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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number: 0-28536
BILLING CONCEPTS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2781950
(State of Incorporation) (I.R.S. Employer
Identification No.)
7411 JOHN SMITH DRIVE, SUITE 200, SAN ANTONIO, TEXAS 78229
(Address of Principal Executive Office) (Zip Code)
(210) 949-7000
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's outstanding Common Stock
held by non-affiliates of the Registrant as of December 11, 1998 was
approximately $460,155,160. There were 34,404,124 shares of the Registrant's
Common Stock outstanding as of December 11, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 1999
Annual Meeting of Stockholders to be held on February 25, 1999, are incorporated
by reference in Part III hereof.
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BILLING CONCEPTS CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
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ITEM PAGE
NUMBER NUMBER
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- Index........................................................................................................ 2
PART I
1. Business..................................................................................................... 3
2. Properties................................................................................................... 13
3. Legal Proceedings............................................................................................ 13
4. Submission of Matters to a Vote of Security Holders.......................................................... 13
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters....................................... 14
6. Selected Financial Data...................................................................................... 15
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................ 17
8. Financial Statements and Supplementary Data.................................................................. 26
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 48
PART III
10. Directors and Executive Officers of the Company.............................................................. 49
11. Executive Compensation....................................................................................... 49
12. Security Ownership of Certain Beneficial Owners and Management............................................... 49
13. Certain Relationships and Related Transactions............................................................... 49
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................................. 50
Signatures................................................................................................... 53
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K contains certain "forward-looking" statements as
such term is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and "intend" and
words or phrases of similar import, as they relate to the Company or its
subsidiaries or Company management, are intended to identify forward-looking
statements. Such statements reflect the current risks, uncertainties and
assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer relations,
relationships with vendors, the interest rate environment, governmental
regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other
filings made by the Company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
GENERAL
Billing Concepts Corp. (the "Company" or "BCC," formerly known as
Billing Information Concepts Corp. or "BIC") is a billing services provider to
the communications industry. BCC provides third-party billing clearinghouse and
information management services and develops, sells and supports sophisticated
billing and customer care software applications. BCC's customers include direct
dial long distance telephone companies, operator services providers, information
providers, telecommunications providers, competitive local exchange companies,
Internet service providers, data services providers and integrated
communications services providers.
The Company maintains contractual billing arrangements with over 1,300
local telephone companies that 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. This process is
known within the industry as "Local Exchange Carrier billing" or "LEC billing."
BCC's direct dial long distance customers 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, BCC provides these
carriers with a cost-effective means of billing and collecting residential and
small commercial accounts through the local telephone companies.
The Company also processes telephone call records for customers
providing operator services largely to the hospitality, penal and private pay
telephone industries. In addition, BCC 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. Since 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.
BCC acts as an aggregator of telephone call records and other
transactions from various sources and due to its large volume, it receives
discounted billing costs with the local telephone companies and can pass on
these discounts to its customers. Additionally, BCC 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 $5.7 million, $4.2 million, $4.1
million, $4.1 million, $4.0 million, and $7.1 million during fiscal 1999, 2000,
2001, 2002, 2003 and thereafter, respectively, for minimum usage charges under
billing and collection agreements, that, unless automatically renewed, expire at
varying dates through the end of fiscal 2005. 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
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Company has met all such volume commitments in the past and anticipates
exceeding the minimum usage volumes with all of these vendors.
In 1994, BCC 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, Internet access, Caller ID and other non-regulated
telecommunications equipment charges.
In addition to its full-service LEC billing product, BCC 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 and telecommunication tax
processing and reporting.
The Company offers software applications that support customer
management and billing of a communication company's customers. The software
applications offered by the Company provide the capability to combine many
communications products in a single convergent customer bill. These products
include local telephone service, long distance service, data services, wireless
services, paging services, cable television services, Internet services, and
utilities. The software applications can be configured to meet a company's
unique business rules and product set. BCC offers the software applications to
companies through licensing agreements and outsourcing arrangements. BCC has
professional services and facilities management organizations that provide
consulting, development and systems operations services centered around the
communications industry and its software products. BCC also sells hardware and
provides custom software development and other related services.
The Company entered the software market in June 1997 as a result of the
acquisition of Computer Resources Management, Inc. ("CRM"). CRM had developed
and sold billing applications to the long distance and convergent services
markets. Additionally, in October 1998, the Company acquired Expansion Systems
Corp. ("ESC") and integrated it into BCC. ESC has developed a customer care and
billing application for Internet Service Providers ("ISP") that automates the
registration of new Internet subscribers and creates bills for customers'
services. In September 1998, BCC acquired a 22% ownership position in Princeton
TeleCom Corporation ("PTC"), which provides Internet-based bill publishing and
automated payment using secure Internet transactions or integrated voice
response accessed by toll-free numbers. Through these actions, BCC has expanded
its potential markets to include companies focused on Internet technology and
services. In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft"). CommSoft is an international software
development and consulting firm specializing in the telecommunications industry.
By merging with Commsoft, BCC has taken another step toward making the Company
the most comprehensive provider of customer care and billing solutions to the
communications industry.
INDUSTRY BACKGROUND
Billing clearinghouse and information management services, or LEC
billing, in the telecommunications industry developed out of the 1984 breakup of
American Telephone & Telegraph ("AT&T") and the Bell System. In connection with
the breakup, the local telephone companies that make up the Regional Bell
Operating Companies ("RBOCs"), 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. Due to both the
cost of acquiring and the minimum charges associated with many of the local
telephone company billing and collection agreements, only the largest long
distance carriers, including AT&T, MCI Telecommunications Corporation ("MCI")
and Sprint Incorporated ("Sprint"), could afford the option of billing directly
through the local telephone companies. Several companies, including BCC, 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."
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. Since 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 not typically 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
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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 BCC 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 that, in turn, remit payments to their carrier customers.
Before the 1984 breakup of AT&T and the Bell companies, all
telecommunications billing was accomplished by direct billing end users. Direct
billing entails the rating and formatting of call records, printing of bill
pages and mailing the bill to end users. This process can be controlled
completely by the telecommunications services provider, or portions of this
process can be outsourced to third-party vendors. In either case, the end user
receives an individual bill directly from the service provider. As the number of
telecommunications service providers grew since 1984, the need for individual
and customized billing systems grew as well.
Over the past several years, new services such as PCS and Internet have
added to the demand for customer care and billing systems. Many of these
services are being offered by companies who already offer other communications
services and who desire to combine them onto a single customer account which is
known in the industry as convergent billing. This demand for convergent billing
has driven growth in spending by communications companies on customer care and
billing solutions to replace aging legacy systems. The Telecommunications Reform
Act of 1996 has opened new opportunities in the communications market for new
entrants and for existing companies to expand their services. As the provisions
of the Act are implemented, traditional segmentation of the communications
market is becoming blurred. Competitive Local Exchange Carriers ("CLECs") are
rushing to offer service in most metropolitan areas. Large Integrated
Communications Providers are building and acquiring network facilities to offer
bundled products to commercial and residential customers, and the industry's
incumbent companies are re-deploying resources to non-regulated business
opportunities. All of this industry activity has accelerated the demand for
customer care and billing solutions.
DEVELOPMENT OF BUSINESS
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of the Company (the
"Distribution"), which, prior to the Distribution, was a wholly owned subsidiary
of USLD. Upon completion of the Distribution, BCC became an independent,
publicly held company that owns and operates the billing clearinghouse and
information management services business previously operated by USLD through
certain of its subsidiaries (the "Billing Group"), including Billing Concepts,
Inc., formerly known as Zero Plus Dialing, Inc.
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 RBOCs, 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, BCC entered into a new set of billing and collection
agreements with the local telephone companies and began offering LEC billing
services to direct dial long distance services providers. The Company has
billing and collection agreements covering over 1,300 local telephone companies
with access lines into approximately 95% of the United States, Canada and Puerto
Rico.
A key factor in the evolution of the Company's business has been the
ongoing development of its information management systems. In 1990, the Company
developed a comprehensive information system capable of processing, tracing and
accounting for telephone call record transactions (see "Business - Operations").
Management believes that this proprietary system provides the Company's
customers with more detailed information and yields a better collection rate
than its competitors. Also in 1990, the Company became the first third-party
billing clearinghouse to finance its customers' accounts receivable (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 "Telecommunications Group").
The purpose of this separation was to satisfy some of the Company's customers
who were also competitors of USLD's long
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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 BCC and (ii)
that BCC was somehow subsidizing USLD's long distance and operator services
businesses with which these customers compete. Subsequent to the separation, the
Billing Group and the Telecommunications Group 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 non-regulated services and products such as 900 access pay-per-call
transactions, cellular long distance services, paging services, voice mail
services, Internet access, Caller ID and other non-regulated telecommunications
equipment charges. 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 non-regulated
telecommunications products and services represents a limited expansion
opportunity for the Company.
With the expansion into the software development business in 1997, the
Company expanded its product offerings to include customer care and billing
solutions and entered additional markets not previously served. Modular Business
Applications ("MBA"), the Company's software application suite, provides
communications companies the capability to support their mission critical
business processes. MBA is a collection of software modules comprising a
customer management module and specific product rating modules that can be
combined to support a company's specific mix of products. MBA bills for local,
long distance, data, private line, Internet, wireless, paging, cable television
and utilities. MBA allows companies to view a customer and all of the services
they may purchase as a single relationship. Companies who use MBA can develop
combinations of products and services that can be uniquely priced (or
discounted) to reflect a customer's specific needs. MBA also provides the
capability to manage the complicated organizational reporting requirements of
larger commercial customers with many levels.
With the acquisition of ESC, BCC added TotalBill(R) to its product
suite. TotalBill provides customer acquisition, customer management, and billing
for ISP. TotalBill integrates with the ISP network to provide new subscriber
services, track services, and maintain accounts. TotalBill is highly scalable
and cost effective for the rapidly growing ISP segment. TotalBill is resold by
network equipment vendors as part of turnkey solutions to ISP's. A companion
product, InstantReg, gives ISP's the ability to distribute an automated
subscription application to prospects which leads new subscribers through the
registration process and automatically sets up new service.
BCC has had significant success providing solutions to some of the most
dynamic companies in the competitive telecommunications marketplace. MBA
supports the business processes of some of the largest integrated services
providers in the industry and the requirements of new companies entering the
industry. Solutions based on MBA are unique in that they can be scaled small
enough to meet the requirements of new businesses looking to grow quickly while
they can grow to support the largest organizations without costly replacement
and conversions. Through experience with these organizations, BCC has emerged as
a company known for its ability to effectively implement its solutions quickly
with the ability to provide the resources and support required to successfully
complete projects.
Overall, the software operations have added significant capability to
the organization and developed infrastructure to support growth and expansion of
the business. In 1998, BCC focused attention on its professional services
resources, growing this staff significantly to support current and new
customers. This organization provides consulting, application development,
training, call center services and back office services to customers in the
communications industry. The organization has entered into a number of long term
arrangements to provide outsourced services and consulting services to MBA
customers since its creation in 1997.
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In 1998, an aggressive marketing program was started to increase
industry awareness and understanding of its capabilities and vision. As a means
of highlighting the Company's expanded capabilities, a new corporate image was
created including logo, advertising, and collateral materials. Introduction to
the industry began in November 1998. A program to insure high visibility and
contact with the industry is in place and is supported by advertising, public
relations, and participation in key industry events. BCC added significant
direct sales resources to the organization with the addition of industry
experienced and knowledgeable individuals and strategic relationships with other
vendors serving the industry. BCC will continue to pursue key marketing
relationships with companies providing complementary products and services.
BILLING CLEARINGHOUSE AND INFORMATION MANAGEMENT SERVICES ("LEC BILLING")
In general, the Company performs four types of LEC billing services
under different billing and collection agreements with the local telephone
companies. First, 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. Second, the Company offers zero plus -
zero minus LEC billing 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 LEC billing services. Third, the Company performs enhanced LEC
billing 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, Internet
access, 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.
LEC BILLING PROCESS
LEC billing refers 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 on a daily to monthly basis, but typically in weekly intervals. The data
is submitted either electronically or via magnetic tape. BCC, through its
proprietary software, processes the telephone call record data to determine the
validity of each record and to include for each record certain telecommunication
taxes and applicable customer identification information and sets up an account
receivable for each batch of call records processed. 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. BCC 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.
Approximately 90% of the value of the call records is received in the initial
payments by the local telephone companies.
The Company does not record an allowance for doubtful accounts for LEC
billing customer receivables, but does accrue an estimated liability for
end-user customer service refunds and local telephone company adjustments
related to certain customers. The Company reviews the activity of its customer
base to detect potential losses. If there is uncertainty with an account, the
Company can discontinue paying the customer in order to hold funds to cover
future end-user customer service refunds, bad debt and unbillable adjustments.
If a customer discontinues doing business with the Company, and there are
insufficient funds being held to cover future refunds and adjustments, the
Company's only recourse is through legal action. Since these adjustments are
associated with customer receivable activity, the related accrual is included in
the "Accounts payable - billing customers" caption on the balance sheet. An
allowance for doubtful accounts is not necessary for LEC billing trade
receivables since these receivables are collected from the funds received from
the local telephone company before remittance is made to the customer.
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 currently submits more than 2,900 tax returns on behalf of its customers
each month.
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BCC 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.
BCC 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 are
also included in revenues and are passed through to the customer.
Through its advance funding program, BCC offers its customers the
option to receive, within five days of the customer's submission of records to
BCC, a significant portion of the revenue associated with such records. The
customer pays interest for the period of time between the purchase of records by
the Company and the time the local telephone company submits payment to BCC for
the subject records. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Advance Funding Program and Receivable
Financing Facility."
DIRECT BILLING SOLUTIONS
In the competitive communications marketplace today, companies
increasingly realize the value of a direct customer relationship as a means of
growing its revenues. Many companies who have relied on LEC billing are looking
to implement solutions that will give them the option to bill customers
themselves. Companies who have systems which bill customers are looking to
replace them with solutions that provide sophisticated capabilities such as
convergent billing and product bundling. The Company provides direct billing
solutions through its systems operations built around MBA and TotalBill.
MBA supports the key business processes required to manage and bill
customers. MBA allows a company to define products and prices, enter new
customer orders, track order status, turn on new services, maintain customer
information, create charges for services provided, calculate discounts or
special prices, generate a bill for services, track and update accounts
receivable, collect payments and allocate revenues. The application has rating
modules for different network services offered by communications providers.
These modules accept records of events from the various networks, translate
these events into billable items, apply the appropriate rate to the event, and
store them for use in creating bills. The application can integrate seamlessly
with financial applications and network applications. MBA can be configured to
support a wide range of unique business rules using options and tables that
exist in the application without the need for software customization.
MBA and TotalBill can be delivered to customers in a number of ways.
