<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.
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[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
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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
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2
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BUSINESS................................................................................................... 49
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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
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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
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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
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4
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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
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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;
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(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.
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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)
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SIX MONTH PERIOD
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
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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
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<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
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SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT BILLING SERVICES CUSTOMERS)
(UNAUDITED)
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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
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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)
--------------------- -----------------
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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
<PAGE>
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
<PAGE>
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
13
<PAGE>
may be, (i) was insolvent; (ii) was rendered insolvent by reason of the
Distribution; (iii) was engaged in a business or transaction for which Billing's
or USLD's remaining assets, as the case may be, constituted unreasonably small
capital; or (iv) intended to incur, or believed it would incur, debts beyond its
ability to pay as such debts matured, such court may be asked to void the
Distribution (in whole or in part) as a fraudulent conveyance and require that
the stockholders return the special dividend (in whole or in part) to USLD, or
require Billing to fund certain liabilities for the benefit of creditors. The
measure of insolvency for purposes of the foregoing will vary depending upon the
jurisdiction whose law is being applied. Generally, however, Billing or USLD, as
the case may be, would be considered insolvent if the fair value of their
respective assets were less than the amount of their respective liabilities or
if they incurred debt beyond their respective abilities to repay such debt as it
matures. In addition, under Section 170 of the DGCL (which is applicable to the
Distribution), a corporation may make distributions to its stockholders only out
of its surplus (net assets minus capital) and not out of capital.
USLD's Board and management believe that, in accordance with the solvency
opinion rendered in connection with the Distribution, (i) Billing and USLD each
will be solvent at the time of the Distribution (in accordance with the
foregoing definitions), will be able to repay their respective debts as they
mature following the Distribution and will have sufficient capital to carry on
their respective businesses, and (ii) the Distribution will be made entirely out
of surplus, as provided under Section 170 of the DGCL.
DEPENDENCE UPON CONTRACTS WITH LOCAL TELEPHONE COMPANIES
The Company's business is dependent upon its contractual relationships with
over 1,200 local telephone companies pursuant to which these local telephone
companies bill and collect from their customers on Billing's behalf. Most of the
billing and collection agreements cover a one to five year period and provide
for automatic renewals unless notice of termination is given. Certain of these
local telephone companies, whose billing services provide access to a vast
majority of the businesses and households in the United States, are legally
required to provide billing and collection services for Billing if they provide
such services for any other third party, such as Billing's competitors. Although
the Company has not experienced the termination of any contracts in the past,
there can be no assurance that these contracts will continue in effect on their
present terms, if at all. The termination of one or more of these contracts
would severely diminish the Company's capacity to provide billing services in
the geographic areas covered by the terminated contracts and could adversely
affect the Company's business.
ANTICIPATED BILLING SYSTEM EXPENDITURES
To facilitate and support the growth anticipated in its business, Billing
plans to make significant expenditures in its operations over the next one to
two years. Specifically, the Company currently intends to spend approximately
$18 million to license, develop and create information systems that will enable
it to offer "direct billing" and "invoice ready" services to its customers (see
"Business -- Business Strategy"). These expenditures are expected to be made in
the areas of software development, hardware, related staffing and additional
local telephone company agreements. Recently, the Company has entered into a
software license and related services and equipment agreements for the provision
of certain of these items. The Company is in the process of negotiating
additional local telephone company agreements for the implementation of "invoice
ready" billing services. The Company believes that it will be able to fund these
expenditures with internally generated funds and borrowings, but there can be no
assurance that such funds will be generated and/or spent in these projects.
COMPETITION
The billing services industry is highly competitive and is based upon
pricing, customer service and value-added services. The Company competes
primarily with a unit of Electronic Data Systems, Inc. This competitor and its
parent company have greater name recognition than the Company and have, or have
access to, substantially greater financial and personnel resources than those
available to the
14
<PAGE>
Company. Billing's success is dependent upon its continued ability to maintain
high quality, market driven services at competitive prices. Although the Company
believes that it currently competes favorably with respect to these factors,
there can be no assurance that Billing will be able to compete successfully with
existing or future competitors or that the competitive pressures faced by
Billing will not have a material adverse effect on its business, operating
results or financial condition. See "Business -- Competition."
