.
(11) Amount shown reflects Mr. Long's salary from December 27, 1993, the
beginning date of his employment with U.S. Long Distance, Inc., through the
end of fiscal 1994.
STOCK OPTION GRANTS IN FISCAL 1995
The following table provides certain information related to options granted
to the named executive officers of Billing during the period October 1, 1994
through September 30, 1995 pursuant to
64
<PAGE>
USLD stock plans. For information concerning the treatment of USLD options held
by Billing officers after the Distribution, see "Relationship Between Billing
and USLD after the Distribution -- Benefit Plans and Employment Matters
Allocation Agreement."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL 1995 ($/SH) (2) DATE 5% ($) 10% ($)
- ------------------------------------------ --------------- ------------- -------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------
(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 $11.25 per share, and the option expiration dates were
extended to November 27, 2000.
(4) Calculation based on stock option exercise price over period of option
assuming annual compounding. The columns present estimates of potential
values based on certain mathematical assumptions. The actual value, if any,
that an executive officer may realize is dependent upon the market price on
the date of option exercise. Amounts in parentheses indicate potential
realizable value after giving effect to repricing described in footnote 3.
AGGREGATED OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers of Billing during the period October 1, 1994 through
September 30, 1995 and the number and value of USLD options held at fiscal year
end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(3) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED OPTIONS AT FY-END (#)(2) OPTIONS AT FY-END ($)(3)
UPON OPTION VALUE -------------------------- ----------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------------- -------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------------
(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.
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EMPLOYEE BENEFIT PLANS
BILLING INFORMATION CONCEPTS CORP. 401(K) RETIREMENT PLAN
Prior to the Distribution, Billing will adopt the Billing Information
Concepts Corp. 401(k) Retirement Plan (the "Billing Retirement Plan") which will
be effective upon the effective date of the Registration Statement on Form 10.
Participation in the Billing Retirement Plan will be offered to eligible
employees of Billing or its subsidiaries (collectively, the "Participants").
Generally, all employees of Billing or its subsidiaries who are 21 years of age
and who have completed one year of service during which they worked at least
1,000 hours will be eligible for participation in the Billing Retirement Plan.
The Billing Retirement Plan will be a 401(k) plan, a form of defined
contribution plan which provides that Participants generally may make voluntary
salary deferral contributions, on a pre-tax basis, of between 1% and 15% of
their base compensation in the form of voluntary payroll deductions up to a
maximum amount as indexed for cost-of-living adjustments ("Voluntary
Contributions"). Billing will make matching contributions equal to 50% of the
first 3% of a Participant's compensation contributed as salary deferral. Billing
may from time to time make additional discretionary contributions at the sole
discretion of the Billing Board. The discretionary contributions, if any, are
allocated to Participants' accounts based on a discretionary percentage of the
Participants' respective salary deferrals.
Participants will be gradually vested in all contributions made by Billing
over a period of five years of credited service, vesting 25% a year for each
full year of service beginning with the Participant's second anniversary, and
becoming 100% vested after five years of service or upon death, total and
permanent disability, retirement under the Billing Retirement Plan or Billing
Retirement Plan termination. Participants will be always 100% vested in their
Voluntary Contributions. Service with USLD prior to the Distribution Date will
be credited under the Billing Retirement Plan for purposes of vesting as well as
eligibility to participate.
STOCK OPTION AND GRANT PLANS.
BILLING INFORMATION CONCEPTS CORP. 1996 EMPLOYEE COMPREHENSIVE STOCK PLAN
GENERAL. Prior to the Distribution, Billing will adopt, and USLD as the
sole stockholder of Billing will approve, the Billing Information Concepts, Inc.
1996 Employee Comprehensive Stock Plan (the "Billing Employee Stock Plan"),
which will become effective upon the effective date of the Registration
Statement on Form 10. 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."
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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;
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(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.
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<PAGE>
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.
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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.