BCC offers various outsourcing and facilities management options that allow
providers to take advantage of BCC facilities and resources. In these
situations, the provider would pay a right-to-use fee for access to the
software, and pay for other services on an as-used basis. These arrangements can
include full systems hosting and operations with back office services or any
subset of services. Both applications also may be available to be delivered to
customers to use in their own premises by licensing the applications. Customers
purchase a license that entitles them to use of the application in a defined
enterprise, and they acquire their own hardware and operations resources. In
most situations, BCC provides additional services for the implementation,
conversion and training required that make the application operational from its
professional services staff. Outside resources are not required. If a customer
desires some unique enhancements added to the application, BCC professional
services staff provides the services at an additional fee. MBA can be
implemented in as little as 60 to 90 days using the proprietary tools and
templates developed for the industry.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft"). CommSoft provides convergent billing
solutions and has a customer base of over 75 wireless companies and local
exchange carriers. CommSoft's flagship product, CommVergenceTM, is an account
number based, table-driven suite of software applications that facilitates the
administration of every aspect of a company's business operations from
application to service order, to billing, and to
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collections. It is a suite of business operation software for telephone, long
distance, paging, cellular and PCS services. More specifically, the core modules
of the CommVergence product include Subscriber Management and Billing, Rating
and Call Plans, Customer Care, and Telephone Plant Inventory Systems. In
addition to the CommVergence product, CommSoft offers Carrier Access Billing,
Full Function Accounting and complete Inventory Management. Both Commsoft and
BCC use the IBM AS/400 platform and its DB2 database for their core products,
which makes the integration of the respective software systems a tight,
intuitive fit for a best-of-breed suite. CommSoft's 14 plus years of success
with local and wireless telephone companies, coupled with BCC's 10 plus years of
success, primarily with long distance companies and CLECs, is a complementary
match of experience. By combining Commsoft's menu of products with those of BCC,
the Company will have a broader depth of telecom knowledge to offer its
customers.
The BCC systems operation earns its revenues from license fees,
right-to-use fees, maintenance fees, professional services fees, and facilities
management fees. License fees and right-to-use fees are based on the modules
licensed and the number of customers supported by the application. Maintenance
fees are a percentage of the total license fees. Professional services fees
include time and materials charges and facilities management fees.
OPERATIONS
The Company's LEC billing 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 LEC billing services is
largely administrative and the number of employees is not directly volume
sensitive. Many of BCC'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 BCC's proprietary
software, processed, and 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
continual, uninterrupted processing of LEC billing services. One system is
dedicated to daily processing activities, and the other serves as a back-up to
the primary system and provides storage for up to 12 months of billing detail,
which is immediately accessible to BCC's customer service representatives who
handle billing inquiries. Detail of records older than 12 months is stored on CD
ROM and magnetic tape for at least seven years. Since timely submission of call
records to the local telephone companies is critical to prompt collections and
high collection rates, BCC 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
BCC.
The Company's contracts with its customers provide for the LEC billing
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, BCC updates tables within each of the local telephone companies'
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.
The Company offers software licensing, software customization, computer
equipment sales and direct billing outsourcing services. BCC has developed, and
continues to enhance, sophisticated software applications known as MBA. BCC is
also a reseller of IBM AS/400 hardware, which is used as the hardware platform
required to host MBA.
BCC maintains a relatively small direct sales force of fifteen 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.
9
<PAGE> 10
CUSTOMERS
The Company provides LEC billing services and direct billing systems
sales and development to the following categories of telecommunications services
providers:
o Interexchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and 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.
o Switchless Resellers: Marketing organizations, affinity groups, or
even aggregator operations that buy direct dial long distance services in volume
at wholesale rates from a facilities based long distance company and sell them
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.
o 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, to third-party numbers or
person-to-person.
o 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.
o Customer Premise Equipment Providers: Carriers who install equipment
at aggregator locations, such as hotels, university dormitories, and penal
institutions, which handle calls originated from that location device. These
calls are subsequently billed to local telephone company calling cards, collect,
to third-party numbers or person-to-person.
o 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.
o Competitive Local Exchange Carriers ("CLEC"): Carriers that provide
local exchange services to subscribers who were previously served exclusively by
the incumbent local exchange carrier.
o Incumbent Local Exchange Carrier ("ILEC"): The existing local
telephone company who has previously offered service as a regulated monopoly
company.
o Internet Service Providers ("ISP"): Companies that offer Internet
access and Internet-based services.
o Integrated Communications Providers ("ICP"): Carriers who offer
multiple communications services through a combination of owned network
facilities and resale of other network facilities. These multiple services are
typically bundled and priced as a package of services.
o Other Customers: Suppliers of various forms of telecommunications
equipment and pager and cellular telephone companies.
COMPETITION
The Company competes with several other billing clearinghouses in
servicing the telecommunications industry. Management believes that BCC is the
largest participant in the third-party clearinghouse industry in the United
States followed by OAN Services, Inc. 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 LEC billing industry. The cost to acquire the
necessary billing and collection agreements is significant, as is the cost to
develop
10
<PAGE> 11
and implement the required systems for processing telephone call records and
other transactions. Additionally, most 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 hinder
efforts to compete effectively on price until a new entrant could generate
sufficient volume. 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, BCC enjoys some
of the most favorable rates available in the industry and passes the benefits of
its buying power on to its customers.
Since most customers in the billing clearinghouse industry are under
contract with BCC or one of its competitors, management believes that the
majority of 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 good
reputation within the industry for the timeliness and accuracy of its
collections and disbursements to customers.
The market for telecommunications billing systems and services is
highly competitive, and the Company expects this competition to increase. The
Company competes with both independent providers of billing systems and services
and with the internal billing departments of telecommunications service
providers. The Company expects that the continued growth of the
telecommunications industry and the deregulation of other industries will
encourage new competitors to enter the billing market in the future. The growth
in total expenditures on customer care and billing solutions is expected to
increase at significant rates over the next few years. Companies that offer
broad solutions capability have the opportunity to gain significant market share
and establish long-term relationships with industry players.
The Company believes that the principal competitive factors in its
market include responsiveness to client needs, timeliness of implementation,
quality of service, price, project management capability and technical
expertise. The Company also believes that its ability to compete depends in part
on a number of competitive factors outside its control, including the
development by others of software that is competitive with the Company's
services and products, the price at which competitors offer comparable services
and products, the extent of competitors' responsiveness to customer needs and
the ability of the Company's competitors to hire, retain and motivate key
personnel. In addition, the Company competes with a number of companies that
have substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition than the Company. As a result,
the Company's competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the promotion and sale of their products than can the Company.
The Company does not currently hold any patents and relies upon a
combination of contractual non-disclosure obligations and statutory and common
law copyright, trademark and trade secret laws to establish and maintain its
proprietary rights to its products. The Company believes that, because of the
rapid pace of technological change in the telecommunication and software
industries, the legal protections for its products are less significant factors
in the Company's success than the knowledge, ability and experience of the
Company's employees, the frequency of product enhancements and the timeliness
and quality of support services provided by the Company. The Company generally
enters into confidentiality agreements with its employees, consultants, clients
and potential clients and limits access to, and distribution of, its proprietary
information. Use of the Company's software products is generally restricted to
specified locations and is subject to terms and conditions prohibiting
unauthorized reproduction or transfer of the software products.
BUSINESS STRATEGY
As the potential markets for the Company's convergent billing systems
and services continue to develop and the LEC billing market continues to demand
increasingly sophisticated billing services, the Company believes that
significant opportunities exist to continue the expansion of its business base.
The Company's business strategy contains the following key elements:
MAINTAIN LEADERSHIP POSITION. BCC believes it has developed a leadership
position in providing LEC billing 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 through its advance
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
11
<PAGE> 12
billing and information management function. Management believes that BCC 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 other than telecommunications providers, such as utility, energy
and cable television companies. Like the Company's existing customers, these
services and product providers are likely candidates not only for the core
services of billing clearinghouse and information management, but also for
back-office services such as customer service and tax reporting. Management
believes that the high growth potential of these services providers may present
significant potential opportunities for the Company.
INCREASE SALES OF NEW AND ENHANCED SERVICES. The Company believes that certain
new or enhanced services it currently offers to the marketplace or contemplates
developing present significant opportunities. These include the following:
Market Direct Billing Capability. Management believes that there is substantial
demand by its customers and potential customers for direct billing products and
services that allow them to bill end users directly for the services they
provide. The Company plans to focus its marketing efforts on licensing its
state-of-the-art direct billing software to such customers. Since some of these
customers 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 may also outsource this activity to the Company's
in-house service bureau. The Company has targeted as likely candidates for such
direct billing products and services 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. The Company's convergent billing platform has the capability to
produce a single convergent bill whereby multiple services and products can be
billed directly to the end user under one, unified billing statement. The
Company plans to continue developing new billing modules and further enhance its
convergent billing platform in 1999 as evidenced by the Company's merger with
Commsoft in December 1998. Commsoft's expertise in supplying convergent billing
solutions to local and wireless telephone companies complements BCC's experience
with providing such services primarily to long distance companies and CLECs.
Pursue New Telecommunications Act Opportunities. Management believes that the
Telecommunications Act of 1996 creates new opportunities for third-party
clearinghouses. The Telecommunications Act of 1996 requires that the RBOCs use
separate subsidiaries to provide services not related to their existing
regulated local services. The Company has contracted with two RBOCs to provide
long distance billing services and is presently negotiating with several other
RBOCs to provide both in-territory and out-of-territory billing for their long
distance services. The competition among the local telephone companies created
by the Telecommunications Act of 1996 may encourage these companies to use a
third-party clearinghouse such as the Company. The Telecommunications Act of
1996 may provide an opportunity for the Company to compete for certain telephone
call records originated on pay telephones owned by the local telephone
companies. 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. The Company also expects to utilize its direct
billing capabilities to provide existing and potential customers a means of
billing and collecting long distance charges from end users subscribing to
CLECs. CLECs were not required by the Telecommunications Act of 1996 to provide
nondiscriminatory billing and collecting services, and therefore, there are
limited means available to customers to collect charges incurred by such end
users.
Expand Invoice Ready Capability. The Company has enhanced its systems and
entered into additional billing and collection agreements with certain local
telephone companies to offer an "invoice ready" billing option to its customers.
The Company's invoice ready billing platform enables it to offer a customized
bill page for inclusion in the local telephone company bill. Depending on
limitations imposed on it by the respective local telephone companies, the
Company is able to put a 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. Due to
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 additional
billing and collection agreements that will allow it to offer invoice ready
billing to its customers.
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<PAGE> 13
EMPLOYEES
At September 30, 1998, BCC had 730 full-time employees, including 15
executive officers, 15 sales and marketing personnel, 58 technical and
operations personnel, 139 accounting, administrative and support personnel, 99
systems personnel and 404 customer service representatives and related support
personnel. At September 30, 1998, BCC also employed 15 part-time customer
service representatives and support personnel. None of BCC's employees are
represented by a union. BCC believes that its employee relations are good.
ITEM 2. PROPERTIES
At September 30, 1998, BCC occupied approximately 130,000 square feet
of space at 7411 John Smith Drive, San Antonio, Texas, which serves as both a
customer service facility and the corporate headquarters for the Company. The
lease expires in October 2006 and has certain expansion options, renewal options
and rights of first refusal. At September 30, 1998, BCC occupied an additional
26,000 square feet for a customer service facility located at 10500 Highway 281,
San Antonio, Texas, under a lease that expires in September 2002. The Company
has relocated part of its customer service operations to 802 N. Carancahua,
Corpus Christi, Texas, where it occupied approximately 29,000 square feet at
September 30, 1998. The Company believes that its current facilities are, and
its future facilities will be, adequate to meet its current and future needs.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year, no matter was submitted
by the Company to a vote of its stockholders through the solicitation of proxies
or otherwise.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Subsequent to its spin-off from USLD effective August 2, 1996, the
Company began trading as an independent public company. The Company's common
stock, par value $0.01 per share (the "Common Stock"), is quoted on the Nasdaq
National Market under the symbol "BILL." The table below sets forth the high and
low bid prices for the Common Stock from October 1, 1996, through December 11,
1998, as reported by the Nasdaq National Market. These price quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended September 30, 1997:
1st quarter $15 7/8 $12 1/8
2nd quarter $16 1/8 $12
3rd quarter $17 7/16 $10 11/16
4th quarter $19 9/16 $16 27/32
Fiscal Year Ending September 30, 1998:
1st quarter $24 11/16 $17 7/8
2nd quarter $30 $22
3rd quarter $29 5/8 $13 1/2
4th quarter $15 3/4 $ 8 5/16
Fiscal Year Ending September 30, 1999:
1st quarter (through December 11, 1998) $17 $10
</TABLE>
STOCKHOLDERS
At December 11, 1998, there were 34,404,124 shares of Common Stock
outstanding, held by 476 holders of record. The last reported sales price of the
Common Stock on December 11, 1998, was $133/8per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on the Common
Stock. The Company presently intends to retain all earnings for the operation
and development of its business and does not anticipate paying any cash
dividends on the Common Stock in the foreseeable future. Furthermore, certain
covenants in various credit agreements of the Company prohibit the payment of
dividends on the Common Stock.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial and other data and pro
forma per share data for the Company. The income statement data for the years
ended September 30, 1998, 1997, 1996, 1995 and 1994, and the balance sheet data
at September 30, 1998, 1997, 1996, 1995 and 1994, presented below are derived
from the audited Consolidated Financial Statements of the Company. The data
presented below for the fiscal years ended September 30, 1998, 1997, and 1996,
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included in this
report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues.................................................. $160,762 $122,836 $103,884 $80,847 $57,746
Gross profit........................................................ 61,868 46,174 37,016 29,510 20,158
Advance funding program income...................................... 7,919 7,255 6,564 4,582 3,467
Advance funding program expense..................................... 126 688 1,367 1,351 1,858
Special charges..................................................... 2,000 21,252 0 0 0
Income from operations.............................................. 39,026 13,439 28,641 22,253 13,392
Net income.......................................................... 25,947 3,707 17,852 14,118 8,565
Diluted net income per common share................................. $ 0.74 $ 0.11 - - -
Pro forma diluted net income per common share (1)................... - - $ 0.58 $ 0.48 $ 0.30
Weighted average common shares outstanding.......................... 34,908 32,518 - - -
Pro forma weighted average common shares outstanding (1)............ - - 30,770 29,174 28,138
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital..................................................... $ 58,628 $ 27,570 $ 13,530 $ 17,300 $11,132
Total assets........................................................ 259,064 167,012 137,782 106,895 89,710
Long-term debt and capital leases, less current portion............. 1,697 2,614 5,036 2,216 853
USLD's investment in and advances to BCC............................ 0 0 0 21,121 13,000
Additional paid-in capital (2)...................................... 60,039 42,916 19,639 0 0
Retained earnings (3)............................................... 32,344 6,397 2,690 0 0
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
EBITDA (4).......................................................... $45,520 $17,236 $30,768 $23,469 $14,346
LEC billing call records processed per month (5)(6)................. 58,400 60,300 50,100 40,400 25,900
</TABLE>
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<PAGE> 16
(1) The per share and weighted average common shares outstanding data for the
years ended September 30, 1996, 1995, and 1994 is unaudited and presented
on a pro forma basis as BCC had no publicly held common shares outstanding
prior to its spin-off from USLD on August 2, 1996. The number of weighted
average common shares outstanding used in the calculation of the pro forma
earnings per share gives effect to the shares assumed to be issued had the
spin-off occurred at the beginning of each period presented.