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This Information Statement contains certain forward-looking statements and
information relating to Billing that are based on the beliefs of USLD or Billing
management as well as assumptions made by and information currently available to
USLD or Billing management. When used in this document the words "anticipate,"
"believe," "estimate," "expect" and "intend" and similar expressions, as they
relate to USLD, Billing or USLD or Billing management, are intended to identify
forward-looking statements. Such statements reflect the current views of USLD or
Billing with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
Information Statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended. Neither USLD nor Billing intends to update
these forward-looking statements.
THE DISTRIBUTION
REASONS FOR THE DISTRIBUTION
USLD, through its Telecommunications Group, provides direct dial long
distance and operator services and, through its Billing Group, provides billing
clearinghouse and information management services to direct dial long distance,
operator services and other telecommunications businesses. The USLD Board, after
careful study and analysis and consultation with financial and other advisors,
has determined that, for the reasons set forth in the following four paragraphs,
it is in the best interests of USLD and its stockholders to separate ownership
of the Telecommunications Group and the Billing Group. USLD will continue to
conduct the Telecommunications Group business, and Billing will conduct the
Billing Group business.
The USLD Board believes that, as a result of the benefits to USLD and
Billing discussed below, the Distribution will enhance value to USLD's
stockholders. The spinoff will provide Billing with more efficient access to
capital markets to finance the anticipated growth of its business. Specifically,
the Company believes that it will achieve a more favorable valuation from the
investment community as a result of the Distribution and, therefore, will have
access to equity capital on more favorable terms. Billing is anticipated to be
valued more favorably than USLD has been historically because of what management
of USLD believe are Billing's attractive profitability and growth prospects. The
Company believes that it will also have improved access to debt markets as a
stand-alone entity due to its strong equity base, consistent operating results
and cash flow position. Billing has had preliminary discussions with certain
lenders regarding its post-Distribution financing needs including those
currently met by FINOVA, but does not expect to pursue any financing commitments
until the Distribution has been completed.
In addition, the Distribution will eliminate the perceived concern of
Billing's customers and potential customers who compete with the
Telecommunications Group that the Billing Group's affiliation with the
Telecommunications Group assists a competitor and could compromise customer
proprietary information. Regarding this reason, the Billing Group uses "most
favored nations" contracts (wherein all customers pay the same rates for given
volumes of records) for certain of its services in part to appease the concerns
of the Telecommunications Group's competitors that they are subsidizing the
Telecommunications Group's billing and collection expenses. The prospect of any
15
<PAGE>
special arrangement between the Telecommunications Group and the Billing Group,
and the possibility that the Telecommunications Group could have access to
certain proprietary information of the Billing Group's customers, has led some
customers and potential customers to express concerns over such matters and in
some cases to use the Billing Group's competitors.