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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
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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 effective date of the
Registration Statement on Form 10. Participation in the Billing Executive
Deferral Plan is offered to certain key employees occupying management positions
and/or certain other highly compensated employees of Billing who are determined
by the Board, from time to time, to be eligible to participate in the Billing
Executive Deferral Plan ("Billing Executive Deferral Participants"). At the
Distribution Date, it is estimated that 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 effective date of the Registration Statement on Form 10. The
Disability Plan provides long-term disability benefits for certain employees
occupying management positions with Billing or its subsidiaries. Benefits under
the Disability Plan are provided directly by Billing based on definitions, terms
and conditions contained in the Disability Plan documents. Benefits under the
Disability Plan supplement benefits provided under Billing's insured long-term
disability plan. At the Distribution Date, there are expected to be
approximately 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
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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.
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
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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 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.
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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.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- --------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Putnam Investments, Inc. (1)............................................... 1,832,500 12.9%
One Post Office Square
Boston, Massachusetts 02109
</TABLE>
- ------------------------
(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.
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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.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------------
AMOUNT AND NATURE OF PERCENT OF CLASS
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED (1)
- --------------------------------------------------------- -------------------- -------------------------
<S> <C> <C>
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
</TABLE>
- ------------------------
* 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.
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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
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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
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<PAGE>
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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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
</TABLE>
F-1
<PAGE>
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
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1994 1995
--------- -----------
<S> <C> <C>
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
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
U.S. LONG
DISTANCE
CORP.'S
COMMON STOCK PREFERRED STOCK INVESTMENT IN
------------------------ ------------------------ AND ADVANCES TO
SHARES AMOUNT SHARES AMOUNT BILLING
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
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
--- ----- --- ----- ---------------
--- ----- --- ----- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
--------------------------------
1993 1994 1995
--------- ---------- ---------
<S> <C> <C> <C>
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
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Purchased receivables from billing customers................................... $ 53,347 $ 55,228
Purchase money borrowings under revolving credit facility for purchased
receivables................................................................... 25,235 23,030
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Year Ending September 30,
1996.................................................................................. $ 23,315
1997.................................................................................. 307
1998.................................................................................. 296
1999.................................................................................. 258
2000.................................................................................. 184
Thereafter............................................................................ 3
--------------
$ 24,363
--------------
--------------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------
<S> <C>
Year Ending September 30,
1996.................................................................................. $ 367
1997.................................................................................. 388
1998.................................................................................. 169
-----
Total minimum lease payments........................................................ $ 924
-----
-----
</TABLE>
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
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
-------
-------
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current.................................................................. $ 3,777 $ 5,034 $ 8,927
Deferred................................................................. (30) 4 (266)
--------- --------- ---------
$ 3,747 $ 5,038 $ 8,661
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
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:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
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
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to USLD............................................................ $ 4,485 $ 5,308 $ 5,322
Purchases from USLD...................................................... 610 916 1,729
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1994 1995 1995 1995
------------ ----------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1993 1994 1994 1994
------------ ----------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
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
</TABLE>
F-16
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
------------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C>
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
------------- -----------
------------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-17
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-18
<PAGE>
BILLING INFORMATION CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED MARCH 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
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
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-19
<PAGE>
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash payments for income taxes............................................... $ 2,887 $ 4,999
Cash payments for interest................................................... 697 775
</TABLE>
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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Sales to USLD............................................................ $ 2,476 $ 2,594
Purchases from USLD...................................................... 662 1,544
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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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;
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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
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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.
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(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
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<PAGE>
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 other than the Distribution.
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
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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;
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(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
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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
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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
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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
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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
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ANNEX V
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
BYLAWS
OF
BILLING INFORMATION CONCEPTS CORP.
(A DELAWARE CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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
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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
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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 3.13 of this Article
III of these Bylaws.
3.3 Except as otherwise provided for or fixed by or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on the board of directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the board of directors. Any directors
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors
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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
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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
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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.
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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
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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.
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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
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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
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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
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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
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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 3.1, 3.2,
3.3 and 3.13 of Article III and Articles IX and X of the Bylaws may be amended
only by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the voting power of all the shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class.
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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)
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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
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(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.
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(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.
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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
<PAGE>
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
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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
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<PAGE>
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
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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
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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.
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<PAGE>
(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.
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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.
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(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)
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<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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.
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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.
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"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.
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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;
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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
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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.
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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
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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.
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