(2) Additional paid-in capital for the years ended September 30, 1997, and 1996
was restated to give effect to the one-for-one common stock dividend that
was distributed on January 30, 1998 to stockholders of record on January
20, 1998. No additional proceeds were received on the dividend date and all
costs associated with the share dividend were capitalized as a reduction of
additional paid-in capital.
(3) The Company has never declared cash dividends on its Common Stock, nor does
it anticipate doing so in the foreseeable future.
(4) 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 Consolidated
Financial Statements.
(5) Calculated based upon a monthly average over the fiscal quarter ended on
the date indicated.
(6) Does not include call records that the Company processed for billing
management customers that have their own billing and collecting agreements
with the local telephone companies. Revenue per record for billing
management customers is significantly less than revenue per record for
BCC's other customers.
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company, the Notes thereto and the
other financial information included elsewhere in this Report. For purposes of
the following discussion, references to yearly periods refer to the Company's
fiscal years ended September 30.
GENERAL
On August 2, 1996, U.S. Long Distance Corp. ("USLD") distributed to its
stockholders all of the outstanding shares of common stock of the Company (the
"Distribution") which, prior to the Distribution, was a wholly owned subsidiary
of USLD. Upon the completion of the Distribution, Billing Concepts Corp. ("BCC")
became an independent, publicly held company that owns and operates the billing
clearinghouse and information management services business previously owned by
USLD (see "Pro Forma Results of Operations" below).
RESULTS OF OPERATIONS
The following table presents certain items in the Company's
Consolidated Statements of Income as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Operating revenues ............................ 100.0% 100.0% 100.0%
Cost of revenues .............................. 61.5 62.4 64.4
------ ------ ------
Gross profit .................................. 38.5 37.6 35.6
Selling, general and administrative expenses 12.5 11.0 11.0
Research and development ...................... 1.3 0.6 0.0
Advance funding program income ................ (4.9) (5.9) (6.3)
Advance funding program expense ............... 0.1 0.6 1.3
Depreciation and amortization expense ......... 4.0 3.1 2.0
Special charges ............................... 1.2 17.3 0.0
------ ------ ------
Income from operations ........................ 24.3 10.9 27.6
Other income, net ............................. 2.8 0.5 0.1
------ ------ ------
Income before provision for income taxes ...... 27.0 11.4 27.7
Provision for income taxes .................... (10.9) (8.4) (10.5)
------ ------ ------
Net income .................................... 16.1% 3.0% 17.2%
====== ====== ======
</TABLE>
Operating Revenues
The Company's revenues are derived primarily from the provision of
billing clearinghouse and information management services to direct dial long
distance carriers and operator services providers ("Local Exchange Carrier
billing" or "LEC billing"). Revenues are also derived from enhanced billing
services provided to companies that offer 900 services or other non-regulated
telecommunications equipment and services. LEC billing 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. Processing fees also include any charges assessed to the Company by
local telephone companies for billing and collection services that are passed
through to the customer. 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.
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<PAGE> 18
The Company also develops, sells and supports convergent billing
systems for telecommunications service providers and provides direct billing
outsourcing services. In addition to license and maintenance fees charged by the
Company for the use of its billing software applications, fees are also charged
on a time and materials basis for software customization and professional
services. Processing fees for direct billing services provided through the
Company's service bureau are assessed to customers based on volume. Billing
systems revenues also include retail sales of computer hardware and third-party
software.
Total revenues for 1998 were $160.8 million compared to $122.8 million
in 1997 and $103.9 million in 1996, representing increases of 30.9% and 18.2%,
respectively. LEC billing services revenues increased 22.5% to $147.5 million in
1998, and increased 15.9% to $120.5 million in 1997 from $103.9 million in 1996.
The remaining increase in revenues from year to year was attributable to billing
systems sales and related services revenues. The LEC billing services revenue
increases are primarily attributable to an increase in the number of telephone
call records processed and billed on behalf of direct dial long distance
customers. Direct dial long distance billing services revenues have exceeded
prior period revenues on a quarterly basis since the inception of this business
in 1993. From 1993 through 1998, revenues derived from operator services
customers have been relatively flat. This lack of operator services growth was
attributable to several factors, including increased regulation and an increased
awareness on the part of the telephone user of competitive long distance
services available at the pay phone. Despite the overall increase in LEC billing
services revenue from 1997, revenue growth during 1998 was negatively impacted
by "slamming" and "cramming" issues. Slamming is defined as the unauthorized and
illegal switching of a customer's telephone service from one carrier to another
carrier while cramming is the practice of a company billing customers for
products and services that they may not have ordered, and may not have received.
During the third quarter of 1998, in response to these issues, certain LECs
established various temporary moratoriums that affected the ability of certain
of our customers to market some of their services. BCC played a very active role
in assisting certain local telephone companies, the Federal Communications
Commission ("FCC") and certain Public Utilities Commissions in providing the
best solution to eliminate these issues from the telecommunications industry,
including taking part in forming an industry coalition, which released a set of
"Standards of Practice" that addresses these issues. The FCC subsequently
published similar standards in its Best Billing Practices document. BCC will
continue to adhere to the Best Billing Practices, and will work with the local
telephone companies to reduce the level of consumer complaints. As a proactive
measure, BCC has taken action against certain customers that include, but is not
limited to, the cessation of billing for certain new or existing products. It is
still unclear what monetary impact these actions will have on the LEC billing
business in the future.
Telephone call record volumes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Direct dial long distance services .............................................................. 612.6 510.3 402.8
Operator services ............................................................................... 134.6 133.4 131.8
Enhanced billing services ....................................................................... 11.4 9.6 8.6
Billing management services ..................................................................... 329.1 342.1 308.9
</TABLE>
Although billing management records decreased approximately 4% from
1997 to 1998, the impact on revenues was minimal because revenue per record for
billing management customers, who have their own billing and collection
agreements with the local telephone companies, is significantly less than
revenue per record for the Company's other customers.
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<PAGE> 19
Cost of Revenues
Cost of revenues 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 telecommunications 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. Cost of
revenues also includes the cost of computer hardware and software sold, and the
salaries and benefits of software development, technical, service bureau and
client service personnel who generate revenue from hourly billings.
Gross profit margin of 38.5% reported for 1998 compares to 37.6%
achieved in 1997 and 35.6% achieved in 1996. The improvement from 1997 to 1998
is due primarily to the addition of sales of billing systems and related
services revenues throughout 1998 that served to improve gross margin due to the
higher margins associated with systems sales. This improvement was offset
partially by higher LEC billing costs. The improvement from 1996 to 1997 is due
primarily to lower customer service and telecommunications services costs, which
were offset partially by higher transmission costs. The addition of higher
margin billing systems and related services revenues in late 1997 also served to
improve gross margin. The lower customer service costs were attributable to
efficiencies resulting from the implementation of an automated voice response
system. The lower telecommunications costs were due to a price decrease from the
Company's vendor as well as savings associated with the voice response system.
The Company's gross profit margin could increase in subsequent periods as a
result of the addition of higher gross margin billing systems sales and related
services revenues although no assurance can be given in this regard.
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, a portion of 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 operating results
for 1996.
SG&A expenses for 1998 were $20.1 million or 12.5% of revenues,
compared to $13.6 million in 1997, and $11.4 million in 1996, both representing
11.0% of revenues. SG&A expenses as a percentage of revenues for 1998 increased
from the prior year primarily due to the systems operations incurring a higher
level of SG&A expenses as a percentage of revenue than the Company as a whole.
As the revenues generated by systems operations have increased as a percentage
of total revenue, the overall SG&A percentage has increased accordingly.
Research and Development
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
In 1997, the Company commenced internally funded research and development
activities with respect to efforts to offer "invoice ready" billing services.
During the third quarter of 1997, the Company also acquired a software
development company that was actively involved in ongoing research and
development efforts associated with creating new and enhanced products related
to its convergent billing software platform. Research and development expenses
in 1998 were $2.0 million compared to $688,000 in 1997. The Company intends to
continue its research and development efforts in the future and anticipates
spending approximately $9742911976 million during 1999 for such expenses.
Advance Funding Program Income and Expense
Advance funding program income was $7.9 million in 1998 compared with
$7.3 million in 1997 and $6.6 million in 1996. 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 $83.0 million, $73.6 million and $60.9 million in
1998, 1997 and 1996, respectively.
19
<PAGE> 20
Advance funding program expense was $126,000 in 1998, compared with
$688,000 in 1997 and $1.4 million in 1996. The decreases were primarily
attributable to the Company financing a higher level of customer receivables
with internally generated funds rather than with funds borrowed through the
Company's revolving credit facility. Cost savings were also realized from the
more favorable terms of its new credit facility obtained in December 1996. The
expense recognized during 1998 represents unused credit facility fees and is the
minimum expense that the Company could have incurred during this year.
Depreciation and Amortization
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, costs incurred in securing contracts with
local telephone companies, goodwill and other intangibles. Asset lives range
between three and fifteen years.
Depreciation and amortization expense was $6.5 million in 1998 compared
with $3.8 million in 1997 and $2.1 million in 1996. Depreciation and
amortization expense as a percentage of revenues was 4.0%, 3.1% and 2.0% in
1998, 1997 and 1996, respectively. The increase in the percentage from year to
year is attributable to increased capital expenditures made in order to provide
the infrastructure needed to support the growth of the Company's employee base
and the anticipated expansion of the Company's business. These expenditures
included the purchase of office furniture, computer equipment and software and
leasehold improvements. Investments in leasehold improvements increased in
connection with the Company taking occupancy of a new facility in 1997 that
serves as both a customer service center and the corporate headquarters of the
Company and leasing an additional customer service center in 1998. During 1998
and 1997, the Company recognized $625,000 and $205,000 of amortization expense,
respectively, related to goodwill and other intangibles acquired in connection
with the acquisition of CRM in June 1997.
Income from Operations
Income from operations was $39.0 million, $13.4 million and $28.6
million in 1998, 1997 and 1996, respectively. Income from operations for 1998
reflects special charges of $2.0 million during the fourth quarter of 1998
representing in-process research and development costs acquired in connection
with the acquisition of 22% of the capital stock of PTC. Income from operations
decreased from 1996 to 1997, due to special charges of $21.3 million in the
third quarter of 1997. The $21.3 million charge includes in-process research and
development costs of $13.0 million acquired in connection with the acquisition
of CRM. The remaining $8.3 million represents accumulated costs associated with
the development of a direct billing system for a service bureau operation. The
Company abandoned this development during the third quarter of 1997. Income from
operations, exclusive of special charges, represented 25.5%, 28.2% and 27.6% of
revenues in 1998, 1997 and 1996, respectively. The decrease in income from
operations, exclusive of special charges, as a percentage of revenues from 1997
to 1998 is attributable to higher SG&A, research and development and
depreciation expenses and lower net advance funding income as a percentage of
1998 revenues, offset partly by a higher gross profit margin. The improvement in
income from operations, exclusive of special charges, as a percentage of
revenues from 1996 to 1997 is attributable to a higher gross profit margin and
higher net advance funding income as a percentage of revenues, offset partly by
higher depreciation expenses as a percentage of revenues and research and
development expenses incurred in 1997.
Other Income
Net other income of $4.5 million in 1998 compares to net other income
of $552,000 in 1997 and $152,000 in 1996. The increase in 1998 and 1997 from the
prior year were both primarily due to increased interest income from short-term
investments due to higher cash reserves. Interest expense was also lower in 1998
due to the pay down of long term debt.
Income Taxes
The Company's effective tax rate was 40.3% in 1998, 73.5% in 1997 and
38.0% in 1996 . 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 rate for 1998 and 1997 is
primarily due to nondeductible in-process research and development costs and
amortization expenses related to the acquisition of PTC and CRM, respectively.
Exclusive of special charges, the Company's effective tax rate would have been
38.5% and 38.0% in 1998 and 1997, respectively.
20
<PAGE> 21
Year 2000 Contingency
The operation of the Company's business is highly dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services, third-party
billing clearinghouse services (including the advance funding program), direct
billing services and financial reporting, as well as in various administrative
functions. In providing information management, third-party billing
clearinghouse and direct billing services, the Company processes telephone call
records which are date sensitive. The Company also develops, sells and supports
sophisticated billing systems and software (the "Billing Systems") which must be
able to process date-dependent data correctly. Certain of the Billing Systems
sold by the Company have been warranted to process information related to or
including dates that are prior to, on or after January 1, 2000.
The Company has been evaluating its Programs and Systems to identify
potential Year 2000 readiness problems, as well as manual processes, external
interfaces with customers and services supplied by vendors to coordinate Year
2000 compliance and conversion. The Year 2000 problem refers to the limitations
of the programming code in certain existing software programs to recognize
date-sensitive information for the Year 2000 and beyond. Unless modified prior
to December 31, 1999, such systems may not properly recognize such information
and could generate erroneous data or cause a system to fail to operate properly.
The Company has installed the MBA 4.0 Y2K ready version in its Service Bureau
operation, which is processing 11 clients. BCS is currently beta testing at one
of its largest MBA clients and expects to complete the testing by December 30,
1998. BCS expects to prepare for a general release of MBA 4.0 in the first
quarter of 1999. The LEC systems are still anticipating its modifications and
replacements will be complete by April 1999. It is anticipated that modification
or replacement of the Company's Programs and Systems will be performed in-house
by Company personnel.
The Company believes that, with modifications to existing software and
conversions to new software, the Year 2000 problem will not pose a significant
operational problem for the Company. However, because the Company's business
relies on processing date-sensitive telephone call records supplied by third
parties, it is possible that non-compliant third-party computer systems may not
be able to provide accurate data for processing through the Company's computer
systems. The Company's business, financial condition and results of operations
could be materially adversely affected by the Year 2000 problem if it or
unrelated parties fail to successfully address this issue.
Management of the Company currently anticipates that the total expenses
and capital expenditures associated with its Year 2000 readiness project,
including costs associated with modifying the Programs and Systems and the cost
of purchasing or leasing certain hardware and software, will be less than $3
million. As of December 1998, the Company has spent approximately $1.5 million
on capital expenditures for related hardware and software and incurred and
expensed approximately $300,000 in personnel and other costs related to the Year
2000 readiness process. The Company anticipates incurring less than $1 million
in personnel and other costs, which will be expensed as incurred. The cost of
Year 2000 readiness and the expected completion dates are the best estimates of
Company management and are believed to be reasonably accurate.