The advent of the new telecommunications law has heightened the
telecommunications industry's awareness of such potential conflicts. Prior to
the enactment of the Telecommunications Act of 1996 (the "Telecommunications
Act"), the Regional Bell Operating Companies ("RBOCs") and the General Telephone
Operating Companies from whom Billing purchased certain billing and collection
services were generally prohibited from competing in the direct dial long
distance market, and direct dial long distance carriers such as USLD, to whom
Billing resold local telephone company billing and collection services, were
generally prohibited from competing with the local telephone companies for local
services. The Telecommunications Act now allows this competition for long
distance services outside the RBOC's telephone operating regions and for
"incidental" long distance services in-region. In addition, the RBOCs may be
authorized to provide all long distance services in-region in a state upon the
entry of a facilities-based local competitor and satisfaction of a checklist of
local interconnection requirements overseen by the FCC. In-region long distance
services will require the structural separation between an RBOC local service
provider and the RBOC's long distance entity. This structural separation was
deemed necessary for several reasons, including to prevent the RBOC's long
distance entity from utilizing customer proprietary information obtained through
the RBOC's local telephone records or billing and collection data to target
their competitors' premium long distance customers for their own long distance
service. As a result of the Telecommunications Act, all of the local telephone
companies with whom the Billing Group has contracts are or are expected to
become potential direct dial long distance billing customers, and all of the
Billing Group's existing direct dial long distance billing customers may now
enter into the local telephone market as Billing's vendors and customers
aggressively vie for each other's market share. As evidenced by Congress's
mandate to separate the local and long distance arms of the RBOCs, the concerns
of direct dial long distance businesses in these areas will be increased in the
new telecommunications marketplace. Although the Telecommunications Group and
the Billing Group have taken measures to ensure that no such proprietary
information could be shared in the past, it has become extremely important for
the continued growth of the Billing Group to eliminate these fears from its
existing and potential customer base.
Moreover, as a result of the Distribution, the Telecommunications Group will
be able to compete with customers of the Billing Group for the provision of
telecommunications services without any concern as to the impact on the Billing
Group. The Distribution will separate two distinct companies with different
missions and different financial, investment and operating characteristics so
that each can pursue business strategies and objectives appropriate to its
specific business. While the Telecommunications Group and the Billing Group are
currently operated by separate management teams, separation of the two
businesses will enable each management group to concentrate its attention and
financial resources on its own business without regard to the corporate
objectives, policies and capital requirements of the other and allow for more
effective incentives for key employees of each business, including stock-based
and other incentive programs that will more directly reward employees of each
business. The separation will permit investors, customers, lenders and other
constituencies to evaluate the respective businesses of USLD and Billing on a
stand-alone basis.
OPINIONS OF FINANCIAL ADVISORS
BEST INTERESTS OF STOCKHOLDERS. As a condition of the Distribution
Agreement to be entered into between USLD and Billing prior to the Distribution,
the USLD Board received a written opinion from The Chicago Corporation dated May
13, 1996, to the effect that, based upon the factors set forth in such opinion,
the Distribution is in the best interests of the stockholders of USLD from a
financial point of view after considering other alternatives that were available
regarding Billing. The full text of The Chicago Corporation's opinion is set
forth in Annex I, and this summary is qualified in its entirety by reference to
the text of such opinion. It is a condition to the consummation of the
Distribution that
16
<PAGE>
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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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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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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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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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
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<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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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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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
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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.
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<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
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(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.
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<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.
36
<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
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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.
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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
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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,
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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.
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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.
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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
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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
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"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
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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
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<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.
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<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 $1,795
in USLD deferred compensation contributions made on behalf of Mr. Gehri.
(11) Amount shown reflects Mr. Long's salary from December 27, 1993, the
beginning date of his employment with U.S. Long Distance, Inc., through the
end of fiscal 1994.
STOCK OPTION GRANTS IN FISCAL 1995
The following table provides certain information related to options granted
to the named executive officers of Billing during the period October 1, 1994
through September 30, 1995 pursuant to
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<PAGE>
USLD stock plans. For information concerning the treatment of USLD options held
by Billing officers after the Distribution, see "Relationship Between Billing
and USLD after the Distribution -- Benefit Plans and Employment Matters
Allocation Agreement."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM (4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#)(1) FISCAL 1995 ($/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.
65
<PAGE>
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."
66
<PAGE>
ADMINISTRATION. The Billing Employee Stock Plan will be administered by the
Compensation Committee of two "disinterested persons" appointed by the Board.
The Billing Employee Stock Plan grants broad authority to the Compensation
Committee to grant options or award restricted shares to full-time employees and
officers of Billing and its subsidiaries (estimated to total 215 eligible
individuals at the Distribution Date) selected by the Compensation Committee, to
determine the number of shares subject to options or awards and to provide for
the appropriate periods and methods of exercise and requirements regarding the
vesting of options and awards of restricted shares.