In the event the Company's plan to address the Year 2000 problem is not
successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines, following the Year 2000 date
change, that its Programs and Systems are not Year 2000 ready, the Company will
be unable to process date-sensitive telephone call records and thus be unable to
provide most of its revenue-producing services, which will have a material
adverse effect on the Company's financial condition and results of operations.
The Company will also likely experience considerable delays in compiling
information required for financial reporting and performing various
administrative functions. In addition, in the event the Company's Billing
Systems are not Year 2000 ready, the Company will be required to devote more
monetary and other resources to achieving such readiness, which could have a
material adverse effect on the Company's financial condition and results of
operations.
21
<PAGE> 22
The Company is currently developing a contingency plan for
implementation in the event its Programs and Systems are not Year 2000 ready
prior to December 31, 1999. Such contingency plan will be modeled upon the
Company's Disaster Recovery Plan. The Disaster Recovery Plan outlines a strategy
for reduced continued operations following a natural disaster which damages the
Company's operations center in San Antonio, Texas.
The above year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the "Act"), which was signed into law on October 19, 1998. The Act provides
added protection from liability for certain public and private statements
concerning a company's year 2000 readiness.
PRO FORMA RESULTS OF OPERATIONS
The audited Consolidated Statements of Income included in this report
reflect the operations of the Company for the years ended September 30, 1998,
1997 and 1996. Included below is supplemental unaudited consolidated pro forma
financial information that management believes is important to provide an
understanding of the results of operations of the Company. Pro Forma Condensed
Consolidated Statements of Income are presented below on an annual basis for
1998, 1997 and 1996. These Pro Forma Condensed Consolidated Statements of Income
are based on the historical statements of the periods presented, adjusted to
reflect the items discussed in the accompanying notes to the pro forma financial
statements. The Pro Forma Condensed Consolidated Statements of Income for 1996
give effect to the Distribution as if it had occurred at the beginning of the
year.
The unaudited consolidated pro forma financial information is presented
for informational purposes only and should be read in conjunction with the
accompanying notes to the pro forma financial statements and with the Company's
historical financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth herein
and in the Post Effective Amendment No. 2 to the Company's Registration
Statement on Form 10/A dated August 1, 1996. The pro forma financial statements
should not be considered indicative of the operating results that the Company
will achieve in the future because, among other things, these statements are
based on historical rather than prospective information and include certain
assumptions that are subject to change.
The unaudited Pro Forma Condensed Consolidated Statements of Income
reflect, in management's opinion, all adjustments necessary to fairly state the
pro forma results of operations for the periods presented to make the unaudited
pro forma statements not misleading.
22
<PAGE> 23
BILLING CONCEPTS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
AS AS
AS REPORTED AS REPORTED
REPORTED WITHOUT REPORTED WITHOUT
WITH SPECIAL WITH SPECIAL
SPECIAL CHARGES SPECIAL CHARGES
CHARGES (D) CHARGES (B)
-------- -------- ---------- ---------
1998 1998 1997 1997 1996
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating revenues........................................... $ 160,762 $ 160,762 $ 122,836 $ 122,836 $ 103,884
Cost of revenues............................................. 98,894 98,894 76,662 76,662 66,868
----------- ----------- ----------- ---------- ----------
Gross profit................................................. 61,868 61,868 46,174 46,174 37,016
Selling, general and administrative expenses................. 20,111 20,111 13,565 13,565 11,445
Research and development..................................... 2,030 2,030 688 688 0
Advance funding program income............................... (7,919) (7,919) (7,255) (7,255) (6,564)
Advance funding program expense (A).......................... 126 126 688 688 2,760
Depreciation and amortization expense........................ 6,494 6,494 3,797 3,797 2,127
Special charges.............................................. 2,000 0 21,252 0 0
----------- ----------- ----------- ---------- ----------
Income from operations....................................... 39,026 41,026 13,439 34,691 27,248
Other income, net............................................ 4,450 4,450 552 552 152
----------- ----------- ----------- ---------- ----------
Income before provision for income taxes..................... 43,476 45,476 13,991 35,243 27,400
Provision for income taxes (C)............................... (17,529) (17,529) (10,284) (13,381) (10,411)
------------ ------------ ------------ ----------- -----------
Net income................................................... $ 25,947 $ 27,947 $ 3,707 $ 21,862 $ 16,989
=========== =========== =========== ========== ==========
Net income per diluted common share.......................... $ 0.74 $ 0.80 $ 0.11 $ 0.66 $ 0.55
Weighted average common shares and common share equivalents
outstanding (E)............................................ 34,908 34,9083 32,518 32,976 30,770
</TABLE>
Notes to unaudited pro forma condensed consolidated statements of income:
(A) Reflects an adjustment to increase interest expense for the assumed
borrowings for the cash transfer made to USLD of $11,713 in accordance with
the terms of the Distribution Agreement and cash payments for direct costs
incurred in connection with the Distribution of approximately $9,200.
Interest expense was calculated at a rate of 8.0% per annum.
(B) Excludes special charges of $21,252 representing in-process research and
development costs of $13.0 million acquired in connection with the
acquisition of CRM and $8.3 million of accumulated costs associated with
the development of a direct billing system that was abandoned by the
Company.
(C) Reflects related income tax effect of the adjustments in notes (A) and (B)
(D) Excludes special charges of $2,000 representing in-process research and
development costs acquired in connection with the acquisition of 22% of the
common stock of PTC.
(E) The number of weighted average shares outstanding for 1996 gives effect to
the shares assumed to be issued had the Distribution occurred at the
beginning of each year. The number of weighted average shares outstanding
for 1997 as reported without special charges explained in note (B) gives
effect to the net income that would have been recognized during the third
quarter of 1997 had the special charges not been incurred. Earnings per
share and weighted average common shares and common share equivalents
outstanding for all years presented have been restated to give effect to
the one-for-one common stock dividend that was distributed on January 30,
1998 to stockholders of record on January 20, 1998.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $118.3 million at September 30,
1998, from $41.4 million at September 30, 1997. Large fluctuations in daily cash
balances are normal due to the large amount of customer receivables that the
Company collects on behalf of its customers. The Company's working capital
position increased to $58.6 million at September 30, 1998, from $27.6 million at
September 30, 1997, and its current ratio was 1.4:1 and 1.2:1 at September 30,
1998 and 1997, respectively. Net cash provided by operating activities was $37.8
million, $31.1 million and $26.0 million in 1998, 1997 and 1996, respectively,
and reflected the increases in net income from 1996 to 1998, exclusive of
special charges.
In December 1996, the Company obtained a $50.0 million revolving line
of credit facility with certain lenders primarily to draw upon to advance funds
to its billing customers prior to collection of the funds from the local
telephone companies. This credit facility terminates on December 20, 1999.
Borrowings under the credit facility are limited to a portion of the Company's
eligible receivables. Management believes that the capacity under the credit
facility will be sufficient to fund advances to its billing customers for the
foreseeable future. No amounts were borrowed by the Company under its credit
facility to finance the advance funding program at either September 30, 1998 or
1997. At September 30, 1998, the amount available under the Company's credit
facility was $50.0 million.
In addition to the revolving line of credit facility described above,
the Company was obligated as a guarantor of USLD's equipment financing
agreements with certain lenders during the period the debt remained outstanding.
At September 30, 1998, all indebtedness under such agreements had been paid in
full; therefore, the Company is no longer obligated as a guarantor. Under
certain of its 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. The Company was in compliance with all required covenants at
September 30, 1998 and 1997.
Capital expenditures amounted to approximately $11.3 million in 1998
and related primarily to the purchase of computer equipment and software. During
1997, the Company financed approximately $4.1 million of equipment through term
debt agreements with two separate lenders. There were no amounts financed in
1998. The Company anticipates capital expenditures before acquisitions, if any,
of approximately $13 million in fiscal 1999, including expenditures for local
telephone company agreements that will enable it to offer "invoice ready"
billing services. The Company believes that it will be able to fund expenditures
with internally generated funds and borrowings, but there can be no assurance
that such funds will be available or expended.
Effective June 1, 1997, the Company acquired CRM, a company that
develops software systems for the direct billing of telecommunications services.
An aggregate of $8.5 million cash and 650,000 shares of the Company's Common
Stock were issued in connection with this purchase transaction. All of the
shares related to the acquisition have been included in the weighted average
shares outstanding for purposes of the earnings per share calculations. During
the third quarter of 1997, the Company expensed $13.0 million of in-process
research and development costs acquired from the acquisition. The Company
granted certain registration rights to and entered into an employment agreement
with the principal of CRM.
In September 1998, the Company acquired 22% of the capital stock of PTC
for $10 million. PTC was a privately held company located in Princeton, New
Jersey specializing in electronic bill publishing over the Internet and advanced
payment solutions. The Company accounts for this investment under the equity
method of accounting. In addition, the Company acquired the right of first
refusal for a period of five years to provide any future equity or debt
financing for PTC.
Effective October 1, 1998, the Company acquired Expansion Systems
Corporation ("ESC"), a privately held company headquartered in Glendale,
California that develops and markets billing and registration systems to
Internet Service Providers ("ISPs") under its flagship products TotalBill and
InstantReg. An aggregate of 170,000 shares of the Company's Common Stock were
issued in connection with this transaction, which will be accounted for as a
pooling of interests.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry.
24
<PAGE> 25
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 it has the ability to continue to secure
long-term equipment financing and that this ability, combined with cash flows
generated from operations and periodic borrowings under its receivable financing
facility, will be sufficient to fund capital expenditures, advance funding
requirements, working capital needs and debt repayment requirements for the
foreseeable future.
ADVANCE FUNDING PROGRAM AND RECEIVABLE FINANCING FACILITY
Since 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 Advance
Payment Agreement. Under the terms of this agreement, the Company purchases the
customer's accounts receivable for an amount equal to the face amount of the
billing records submitted to the local telephone companies by the Company for
billing and collection, less 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 Advance Payment Agreement and generally ranges
between 50% and 80%. The Company pays the remaining balance of the purchase
price upon collection of funds from the local telephone companies. A portion of
the funds used to make the advance payments may be borrowed under the Company's
revolving line of credit facility. The amount borrowed by the Company under this
credit facility to finance the advance funding program was $0 at September 30,
1998 and 1997.
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, in part to cover the administrative
expenses incurred in providing this service. Borrowing costs are computed at a
rate below 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 Advance Payment Agreement, the Company contractually
purchases the customer accounts receivable 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
credit facility agreement, the Company is obligated to repay amounts borrowed
whether or not the purchased accounts receivable are actually collected.
SEASONALITY
To some extent, the revenues and telephone call record volumes of most
customers of the Company are affected by seasonality. For example, the Company's
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. As a result
of this seasonal variation, direct dial long distance telephone call record
volumes processed by the Company during the Company's first and second fiscal
quarters ending December 31 and March 31, respectively, (which include the
Thanksgiving, Christmas and New Year's Day holidays), historically have been the
highest level of any quarter of the year after adjusting for new business.
Consequently, revenues reported by the Company that are derived from direct dial
long distance telephone call records are similarly affected. The seasonal effect
caused by the Company's direct dial long distance customers has been lessened,
however, as a result of the Company's business from operator services customers.
Typically, the Company's operator services customers 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. Conversely, due to increased traffic from
pay telephones during the spring and summer months,
25
<PAGE> 26
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 billing
revenues derived from operator services customers have mitigated the seasonal
effects of the revenues derived from the Company's direct dial long distance
customers.
EFFECT OF INFLATION
Inflation historically has not been 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
Management of the Company does not anticipate the adoption of any new
accounting standards recently issued by the authoritative bodies will have a
material impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments, which would
require disclosure under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the related
report of the Company's independent public accountants thereon are included in
this report at the page indicated.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................................................................. 27
Consolidated Balance Sheets at September 30, 1998 and 1997................................................................ 28
Consolidated Statements of Income for the Years Ended September 30, 1998, 1997 and 1996................................... 29
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1998, 1997 and 1996..................... 30
Consolidated Statements of Cash Flows for the Years Ended September 30, 1998, 1997 and 1996............................... 31
Notes to Consolidated Financial Statements................................................................................ 32
</TABLE>
26
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Billing Concepts Corp.:
We have audited the accompanying consolidated balance sheets of Billing
Concepts Corp. (a Delaware corporation) and subsidiaries as of September 30,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1998. 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 the 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 Concepts
Corp. and subsidiaries as of September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Antonio, Texas
November 12, 1998
27
<PAGE> 28
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................................................. $ 118,291 $ 41,444
Accounts receivable, net of allowance for doubtful accounts of $268 (1998) and $138 (1997) ............. 33,748 25,919
Purchased receivables .................................................................................. 64,477 70,175
Prepaids and other ..................................................................................... 3,776 3,196
--------- ---------
Total current assets ............................................................................ 220,292 140,734
Property and equipment .................................................................................. 32,314 22,906
Less accumulated depreciation and amortization ......................................................... (10,282) (4,750)
--------- ---------
Net property and equipment ...................................................................... 22,032 18,156
Equipment held under capital leases, net of accumulated amortization of $963 (1998) and $964 (1997)
441 606
Other assets, net of accumulated amortization of $2,503 (1998) and $1,680 (1997) ........................ 8,299 7,516
Investment in equity affiliate .......................................................................... 8,000 0
--------- ---------
Total assets .................................................................................... $ 259,064 $ 167,012
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ................................................................................. $ 17,757 $ 19,223
Accounts payable - billing customers ................................................................... 118,599 75,166
Accrued liabilities .................................................................................... 24,451 17,728
Current portion of long-term debt ...................................................................... 606 606
Current portion of obligations under capital leases .................................................... 251 441
--------- ---------
Total current liabilities ....................................................................... 161,664 113,164
Long-term debt, less current portion .................................................................... 1,668 2,324
Obligations under capital leases, less current portion .................................................. 29 290
Deferred income taxes ................................................................................... 2,575 2,048
Other liabilities ....................................................................................... 797 499
--------- ---------
Total liabilities ............................................................................... 166,733 118,325
Commitments and contingencies (See Notes 4 and 11)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding at
September 30, 1998 or 1997 ......................................................................... 0 0
Common stock, $0.01 par value, 75,000,000 shares authorized, 34,150,131 shares issued and outstanding at
September 30, 1998; 60,000,000 shares authorized, 32,395,170 shares issued and outstanding at
September 30, 1997 ................................................................................. 342 324
Additional paid-in capital .............................................................................. 60,039 42,916
Retained earnings ....................................................................................... 32,344 6,397
Deferred compensation ................................................................................... (394) (950)
--------- ---------
Total stockholders' equity ...................................................................... 92,331 48,687
--------- ---------
Total liabilities and stockholders' equity ...................................................... $ 259,064 $ 167,012
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
28
<PAGE> 29
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------
SEPTEMBER 30,
-------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating revenues.......................................................................... $ 160,762 $ 122,836 $ 103,884
Cost of revenues............................................................................ 98,894 76,662 66,868
----------- ---------- ----------
Gross profit................................................................................ 61,868 46,174 37,016
Selling, general and administrative expenses................................................ 20,111 13,565 11,445
Research and development.................................................................... 2,030 688 0
Advance funding program income.............................................................. (7,919) (7,255) (6,564)
Advance funding program expense............................................................. 126 688 1,367
Depreciation and amortization expense....................................................... 6,494 3,797 2,127
Special charges (See Note 6)................................................................ 2,000 21,252 0
----------- ---------- ----------
Income from operations...................................................................... 39,026 13,439 28,641
Other income (expense):
Interest income............................................................................ 4,440 989 938
Interest expense........................................................................... (184) (493) (287)
Other, net................................................................................. 194 56 (499)
----------- ---------- ----------
Total other income, net................................................................ 4,450 552 152
----------- ---------- ----------
Income before provision for income taxes.................................................... 43,476 13,991 28,793
Provision for income taxes.................................................................. (17,529) (10,284) (10,941)
----------- ---------- ----------
Net income.................................................................................. $ 25,947 $ 3,707 $ 17,852
=========== ========== ==========
Basic:
Net income per common share ................................................................ $ 0.78 $ 0.12 -
Pro forma net income per common share (Unaudited - See Note 2).............................. - - $ 0.61
Weighted average common shares outstanding ................................................. 33,351 31,032 -
Pro forma weighted average common shares outstanding (Unaudited - See Note 2) .............. - - 29,210
Diluted:
Net income per common share and common share equivalents.................................... $ 0.74 $ 0.11 -
Pro forma net income per common share and common share equivalents (Unaudited - See Note 2).
- - $ 0.58
Weighted average common shares and common share equivalents outstanding .................... 34,908 32,518 -
Pro forma weighted average common shares and common share equivalents outstanding
(Unaudited - See Note 2) ................................................................. - - 30,770
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
29
<PAGE> 30
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
USLD'S
INVESTMENT
PREFERRED STOCK COMMON STOCK IN AND ADDITIONAL
---------------- ----------------- ADVANCES PAID-IN DEFERRED RETAINED
SHARES AMOUNT SHARES AMOUNT TO BCC CAPITAL COMPENSATION EARNINGS
------ ------ -------- ------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1995....... 10 $ 100 204 $ 2 $ 21,121 $ 0 $ 0 $ 0
Transfers (to) from affiliates...... 0 0 (204) (2) 2,851 (15,448) 0 0
Redemption of preferred stock....... (10) (100) 0 0 (3,900) 0 0 0
Issuance of common stock in
connection with Distribution
(See Note 2).................... 0 0 30,064 302 (35,234) 34,932 0 0
Exercise of stock options........... 0 0 28 0 0 155 0 0
Net income.......................... 0 0 0 0 15,162 0 0 2,690
----- ------ -------- ----- --------- --------- ------ --------
Balances at September 30, 1996....... 0 0 30,092 302 0 19,639 0 2,690
Issuance of common stock............ 0 0 686 6 0 9,831 0 0
Exercise of stock options and
warrants........................ 0 0 1,618 16 0 11,956 0 0
Issuance of stock options........... 0 0 0 0 0 1,490 (1,490) 0
Compensation expense................ 0 0 0 0 0 0 540 0
Net income.......................... 0 0 0 0 0 0 0 3,707
----- ------ -------- ----- --------- --------- ------ --------
Balances at September 30, 1997....... 0 0 32,396 324 0 42,916 (950) 6,397
Issuance of common stock............ 0 0 47 1 0 716 (170) 0
Exercise of stock options and
warrants........................ 0 0 1,707 17 0 16,407 0 0
Compensation expense................ 0 0 0 0 0 0 726 0
Net income.......................... 0 0 0 0 0 0 0 25,947
----- ------ -------- ----- --------- --------- ------ --------
Balances at September 30, 1998....... 0 $ 0 34,150 $ 342 $ 0 $ 60,039 $ (394) $ 32,344
===== ====== ======== ===== ========= ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
30
<PAGE> 31
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------
SEPTEMBER 30,
-------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................................ $ 25,947 $ 3,707 $ 17,852
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 6,494 3,797 2,127
Deferred compensation................................................................. 726 540 10
(Gain)/Loss on disposition of equipment............................................... (186) 141 376
Special charges....................................................................... 2,000 21,252 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......................................... (7,829) (7,445) 406
Increase in prepaids and other..................................................... (580) (1,538) (259)
Increase (decrease) in trade accounts payable...................................... (1,466) 6,450 139
Increase in accrued liabilities.................................................... 11,517 3,695 5,403
Increase in deferred income taxes.................................................. 854 0 0
Increase (decrease) in other liabilities........................................... 298 499 (21)
---------- ----------- ---------
Net cash provided by operating activities.................................................. 37,775 31,098 26,033
Cash flows from investing activities:
Purchases of property and equipment....................................................... (11,333) (17,578) (6,679)
Purchase of software development company, net of cash acquired............................ 0 (8,403) 0
Investments in net assets of affiliates................................................... (10,000) 0 0
Collections of (payments for) purchased receivables, net.................................. 5,698 745 (15,692)
Collections of proceeds due (payments made) to billing customers, net..................... 43,433 15,541 23,769
Collections of sales taxes due on behalf of billing customers, net........................ 3,692 2,136 743
Proceeds from sale of equipment........................................................... 538 127 0
Other investing activities................................................................ (334) (1,001) (207)
---------- ----------- ---------
Net cash provided by (used in) investing activities........................................ 31,694 (8,433) 1,934
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net....................... 0 (19,010) (4,020)
Proceeds from issuance of long-term debt.................................................. 0 4,091 1,937
Payments on long-term debt................................................................ (656) (4,184) (688)
Payments on capital leases................................................................ (451) (2,831) (436)
Proceeds from issuance of common stock.................................................... 8,485 6,578 96
Transfers to affiliates................................................................... 0 0 (17,491)
---------- ----------- ---------
Net cash provided by (used in) financing activities........................................ 7,378 (15,356) (20,602)
---------- ----------- ---------
Net increase in cash and cash equivalents.................................................. 76,847 7,309 7,365
Cash and cash equivalents, beginning of year............................................... 41,444 34,135 26,770
---------- ----------- ---------
Cash and cash equivalents, end of year..................................................... $ 118,291 $ 41,444 $ 34,135
========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
31
<PAGE> 32
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998, 1997 AND 1996
NOTE 1. BUSINESS ACTIVITY
Billing Concepts Corp. ("BCC"), formerly known as Billing Information
Concepts Corp., was incorporated in the State of Delaware in 1996. BCC was
previously a wholly owned subsidiary of U.S. Long Distance Corp. ("USLD") that,
upon its spin-off from USLD, became an independent, publicly held company. BCC
and its subsidiaries (collectively, the "Company") primarily provide billing
clearinghouse and information management services in the United States to the
telecommunications industry. In addition to processing call records, the Company
provides a wide range of back office services including customer service, data
processing, tax filings, accounting services and an advance funding program. The
Company also develops, licenses and supports billing systems for
telecommunications service providers and provides direct billing services.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts
of BCC and its wholly owned subsidiaries. The Company's 22% investment in the
capital stock of Princeton TeleCom Corporation ("PTC") (see Note 5) is accounted
for using the equity method of accounting. All significant intercompany accounts
and transactions have been eliminated in consolidation.
On August 2, 1996 (the "Distribution Date"), USLD distributed all of
the outstanding common stock of BCC, pro rata to the stockholders of USLD (the
"Distribution") with the result being that BCC became an independent, publicly
held company that owns and operates all of the assets of, and is responsible for
all of the liabilities associated with, the billing clearinghouse and
information management services business previously owned by USLD. The
accompanying financial statements include the operations of BCC which, until the
Distribution, were combined with and reported as part of the consolidated
financial statements of USLD.
Certain 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 BCC have been adjusted to
include all of the expenses that appropriately and fairly could have been
allocated to BCC except for income taxes. USLD's federal income taxes have
historically been determined on a consolidated basis. For purposes of preparing
the BCC historical consolidated financial statements, income taxes have been
determined on a separate company basis. Deferred taxes have been recorded on
BCC's consolidated financial statements, as appropriate. Tax assets and
liabilities are reflected in a manner consistent with the Tax Sharing Agreement
between USLD and BCC.
Certain intercompany transactions that had previously been eliminated
in consolidation are properly reflected in the historical consolidated financial
statements of BCC at amounts that are believed by management to reflect an
arm's-length relationship. Certain prior period amounts have been reclassified
for comparative purposes.
Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
32
<PAGE> 33
Revenue Recognition Policies
The Company recognizes revenue from its billing services when records
that are to be billed and collected by the Company are processed. Revenue from
the sale of billing systems, including the licensing of software rights, is
recognized at the time the product is delivered to the customer, provided that
the Company has no significant related obligations or collection uncertainties
remaining. If there are significant obligations related to the installation or
development of the system delivered, revenue is recognized in the period that
the Company fulfills its obligations. Services revenue related to the Company's
billing systems is recognized in the period that the services are provided.
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 operating revenue for fees charged for
its billing services. When the customer's receivables are collected by the
Company from the local telephone companies, the Company's trade receivables are
reduced by the amount corresponding to the Company's processing fees and the
remaining funds are recorded as an accounts payable to billing customers.
The Company offers participation in an advance funding program to
qualifying customers through its Advance Payment Agreement. Under the terms of
this agreement, the Company purchases the customer's accounts receivable for an
amount equal to the face amount of the billing records submitted to the local
telephone companies by the Company for billing and collection less:
o all local telephone company charges, rejects, unbillables and
bad debt deductions;
o all credits and adjustments granted to end users;
o all of the Company's processing fees and sales taxes, if
appropriate;
o all financing service charges assessed by the Company; and
o any and all losses, costs or expenses incurred by the Company
in processing or collecting the customer accounts from all
previously billed records.
The purchase price is remitted by the Company to its customers in two
payments. Within five days from receiving a customer's records, an initial
payment is made to the customer based on a percentage of the face amount of the
customer's call records submitted by the Company to the local telephone
companies. The Company pays the remaining balance of the purchase price to the
customer upon collection of funds from the local telephone companies. The
purchase date is the date the initial payment is made. In connection with its
purchase of billing records, the Company may draw on its revolving credit
facility.
33
<PAGE> 34
Any accounts receivable purchased by the Company are recorded as
purchased receivables 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 ($118,599,000 and $75,166,000 at September 30, 1998
and 1997, respectively), consists of:
o an amount equal to the face value of all purchased
receivables, reduced for any amounts paid as initial payments
under Advance Payment Agreements',
o an amount equal to collections from local telephone companies
that have not yet been remitted to customers, and
o an amount accrued for the estimated liability associated with
future end-user refunds and local telephone company
adjustments related to customers who are no longer serviced by
the Company.
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 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 the amount funded, the financing service charges earned under
the Advance Payment Agreement, local telephone company billing fees due the
Company and any end-user customer service refunds.
The Company has some risk with regard to these deductions to the extent
that they exceed the amount collected from the local telephone companies.
Generally, the Company will collect these amounts from future funds received
from the local telephone companies. However, in certain cases, such as if the
Company is no longer providing services to the customer, there may not be
adequate funds from which to collect these amounts. 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 has an
accrued liability included in the balance sheet caption entitled "Accounts
payable - billing customers" for the estimated amount that such deductions
exceed funds withheld from such customers.
The following receivables purchased and financed by the Company were
outstanding at:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Purchased receivables................................... $64,477 $70,175
</TABLE>
Software Services
The Company also develops, sells and supports convergent billing
systems for telecommunications service providers and provides direct billing
outsourcing. In addition to license and maintenance fees charged by the Company
for the use of its billing software applications, fees are also charged on a
time and materials basis for software customization and professional services.
Processing fees for direct billing services provided through the Company's
service bureau are assessed to customers based on volume. Billing systems
revenues also include retail sales of computer hardware and third-party
software.
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 ten 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.
34
<PAGE> 35
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 years. Other
assets also include financing costs related to the issuance of debt, which have
been deferred and are amortized over the life of the respective financing
agreement, and goodwill and other intangibles related to the acquisition of a
software development company (see Note 5).
In addition, long-term deposits have been included in other assets.
Accrued Liabilities
Accrued liabilities include sales taxes payable on behalf of billing
customers of $18,866,000 and $15,174,975139074000 at September 30, 1998 and
1997, respectively.
The Company self-insures its medical coverage for employees and
dependents up to $40,000 per covered individual and an aggregate annual maximum
of $1 million. The Company accrues for known claims and an estimate of claims
incurred but not reported up to the maximum anticipated cost to the Company.
During 1998, the Company recognized approximately $420,000 in self-insurance
expense. The Company's insurer will pay cumulative claims above the attachment
limit up to $960,000 lifetime per covered individual. The Company does not
believe that claims reported and claims incurred but not reported will exceed
the amounts to be covered by the insurer.
Common Stock Dividend
On January 9, 1998, the Company announced that its Board of Directors
declared a one-for-one common stock dividend. The dividend was distributed on
January 30, 1998 to stockholders of record on January 20, 1998. No additional
proceeds were received on the dividend date and all costs associated with the
share dividend were capitalized as a reduction of additional paid-in capital.
All share and per share information in the accompanying consolidated financial
statements has been adjusted to give retroactive effect to the stock dividend.
Fair Value of Financial Instruments
The estimated fair values of the Company's cash and cash equivalents
and all other financial instruments have been determined using appropriate
valuation methodologies and approximate their related carrying values.
Income Taxes
Deferred tax assets and liabilities are recorded based on enacted
income tax rates that are expected to be in effect in the period in which the
deferred tax asset or liability is expected to be settled or realized. A change
in the tax laws or rates results in adjustments to the deferred tax assets or
liabilities. The effects of such adjustments are required to be included in
income in the period in which the tax laws or rates are changed.
BCC and USLD entered 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 BCC's
business for tax years prior to the Distribution and with respect to certain tax
attributes of BCC after the Distribution. In general, with respect to periods
ending on or before the last day of the year in which the Distribution occurred,
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 BCC 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).
BCC will reimburse USLD for a portion of such taxes and the cost of preparation
of the associated tax returns related to the BCC affiliated group. BCC is
responsible for filing returns and paying taxes related to the BCC affiliated
group for subsequent periods. BCC 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.