TERMS OF OPTIONS. The Billing Employee Stock Plan will limit the discretion
allowed to the Compensation Committee in granting options. The option price per
share with respect to each option shall be determined by the Compensation
Committee, but shall in no instance be less than the par value of the shares
subject to the option. In addition, the option price for ISOs may not be less
than 100% of the fair market value of the Billing Common Stock on the date of
grant. An ISO may be granted to a participant only if such participant, at the
time the option is granted, does not own stock possessing more than 10% of the
total combined voting power of all classes of Common Stock of Billing or of its
parent or subsidiary. The preceding restriction shall not apply if at the time
the option is granted the option price is at least 110% of the fair market value
of the Billing Common Stock subject to the option and such option by its terms
is not exercisable after the expiration of five years from the date of grant.
The aggregate fair market value (determined as of the time the option is
granted) of the stock with respect to which ISOs are exercisable for the first
time by a participant in any calendar year (under all plans of Billing and of
any parent or subsidiary) shall not exceed $100,000. There is no price
requirement for NQSOs, other than that the option price must exceed the par
value of the Billing Common Stock. The Compensation Committee may permit the
option purchase price to be payable by transfer to Billing of Billing Common
Stock owned by the option holder with a fair market value at the time of
exercise equal to the option purchase price. The expiration date of each option
shall be fixed by the Compensation Committee, but notwithstanding any provision
of the Billing Employee Stock Plan to the contrary, such expiration shall not be
more than ten years from the date of grant. No participant shall receive any
grant of options, whether ISOs or NQSOs, for more than an aggregate of 150,000
shares of Billing Common Stock during any one fiscal year of Billing.
Options to acquire Billing Common Stock granted to USLD optionees under the
Billing Employee Stock Plan prior to the Distribution shall have vesting and
other material provisions similar to those of the related USLD options. See
"Relationship Between Billing and USLD after the Distribution -- Benefit Plans
and Employment Matters Allocation Agreement."
TERMS OF RESTRICTED STOCK AWARDS. The Billing Employee Stock Plan permits
the Compensation Committee to make awards of shares of Billing Common Stock that
are subject to a designated period during which such shares of Billing Common
Stock may not be sold, assigned, transferred, pledged, or otherwise encumbered,
which period shall not be less than one (1) year nor more than two (2) years
from the date of grant. As a condition to any award, the Compensation Committee
may require an employee to pay to Billing the amount (such as the par value of
such shares) required to be received by Billing in order to assure compliance
with applicable state law. Any award for which such requirement is established
shall automatically expire if not purchased in accordance with the Compensation
Committee's requirements within 60 days after the date of grant. The
Compensation Committee may, at any time, reduce the restricted period with
respect to any outstanding shares of restricted stock and any retained
distributions with respect thereto awarded under the Billing Employee Stock
Plan. Shares of restricted stock awarded under the Billing Employee Stock Plan
shall constitute issued and outstanding shares of Billing Common Stock for all
corporate purposes.
Each employee shall have the right to vote the restricted stock held by such
employee, to receive and retain all cash dividends and distributions thereon and
exercise all other rights, powers and privileges of a holder of Billing Common
Stock with respect to such restricted stock, with the exception that (i) the
employee will not be entitled to delivery of the stock certificate or
certificates representing such restricted stock until the restricted period
applicable to such shares or a portion thereof shall have expired and unless all
other vesting requirements with respect thereto shall have been fulfilled;
67
<PAGE>
(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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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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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.
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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
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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.
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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.
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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.
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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.
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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;
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(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
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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
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<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
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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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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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<PAGE>
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
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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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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
VI-8
<PAGE>
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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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
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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.
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<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.
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(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;
VIII-3
<PAGE>
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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<PAGE>
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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<PAGE>
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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