35
<PAGE> 36
Net Income Per Common Share
Earnings per share for all periods have been restated to reflect the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share," which established standards for computing and presenting
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS No. 128 requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. Basic EPS were computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS differs from basic EPS due to the assumed conversions of potentially
dilutive options and warrants that were outstanding during the period. The
effects of potentially dilutive securities are excluded in periods in which a
loss is reported because their inclusion would be antidilutive. The per share
and weighted average common shares outstanding data for the year ended September
30, 1996 is unaudited and presented on a pro forma basis as BCC had no publicly
held common shares outstanding prior to its spin-off from USLD on August 2,
1996. The number of weighted average common shares outstanding used in the
calculation of the pro forma earnings per share gives effect to the shares
assumed to be issued had the spin-off occurred at the beginning of each period
presented. The following is a reconciliation of the numerators and the
denominators of the basic and diluted per share computations for net income:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
---------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders $25,947,000 33,351,000 $ 0.78
=======
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 65,000
Stock options 1,492,000
-------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 25,947,000 34,908,000 $ 0.74
============ ============= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1997
---------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------- ------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders $ 3,707,000 31,032,000 $ 0.12
=======
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 190,000
Stock options 1,296,000
-------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 3,707,000 32,518,000 $ 0.11
============ ============= =======
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1996
-----------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(PRO FORMA, UNAUDITED)
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders $17,852,000 29,210,000 $ 0.61
===========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 381,000
Stock options 1,179,000
-----------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $17,852,000 30,770,000 $ 0.58
=========== =========== ===========
</TABLE>
Certain options to purchase 5,829,260 shares of common stock at prices
ranging from $13 to $29 per share were outstanding for a portion of 1998. They
were not included in the computation of the diluted EPS because the options'
exercise price was greater than the average market price of the common shares.
New Accounting Standards
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," which provides guidance on when revenue should be recognized and
in what amounts for licensing, selling, leasing or otherwise marketing computer
software. SOP 97-2 is effective for transactions entered into in fiscal years
beginning after December 15, 1997 and is to be applied prospectively. In March
1998, the AICPA issued SOP 98-4, "Deferral of the Effective Date of a Provision
of SOP 97-2." SOP 98-4 defers for one year the application of certain provisions
of SOP 97-2. Management of the Company does not anticipate that the adoption of
SOP 97-2 and SOP 98-4 will have a material impact on the Company's financial
position or results of operations.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for reporting information about
operating segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,"
Financial Reporting for Segments of a Business Enterprise." Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.
37
<PAGE> 38
Statements of Cash Flows
Cash payments and non-cash activities during the periods indicated were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments for interest ................................................ $ 310 $ 1,375 $ 1,563
Cash payments for income taxes ............................................ 9,141 8,913 8,366
Noncash investing and financing activities:
Common stock issued in connection with the Distribution .................. 0 0 35,234
Net assets transferred from USLD in connection with the Distribution ..... 0 0 892
Capital lease obligations incurred ....................................... 0 0 2,432
Tax benefit recognized in connection with stock option exercises ......... 8,484 5,765 59
Assets acquired in connection with acquisition ........................... 0 20,512 0
Liabilities assumed in connection with acquisition ....................... 0 2,596 0
Common stock issued in connection with acquisition ....................... 0 9,466 0
</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,
-------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Fixed interest rate term notes .............. $ 2,274 $ 2,930
Less - Current portion ...................... (606) (606)
------- -------
Long-term debt, less current portion ........ $ 1,668 $ 2,324
======= =======
</TABLE>
The Company has various fixed rate term notes with rates ranging from
7.62% to 7.73%, due in varying amounts through June 2002. The proceeds from the
issuance of these notes were used to acquire certain computer equipment and
office furniture. The loans are secured by the assets acquired.
In December 1996, the Company obtained a $50.0 million revolving line
of credit facility with certain lenders primarily to draw upon to advance funds
to its billing customers prior to collection of the funds from the local
telephone companies. This credit facility terminates on December 20, 1999.
Borrowings under the credit facility are limited to a portion of the Company's
eligible receivables. Management believes that the capacity under the credit
facility will be sufficient to fund advances to its billing customers for the
foreseeable future. No amounts were borrowed by the Company under its credit
facility to finance the advance funding program at either September 30, 1998 or
1997. At September 30, 1998, the amount available under the Company's credit
facility was $50.0 million. Additionally, at September 30, 1997, the Company had
a $1.2 million letter of credit outstanding.
Under the most restrictive terms of the Company's 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. The Company was in compliance with
all such covenants at September 30, 1998.
38
<PAGE> 39
Scheduled maturities of debt as of September 30, 1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
Year Ending September 30,
<S> <C>
1999.............................................................. $ 606
2000.............................................................. 606
2001.............................................................. 606
2002.............................................................. 456
---------
$ 2,274
=========
</TABLE>
NOTE 4. LEASES AND CHARTERS
The Company leases equipment and office space under operating leases
and leases a jet airplane under a charter agreement with a company associated
with an officer/director of the Company (see Note 12). Rental expense for the
years ended September 30, 1998, 1997 and 1996, was $2,456,000, $1,630,000 and
$726,000, respectively. Future minimum lease payments under non-cancelable
operating leases and this charter as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
Year Ending September 30,
<S> <C>
1999.............................................................. $ 3,213
2000.............................................................. 3,189
2001.............................................................. 3,131
2002.............................................................. 3,120
2003.............................................................. 2,378
Thereafter........................................................ 0
-----------
Total minimum lease payments.................................. $ 15,031
===========
</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 as of September 30,
1998, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Total minimum lease payments................................... $ 298
Less: Amount representing interest............................. (18)
--------
Present value of net minimum lease payments.................... $ 280
========
</TABLE>
Scheduled maturities of the present value of the net minimum lease
payments as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Year ending September 30,
<S> <C>
1999.......................................................... $ 251
2000.......................................................... 29
--------
Total present value of net minimum lease payments................. $ 280
========
</TABLE>
39
<PAGE> 40
NOTE 5. ACQUISITIONS
In September 1998, the Company acquired 22% of the capital stock of PTC
for $10 million. PTC was a privately held company located in Princeton, New
Jersey specializing in electronic bill publishing over the Internet and advanced
payment solutions. The Company accounts for this investment under the equity
method of accounting. In addition, the Company acquired the right of first
refusal for a period of five years to provide any future equity or debt
financing for PTC.
Effective June 1, 1997, the Company acquired Computer Resources
Management, Inc. ("CRM"), a company that develops software systems for the
direct billing of telecommunications services. This acquisition has been
accounted for as a purchase. Accordingly, the results of operations for CRM have
been included in the Company's consolidated financial statements, and the shares
related to the acquisition have been included in the weighted average shares
outstanding for purposes of calculating net income per common share since the
date of acquisition. The following unaudited pro forma information gives effect
to the acquisition of CRM as if it had occurred at the beginning of the periods
presented. The unaudited pro forma information is based on the historical
information for the periods presented and includes adjustments to reflect the
special charge resulting from expensing acquired in-process research and
development costs (see Note 6) and the effect on depreciation and amortization
expense of recording the fair value of assets acquired. The number of weighted
average shares outstanding used in the calculation of the pro forma per share
data gives effect to the shares assumed to be issued had the acquisition
occurred at the beginning of each period presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Operating revenues................................................... $127,579 $109,153
Net income........................................................... $ 4,203 $ 4,860
Net income per common share - basic.................................. $ 0.13 $ 0.16
Net income per common share - diluted................................ $ 0.13 $ 0.15
</TABLE>
The pro forma financial information should not be considered indicative
of the operating results that would have occurred had the acquisition actually
taken place at the beginning of the periods specified or that the Company will
achieve in the future because, among other things, this information is based on
historical rather than prospective information and includes certain assumptions
which are subject to change. The unaudited pro forma financial information
reflects, in management's opinion, all adjustments necessary to fairly state the
pro forma operating results for the periods presented to make the unaudited pro
forma financial information not misleading.
An aggregate of $8.5 million cash and 650,000 shares of the Company's
common stock were issued in connection with this purchase transaction. The
excess of the purchase price over the fair value of net tangible assets acquired
was determined through an independent appraisal and amounted to approximately
$17.5 million, of which approximately $1.2 million was recorded as goodwill and
is being amortized on a straight-line basis over fifteen years. In addition,
$13.0 million was recorded as in-process research and development expenses (see
Note 6). The remaining balance was recorded as the purchase price for a customer
list and other intangibles, which are being amortized on a straight-line basis
over periods ranging from six to twelve years.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry (see Note 14).
40
<PAGE> 41
NOTE 6. SPECIAL CHARGES
During the fourth quarter of fiscal 1998, the Company recognized
special charges in the amount of $2.0 million. The $2.0 million charge
represented the in-process research and development costs acquired in connection
with the acquisition of 22% of the capital stock of PTC (see Note 5).
During the third quarter of fiscal 1997, the Company recognized special
charges in the amount of $21.3 million. The $21.3 million charge included
in-process research and development costs of $13.0 million acquired in
connection with the acquisition of CRM (see Note 5). At the date of acquisition,
the technological feasibility of the acquired technology had not yet been
established, and the technology had no future alternative uses. The remaining
$8.3 million charge represented accumulated costs associated with the
development of a direct billing system for a service bureau operation. This
development was abandoned by the Company.
NOTE 7. SHARE CAPITAL
On July 10, 1996, the Company, upon authorization by its Board of
Directors, adopted a Shareholder Rights Plan ("Rights Plan") and declared a
dividend of one preferred share purchase right on each share of its outstanding
common stock. The rights will become exercisable if a person or group acquires
15% or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's common stock. These rights, which expire on July 10, 2006,
entitle stockholders to buy one ten-thousandth of a share of a new series of
participating preferred shares at a purchase price of $130 per one
ten-thousandth of a preferred share. The Rights Plan was designed to ensure that
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company.
On August 2, 1996, USLD distributed 30,064,002 shares of the Company's
common stock to the existing stockholders of USLD in order to effect the
spin-off of BCC from USLD. Prior to August 2, 1996, BCC operated as a wholly
owned subsidiary of USLD and, consequently, had no publicly owned common shares.
No dividends were paid on the Company's common stock during fiscal 1998, 1997 or
1996.
NOTE 8. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
Prior to the Distribution, the Company adopted the BCC 1996 Employee
Comprehensive Stock Plan ("Comprehensive Plan") and the BCC 1996 Non-Employee
Director Plan ("Director Plan") under which officers and employees, and
non-employee directors, respectively, of the Company and its affiliates are
eligible to receive stock option grants. Employees of the Company also are
eligible to receive restricted stock grants under the Comprehensive Plan. The
Company has reserved 10,500,000 and 800,000 shares of its common stock for
issuance pursuant to the Comprehensive Plan and Director Plan, respectively.
Under each plan, options vest and expire pursuant to individual award
agreements; however, the expiration date of unexercised options may not exceed
ten years from the date of grant under the Comprehensive Plan and five and seven
years for automatic and discretionary grants, respectively, under the Director
Plan. Immediately prior to the Distribution, the Company granted, under the
Comprehensive Plan and Director Plan, respectively, options to purchase BCC
common stock to each holder of an outstanding option to purchase shares of USLD
common stock under the USLD Employee Stock Option Plan and the USLD Non-Employee
Director Plan, respectively. The BCC options are exercisable for BCC common
stock on the basis of one share of BCC common stock for every one share of USLD
common stock subject to the outstanding USLD options. BCC options to purchase a
total of 3,143,008 shares of BCC common stock were granted in connection with
the adjustment to the USLD options. In connection with the grant of the BCC
options, the exercise price of the USLD options was adjusted to preserve the
economic value of the USLD options existing immediately prior to the
Distribution after giving effect to the grant of the BCC options. The BCC
options will have vesting schedules mirroring the vesting schedules of the
related USLD options. Each BCC option granted in connection with the
Distribution will terminate in accordance with the original USLD option grant.
41
<PAGE> 42
Option activity for the years ended September 30, 1998, 1997 and 1996
is summarized as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, September 30, 1995 ........ 0 --
Granted .............................. 4,678,008 $ 5.26
Canceled ............................. (28,664) $ 3.89
Exercised ............................ (27,416) $ 3.50
----------
Outstanding, September 30, 1996 ........ 4,621,928 $ 5.26
Granted .............................. 2,580,200 $ 15.81
Canceled ............................. (179,048) $ 7.03
Exercised ............................ (1,443,192) $ 3.98
----------
Outstanding, September 30, 1997 ........ 5,579,888 $ 10.43
Granted .............................. 1,974,662 $ 10.92
Canceled ............................. (225,000) $ 17.60
Exercised ............................ (1,505,890) $ 4.96
----------
Outstanding, September 30, 1998 ........ 5,823,660 $ 11.73
==========
</TABLE>
At September 30, 1998, 1997 and 1996, stock options to purchase an
aggregate of 2,027,508, 2,033,594 and 2,031,772 shares were exercisable and had
weighted average exercise prices of $10.46, $6.02 and $3.57 per share,
respectively.
Stock options outstanding and exercisable at September 30, 1998, were
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------- --------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------ ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.15 - $6.95 464,364 1.4 $ 3.98 412,710 $ 3.94
$8.06 - $9.81 2,681,130 5.7 $ 8.21 863,712 $ 8.12
$12.38 - $16.84 2,358,666 5.6 $ 15.91 732,752 $ 16.72
$17.31 - $21.50 197,000 5.6 $ 19.46 18,334 $ 17.33
$22.19 - $25.38 74,000 6.2 $ 23.10 0 --
$26.44 - $29.00 48,500 5.8 $ 28.17 0 --
----------- -----------
5,823,660 5.3 $ 11.73 2,027,508 $ 10.46
=========== ===========
</TABLE>
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," but has elected to apply Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its stock option plans as allowed under SFAS
No. 123. Accordingly, the Company has not recognized compensation expense for
stock options granted where the exercise price is equal to the market price of
the underlying stock at the date of the grant. During fiscal 1998, 1997 and
1996, the Company recognized $726,000, $540,000 and $10,000, respectively, of
compensation expense for options granted below the market price of the
underlying stock on such measurement date. In addition, in accordance with the
provisions of APB Opinion No. 25, the Company has not recognized compensation
expense for employee stock purchases under the Billing Concepts Corp. Employee
Stock Purchase Plan ("ESPP").
42
<PAGE> 43
Had compensation expense for the Company's stock options granted and
ESPP purchases in 1998, 1997 and 1996 been determined based on the fair value at
the grant dates consistent with the methodology of SFAS No. 123, pro forma net
income and net income per common share would have been as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income ........................ $ 22,888 $ 2,230 $ 15,511
Pro forma net income per common share:
Basic ................................ $ 0.69 $ 0.07 $ 0.53
Diluted .............................. $ 0.66 $ 0.07 $ 0.50
</TABLE>
The fair value for these options was estimated at the respective grant
dates using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Expected volatility ............... 25% 24% 25%
Expected dividend yield ........... 0% 0% 0%
Expected life ..................... 2.5 years 2.4 years 2 years
Risk-free interest rate ........... 5.21% 6.05% 6.03%
</TABLE>
The weighted average fair value and weighted average exercise price,
respectively, of options granted where the exercise price was equal to the
market price of the underlying stock at the grant date were $2.33 and $10.40 for
the year ended September 30, 1998, $3.55 and $16.46 for the year ended September
30, 1997, and $5.07 and $5.23 for the year ended September 30, 1996. The
weighted average fair value and weighted average exercise price of options
granted during the year ended September 30, 1997 where the exercise price was
below the market price of the underlying stock at the grant date were $4.48 and
$13.00, respectively. For purposes of the pro forma disclosures, the estimated
fair value of options is amortized to expense over the options' vesting periods.
Warrants to purchase 450,000 shares of common stock at an exercise
price of $4.63 per share were granted during fiscal 1996 immediately prior to
the Distribution to each holder of a warrant to purchase shares of USLD common
stock and had a weighted average fair value of $6.01. The fair value for these
warrants was estimated at the grant date using the Black-Scholes option pricing
model with an expected volatility of 25%, an expected dividend yield of 0%, an
expected life of 2 years and a risk-free interest rate of 6.09% as the
weighted-average assumptions. Warrants to purchase 201,252 and 175,354 shares of
common stock were exercised in fiscal 1998 and 1997, respectively. There were no
warrants exercised in fiscal 1996.
43
<PAGE> 44
NOTE 9. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
Federal:
<S> <C> <C> <C>
Current ................. $ 15,197 $ 9,386 $ 10,049
Deferred ................ 907 (146) (113)
-------- -------- --------
$ 16,104 $ 9,240 $ 9,936
======== ======== ========
State:
Current ................. $ 1,425 $ 1,044 $ 1,005
Total:
Current ................. $ 16,622 $ 10,430 $ 11,054
Deferred ................ 907 (146) (113)
-------- -------- --------
$ 17,529 $ 10,284 $ 10,941
======== ======== ========
</TABLE>
The provision for income taxes for fiscal 1998, 1997 and 1996 differs
from the amount computed by applying the statutory federal income tax rate of
35% to income before provision for income taxes. The reasons for these
differences were as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax provision at statutory rate ....... $15,217 $ 4,897 $10,078
Increases in taxes resulting from:
Nondeductible research and development expenses ...... 700 4,536 0
State income taxes, net of federal benefit ........... 926 679 653
Other, net ........................................... 686 172 210
------- ------- -------
Provision for income taxes ............................ $17,529 $10,284 $10,941
======= ======= =======
</TABLE>
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Expense provisions ...................................... $ 123 $ 12
Deferred tax liabilities:
Acquisition of nondeductible intangibles ................ (1,680) (2,009)
Bad debt tax write-off provisions ....................... (1,018)
Tax depreciation and amortization in excess of book ..... 0 (51)
------- -------
Total deferred tax liabilities ............................ (2,698) (2,060)
------- -------
Net deferred tax liability ................................ ($2,575) ($2,048)
======= =======
</TABLE>
44
<PAGE> 45
The Company was 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 IRS district office issued
a report that proposed an assessment of taxes, interest and penalties. The
Company filed a written protest, and the assessment was appealed to the
appellate division of the IRS. The appellate division of the IRS agreed with the
Company's original treatment of the transaction.
NOTE 10. BENEFIT PLANS
The Company did not have any benefit plans in effect prior to its
spin-off from USLD; however, certain employees and directors of the Company were
eligible to participate in certain similar compensation and benefit plans
provided by USLD.
The Benefit Plans and Employment Matters Allocation Agreement
("Benefits Agreement") entered into by the Company and USLD (see Note 12)
provides for the allocation of certain responsibilities with respect to employee
compensation benefit and labor matters. The allocation of responsibility and
adjustments made pursuant to the Benefits Agreement was substantially consistent
with the existing benefits provided to USLD employees under USLD's various
compensation plans. Among other things, the Benefits Agreement provides that,
effective as of the Distribution Date, the Company 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, were employees of
the Company 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, were employees of USLD or its
subsidiaries.
In addition, the Company assumed, with respect to employees who, on or
after the Distribution Date, were employees of the Company 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 assumed, with respect to the employees who, on or after the
Distribution Date, were 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.
Participation in the Billing Concepts 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 six months of service during which they worked at least 500 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 1% and
15% of their compensation in the form of voluntary payroll deductions up to a
maximum amount as indexed for cost-of-living adjustments. The Company makes
matching contributions as a percentage determined annually of the first 6% of a
participant's compensation contributed as salary deferral. The Company may make
additional discretionary contributions. No discretionary contributions were made
in fiscal 1998, 1997 or 1996. During fiscal 1998, 1997 and 1996, the Company's
matching contributions totaled approximately $193,000, $67,000 and $35,000,
respectively.
Participation in the Billing Concepts Corp. Executive Compensation
Deferral Plan ("Executive Plan") is offered to selected employees occupying
management positions as determined by BCC's board of directors from time to
time. The Executive Plan is a defined contribution plan which provides that
participants may make voluntary salary deferral contributions, on a pretax
basis, of between 1% and 100% of their eligible compensation. Under the
Executive Plan, the Company makes matching contributions equal to the lesser of
100% of a participant's contributions or an amount based on a formula
established by the plan. During fiscal 1998, 1997 and 1996, the Company
contributed $150,000, $47,000 and $22,000, respectively, to the Executive Plan.
Additionally, the Billing Concepts 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.
45
<PAGE> 46
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 Company has reserved 2,000,000 shares of its
common stock for issuance pursuant to the ESPP. The ESPP enables employees who
have completed at least six months of continuous service with the Company to
purchase shares of BCC's common stock at a 15% discount through voluntary
payroll deductions. The purchase price is the lesser of 85% of the closing price
of the common stock on the opening date of each participation period or 85% of
the closing price of the common stock on the ending date of each participation
period. The Company issued 14,659 and 27,561 shares of its common stock in
January and July 1998 pursuant to the ESPP at purchase prices of $15.99 and
$11.32, respectively. The Company issued 19,504 and 15,704 shares of its common
stock in February and August 1997 pursuant to the ESPP at purchase prices of
$9.03 and $12.43, respectively.
NOTE 11. 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 $5.7 million, $4.2 million, $4.1 million, $4.1 million,
$4.0 million, and $7.1 million during fiscal 1999, 2000, 2001, 2002, 2003 and
thereafter, respectively, for minimum usage charges under billing and collection
agreements that, unless automatically renewed, expire at varying dates through
the end of fiscal 2005. 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.
NOTE 12. RELATED PARTIES
The Company and USLD shared a common individual on their respective
boards of directors through June 2, 1997. Therefore, USLD was considered a
related party for purposes of financial disclosure through this date. The
Company provided billing and information management services for USLD and
purchased telecommunications services from USLD. Transactions under the
agreements for these services have been reflected in the accompanying
consolidated financial statements at market prices. Related party transactions
between the Company and USLD are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to USLD ........... $ 0 $ 3,166 $ 5,347
Purchases from USLD ..... 0 1,705 3,332
</TABLE>
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount outstanding
of advances to officers during the years ended September 30, 1998, and 1997 was
$250,000 and $1.7 million, respectively. The Company had a $250,000 note
receivable bearing interest at 7.50% from an officer of the Company at September
30, 1998. The Company also had a $50,000 note bearing interest at 7.50% payable
to an officer of the Company at September 30, 1997. This amount was paid in full
during the year ended September 30, 1998.
The Company charters a jet airplane from a company associated with an
officer/director of the Company. Under the terms of the charter agreement, the
Company is obligated to pay annual minimum fees of $500,000 over the five years
ending March 31, 2003 for such charter services. Such amounts have been included
in the future minimum operating lease and charter payments in Note 4. During the
year ended September 30, 1998, the Company paid approximately $278,000 in fees
related to this agreement.
46
<PAGE> 47
For purposes of governing certain ongoing relationships between the
Company and USLD after the Distribution and to provide for an orderly
transition, the Company and USLD entered into certain agreements. 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 agreed 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 the Company will provide certain services to USLD on a
temporary basis; (v) the Zero Plus - Zero Minus Billing and Information
Management Services Agreement and the 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; and (vi) the Telecommunications Agreement, pursuant to
which USLD will provide long distance telecommunications services to the Company
for an initial period of three years. It is the intention of USLD and the
Company 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, and the
Telecommunications Agreement reflect terms and conditions similar to those that
would have been arrived at by independent parties bargaining at arm's length;
however, there can be no assurances that such agreements are on terms at least
as favorable as could have been obtained from unaffiliated third parties.
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share amounts
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1998 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating revenues ...................... $41,094 $40,406 $41,014 $38,248
Income from operations .................. 7,520 9,763 11,260 10,483
Net income .............................. 4,825 6,901 7,368 6,853
Net income per common share - basic ..... $ 0.14 $ 0.20 $ 0.22 $ 0.21
Net income per common share - diluted ... $ 0.14 $ 0.20 $ 0.21 $ 0.20
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1997 1997 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues ............................... $ 35,742 $ 31,894 $ 27,382 $ 27,818
Income from operations ........................... 9,836 (12,453) 8,195 7,861
Net income ....................................... 6,261 (12,622) 5,157 4,911
Net income (loss) per common share - basic ....... $ 0.19 $ (0.41) $ 0.17 $ 0.16
Net income (loss) per common share - diluted ..... $ 0.18 $ (0.41) $ 0.16 $ 0.15
</TABLE>
Share data has been restated to give effect to the one-for-one common stock
dividend that was distributed on January 30, 1998 to stockholders of record on
January 20, 1998 (see Note 2).
47
<PAGE> 48
NOTE 14. SUBSEQUENT EVENTS (UNAUDITED)
Effective October 1, 1998, the Company acquired Expansion Systems
Corporation ("ESC"), a privately held company headquartered in Glendale,
California that develops and markets billing and registration systems to
Internet Service Providers ("ISP") under its flagship products TotalBill and
InstantReg. An aggregate of 170,000 shares of the Company's common stock were
issued in connection with this transaction, which will be accounted for as a
pooling of interests.
In December 1998, the Company completed the merger of Communications
Software Consultants, Inc. ("CommSoft") in consideration of 2,492,759 shares of
the Company's common stock. CommSoft was a privately held, international
software development and consulting firm specializing in the telecommunications
industry.
The following unaudited pro forma information summarizes the combined
operating results of the Company and CommSoft as if the merger had occurred at
the beginning of the periods presented. The impact of ESC on prior periods was
not material, and the Company does not intend to restate prior periods for the
ESC acquisition. The unaudited pro forma information is based on the historical
information of CommSoft for the periods presented. The number of average
weighted shares outstanding used in the calculation of the pro forma per share
data gives effect to the shares assumed to be issued had the CommSoft merger
occurred at the beginning of each period presented:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Operating revenues .......................... $ 177,378 $ 132,672 $ 109,763
Net income .................................. $ 27,879 $ 4,236 $ 18,073
Net income per common share - basic ......... $ 0.78 $ 0.13 $ 0.57
Net income per common share - diluted ....... $ 0.74 $ 0.12 $ 0.54
</TABLE>
The unaudited pro forma financial information reflects, in management's
opinion, all adjustments necessary to fairly state the pro forma operating
results for the periods presented to make the unaudited pro forma financial
information not misleading.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by this item is not applicable.
48
<PAGE> 49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is incorporated herein by
reference from the information under the captions "Election of Directors" (Item
1 on proxy), "Board of Directors and Executive Officers," and "Section 16(a)
Beneficial Ownership Reporting" of the Company's definitive proxy statement to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission
relating to its Annual Meeting of Stockholders to be held on February 25, 1999
(the "Definitive Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference from the information under the caption "Compensation of Directors" and
from the information under the caption "Executive Compensation" of the Company's
Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference from the information under the caption "Ownership of Common Stock" of
the Company's Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference from the information under the caption "Certain Transactions" of the
Company's Definitive Proxy Statement.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of Report
1. Financial Statements:
The Consolidated Financial Statements of the Company and the related report
of the Company's independent public accountants thereon have been filed under
Item 8 hereof.
2. Financial Statement Schedules:
The information required by this item is not applicable.
3. Exhibits:
The exhibits listed below are filed as part of or incorporated by reference
in this report. Where such filing is made by incorporation by reference to a
previously filed document, such document is identified in parentheses. See the
Index of Exhibits included with the exhibits filed as a part of this report.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
NUMBER -----------------------
------
<S> <C>
2.1 - Plan of Merger and Acquisition Agreement among the Company, CRM Acquisition Corp., Computer
Resources Management, Inc., and Michael A. Harrelson dated effective June 1, 1997
(incorporated by reference from Exhibit 2.1 to June 30, 1997, Form 10-Q)
2.2 - Stock Purchase Agreement between Princeton TeleCom Corporation and Billing Concepts Corp.
dated September 4, 1998 (filed herewith)
3.1 - Amended and Restated Certificate of Incorporation of BCC (incorporated by reference
from Exhibit 3.1 to the Amendment No. 1 to the Company's Registration Statement on Form
10/A dated July 11, 1996), as amended by Certificate of Amendment to Certificate of
Incorporation, amending Article I to change the name of the Company to Billing Concepts
Corp. and amending Article IV to increase the number of authorized shares of common stock
from 60,000,000 to 75,000,000, filed with the Delaware Secretary of State on February 27,
1998 (incorporated by reference from Exhibit 3.4 to March 31, 1998, Form 10-Q)
3.2 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated
by reference from Exhibit 3.2 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
3.3 - Amended and Restated Bylaws of BCC (filed herewith)
4.1 - Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to
March 31, 1998, Form 10-Q)
8.1 - Tax Opinion of Arter & Hadden (incorporated by reference from Exhibit 8.1 to the Post
Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A dated August
1, 1996)
10.1 - Distribution Agreement between USLD and BCC (incorporated by reference from Exhibit
10.1 to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form
10/A dated August 1, 1996)
10.2 - Tax Sharing Agreement between USLD and BCC (incorporated by reference from Exhibit 10.2
to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
10.3 - Benefit Plans and Employment Matters Allocation Agreement between USLD and BCC (incorporated
by reference from Exhibit 10.3 to the Post Effective Amendment No. 2 to the Company's
Registration Statement on Form 10/A dated August 1, 1996)
</TABLE>
50
<PAGE> 51
<TABLE>
<S> <C>
10.4 - Transitional Services and Sublease Agreement between USLD and BCC (incorporated by
reference from Exhibit 10.4 to the Amendment No. 1 to the Company's Registration Statement
on Form 10/A dated July 11, 1996)
10.5 - Zero Plus - Zero Minus Billing and Information Management Services Agreement between USLD
and BCC (incorporated by reference from Exhibit 10.5 to the Post Effective Amendment No. 1
to the Company's Registration Statement on Form 10/A dated July 22, 1996)
10.6 - Expense Sharing Agreement between USLD and BCC (incorporated by reference from Exhibit
10.6 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
11, 1996)
10.7 - Telecommunications Agreement between USLD and BCC (incorporated by reference from Exhibit
10.7 to the Post Effective Amendment No. 1 to the Company's Registration Statement on Form
10/A dated July 22, 1996)
10.8 - BCC's 1996 Employee Comprehensive Stock Plan, amended as of February 26, 1998 (filed
herewith)
10.9 - Form of Option Agreement between Billing Concepts Corp. and its employees under the 1996
Employee Comprehensive Stock Plan (filed herewith)
10.10 - Amended and Restated 1996 Non-Employee Director Plan of BCC, amended as of January 30,
1998 (filed herewith)
10.11 - Form of Option Agreement between Billing Concepts Corp. and non-employee directors (filed
herewith)
10.12 - BCC's 1996 Employee Stock Purchase Plan, amended as of January 30, 1998 (filed
herewith) 10.13 - BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit
4.5 to Billing's Registration Statement on Form S-8, File No. 333-08303, filed on July 17,
1996)
10.13 - BCC's 401(k) Retirement Plan (incorporated by reference from Exhibit 4.5 to BCC's Registration
Statement on Form S-8, File No. 333-08303, filed on July 17, 1996)
10.14 - BCC's Executive Compensation Deferral Plan (incorporated by reference from Exhibit
10.12 to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form
10/A dated August 1, 1996)
10.15 - BCC's Director Compensation Deferral Plan (incorporated by reference from Exhibit 10.13
to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A
dated August 1, 1996)
10.16 - BCC's Executive Qualified Disability Plan (incorporated by reference from Exhibit 10.14
to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
10.17 - Amended and Restated Employment Agreement dated October 1, 1997 between Billing Concepts
Corp. and Parris H. Holmes, Jr. (filed herewith)
10.18 - Amended and Restated Employment Agreement dated October 1, 1997 between Billing Concepts
Corp. and Alan W. Saltzman (filed herewith)
10.19 - Employment Agreement dated January 15, 1998 between Billing Concepts Corp. and Kelly E.
Simmons (filed herewith)
10.20 - Employment Agreement effective January 15, 1998, between the Company and Audie Long
(incorporated by reference from March 31, 1998, Form 10-Q)
10.21 - Employment Agreement dated January 1, 1998, between the Company and Paul L. Gehri
(incorporated by reference from March 31, 1998, Form 10-Q)
10.22 - Employment Agreement between the Company and Michael A. Harrelson dated June 4, 1997
(incorporated by reference from Exhibit 10.2 to June 30, 1997, Form 10-Q), as amended by
Amendment No. 1 to Employment Agreement effective August 10, 1998 (filed herewith)
10.23 - Employment Agreement dated October 1, 1997, between the Company and Michael Hancock
(incorporated by reference from Exhibit 10.34 to March 31, 1998, Form 10-Q)
10.24 - Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners, Ltd.
and Billing Concepts, Inc. (incorporated by reference from Exhibit 10.21 to the Post
Effective Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
22, 1996), as amended by First Amendment to Lease Agreement dated September 30, 1996
(incorporated by reference from Exhibit 10.31 to March 31, 1998, Form 10-Q), Second
Amendment to Lease Agreement dated November 8, 1996 (incorporated by reference from Exhibit
10.32 to March 31, 1998, Form 10-Q), and Third Amendment to Lease Agreement dated January
24, 1997 (incorporated by reference from Exhibit 10.33 to March 31, 1998, Form 10-Q)
</TABLE>
51
<PAGE> 52
<TABLE>
<S> <C>
10.25 - Credit Agreement dated December 20, 1996, among Billing Concepts, Inc., The Frost National
Bank and The Boatmen's National Bank of St. Louis (incorporated by reference from Exhibit
10.1 to December 31, 1996, Form 10-Q), as amended by First Amendment to Credit Agreement
dated March 1, 1997 (filed herewith), and Second Amendment to Credit Agreement dated
September 29, 1998 (filed herewith)
10.26 - Parent Guaranty dated December 20, 1996, between Billing Concepts Corp. and The Frost
National Bank (incorporated by reference from Exhibit 10.3 to December 31, 1996, Form 10-Q)
10.27 - Affiliate Guaranty dated December 20, 1996, between Enhanced Services Billing, Inc. and The
Frost National Bank (incorporated by reference from Exhibit 10.4 to December 31, 1996, Form
10-Q)
10.28 - Promissory Note dated December 20, 1996, between Billing Concepts, Inc. and The Boatmen's
National Bank of St. Louis (incorporated by reference from Exhibit 10.5 to December 31,
1996, Form 10-Q)
10.29 - Promissory Note dated December 20, 1996, between Billing Concepts, Inc. and The Frost
National Bank (incorporated by reference from Exhibit 10.6 to December 31, 1996, Form 10-Q)
10.30 - Stock Pledge Agreement dated December 20, 1996, between Billing Concepts Corp. and The
Frost National Bank (incorporated by reference from Exhibit 10.7 to December 31, 1996, Form
10-Q)
10.31 - Security Agreement dated December 20, 1996, between Billing Concepts, Inc. and The Frost
National Bank (incorporated by reference from Exhibit 10.8 to December 31, 1996, Form 10-Q)
10.32 - Put Option Agreement between the Company and Michael A. Harrelson dated effective June 1,
1997 (incorporated by reference from Exhibit 10.1 to June 30, 1997, Form 10-Q)
21.1 - Amended List of Subsidiaries (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K
None.
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BILLING CONCEPTS CORP.
By: /s/ PARRIS H. HOLMES, JR.
-------------------------
Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer
Date: December 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on the 18th day of December,
1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ PARRIS H. HOLMES, JR. Chairman of the Board and Chief Executive
- ---------------------------------- Officer (Principal Executive Officer)
Parris H. Holmes, Jr.
/s/ ALAN W. SALTZMAN President and Chief Operating Officer
- ----------------------------------
Alan W. Saltzman
/s/ KELLY E. SIMMONS Executive Vice President and Chief Financial Officer
- ---------------------------------- (Principal Financial and Accounting Officer)
Kelly E. Simmons
/s/ LEE COOKE Director
- ----------------------------------
Lee Cooke
/s/ JAMES E. SOWELL Director
- ----------------------------------
James E. Sowell
/s/ THOMAS G. LOEFFLER Director
- ----------------------------------
Thomas G. Loeffler
</TABLE>
53
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBITS
NUMBER -----------------------
------
<S> <C>
2.1 - Plan of Merger and Acquisition Agreement among the Company, CRM Acquisition Corp., Computer
Resources Management, Inc., and Michael A. Harrelson dated effective June 1, 1997
(incorporated by reference from Exhibit 2.1 to June 30, 1997, Form 10-Q)
2.2 - Stock Purchase Agreement between Princeton TeleCom Corporation and Billing Concepts Corp.
dated September 4, 1998 (filed herewith)
3.1 - Amended and Restated Certificate of Incorporation of Billing (incorporated by reference
from Exhibit 3.1 to the Amendment No. 1 to the Company's Registration Statement on Form
10/A dated July 11, 1996), as amended by Certificate of Amendment to Certificate of
Incorporation, amending Article I to change the name of the Company to Billing Concepts
Corp. and amending Article IV to increase the number of authorized shares of common stock
from 60,000,000 to 75,000,000, filed with the Delaware Secretary of State on February 27,
1998 (incorporated by reference from Exhibit 3.4 to March 31, 1998, Form 10-Q)
3.2 - Certificate of Designation of Series A Junior Participating Preferred Stock (incorporated
by reference from Exhibit 3.2 to the Amendment No. 1 to the Company's Registration
Statement on Form 10/A dated July 11, 1996)
3.3 - Amended and Restated Bylaws of Billing (filed herewith)
4.1 - Form of Stock Certificate of Common Stock (incorporated by reference from Exhibit 4.1 to
March 31, 1998, Form 10-Q)
8.1 - Tax Opinion of Arter & Hadden (incorporated by reference from Exhibit 8.1 to the Post
Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A dated August
1, 1996)
10.1 - Distribution Agreement between USLD and Billing (incorporated by reference from Exhibit
10.1 to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form
10/A dated August 1, 1996)
10.2 - Tax Sharing Agreement between USLD and Billing (incorporated by reference from Exhibit 10.2
to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
10.3 - Benefit Plans and Employment Matters Allocation Agreement between USLD and Billing
(incorporated by reference from Exhibit 10.3 to the Post Effective Amendment No. 2 to the
Company's Registration Statement on Form 10/A dated August 1, 1996)
10.4 - Transitional Services and Sublease Agreement between USLD and Billing (incorporated by
reference from Exhibit 10.4 to the Amendment No. 1 to the Company's Registration Statement
on Form 10/A dated July 11, 1996)
10.5 - Zero Plus - Zero Minus Billing and Information Management Services Agreement between USLD
and Billing (incorporated by reference from Exhibit 10.5 to the Post Effective Amendment
No. 1 to the Company's Registration Statement on Form 10/A dated July 22, 1996)
10.6 - Expense Sharing Agreement between USLD and Billing (incorporated by reference from Exhibit
10.6 to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
11, 1996)
10.7 - Telecommunications Agreement between USLD and Billing (incorporated by reference from
Exhibit 10.7 to the Post Effective Amendment No. 1 to the Company's Registration Statement
on Form 10/A dated July 22, 1996)
10.8 - Billing's 1996 Employee Comprehensive Stock Plan, amended as of February 26, 1998 (filed
herewith)
10.9 - Form of Option Agreement between Billing Concepts Corp. and its employees under the 1996
Employee Comprehensive Stock Plan (filed herewith)
10.10 - Amended and Restated 1996 Non-Employee Director Plan of Billing, amended as of January 30,
1998 (filed herewith)
10.11 - Form of Option Agreement between Billing Concepts Corp. and non-employee directors (filed
herewith)
10.12 - Billing's 1996 Employee Stock Purchase Plan, amended as of January 30, 1998 (filed
herewith) 10.13 - Billing's 401(k) Retirement Plan (incorporated by reference from Exhibit
4.5 to Billing's Registration Statement on Form S-8, File No. 333-08303, filed on July 17,
1996)
10.14 - Billing's Executive Compensation Deferral Plan (incorporated by reference from Exhibit
10.12 to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form
10/A dated August 1, 1996)
10.15 - Billing's Director Compensation Deferral Plan (incorporated by reference from Exhibit 10.13
to the Post Effective Amendment No. 2 to the Company's Registration Statement on Form 10/A
dated August 1, 1996)
10.16 - Billing's Executive Qualified Disability Plan (incorporated by reference from Exhibit 10.14
to the Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July 11,
1996)
10.17 - Amended and Restated Employment Agreement dated October 1, 1997 between Billing Concepts
Corp. and Parris H. Holmes, Jr. (filed herewith)
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
10.18 - Amended and Restated Employment Agreement dated October 1, 1997 between Billing Concepts
Corp. and Alan W. Saltzman (filed herewith)
10.19 - Employment Agreement dated January 15, 1998 between Billing Concepts Corp. and Kelly E.
Simmons (filed herewith)
10.20 - Employment Agreement effective January 15, 1998, between the Company and Audie Long
(incorporated by reference from March 31, 1998, Form 10-Q)
10.21 - Employment Agreement dated January 1, 1998, between the Company and Paul L. Gehri
(incorporated by reference from March 31, 1998, Form 10-Q)
10.22 - Employment Agreement between the Company and Michael A. Harrelson dated June 4, 1997
(incorporated by reference from Exhibit 10.2 to June 30, 1997, Form 10-Q), as amended by
Amendment No. 1 to Employment Agreement effective August 10, 1998 (filed herewith)
10.23 - Employment Agreement dated October 1, 1997, between the Company and Michael Hancock
(incorporated by reference from Exhibit 10.34 to March 31, 1998, Form 10-Q)
10.24 - Office Building Lease Agreement dated July 12, 1996 between Medical Plaza Partners, Ltd.
and Billing Concepts, Inc. (incorporated by reference from Exhibit 10.21 to the Post
Effective Amendment No. 1 to the Company's Registration Statement on Form 10/A dated July
22, 1996), as amended by First Amendment to Lease Agreement dated September 30, 1996
(incorporated by reference from Exhibit 10.31 to March 31, 1998, Form 10-Q), Second
Amendment to Lease Agreement dated November 8, 1996 (incorporated by reference from Exhibit
10.32 to March 31, 1998, Form 10-Q), and Third Amendment to Lease Agreement dated January
24, 1997 (incorporated by reference from Exhibit 10.33 to March 31, 1998, Form 10-Q)
10.25 - Credit Agreement dated December 20, 1996, among Billing Concepts, Inc., The Frost National
Bank and The Boatmen's National Bank of St. Louis (incorporated by reference from Exhibit
10.1 to December 31, 1996, Form 10-Q), as amended by First Amendment to Credit Agreement
dated March 1, 1997 (filed herewith), and Second Amendment to Credit Agreement dated
September 29, 1998 (filed herewith)
10.26 - Parent Guaranty dated December 20, 1996, between Billing Concepts Corp. and The Frost
National Bank (incorporated by reference from Exhibit 10.3 to December 31, 1996, Form 10-Q)
10.27 - Affiliate Guaranty dated December 20, 1996, between Enhanced Services Billing, Inc. and The
Frost National Bank (incorporated by reference from Exhibit 10.4 to December 31, 1996, Form
10-Q)
10.28 - Promissory Note dated December 20, 1996, between Billing Concepts, Inc. and The Boatmen's
National Bank of St. Louis (incorporated by reference from Exhibit 10.5 to December 31,
1996, Form 10-Q)
10.29 - Promissory Note dated December 20, 1996, between Billing Concepts, Inc. and The Frost
National Bank (incorporated by reference from Exhibit 10.6 to December 31, 1996, Form 10-Q)
10.30 - Stock Pledge Agreement dated December 20, 1996, between Billing Concepts Corp. and The
Frost National Bank (incorporated by reference from Exhibit 10.7 to December 31, 1996, Form
10-Q)
10.31 - Security Agreement dated December 20, 1996, between Billing Concepts, Inc. and The Frost
National Bank (incorporated by reference from Exhibit 10.8 to December 31, 1996, Form 10-Q)
10.32 - Put Option Agreement between the Company and Michael A. Harrelson dated effective June 1,
1997 (incorporated by reference from Exhibit 10.1 to June 30, 1997, Form 10-Q)
21.1 - Amended List of Subsidiaries (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
Between
BILLING CONCEPTS CORP.
And
PRINCETON TELECOM CORPORATION
Dated as of September 4, 1998
<PAGE> 2
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of September 4,
1998, between Princeton TeleCom Corporation, a Delaware corporation (the
"Company"), and Billing Concepts Corp., a Delaware corporation (the
"Purchaser").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company, shares of the Company's Common
Stock, par value $0.01 per share (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Company and the Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF CAPITAL STOCK
The Closing. (i) Subject to the terms and conditions set forth in this
Agreement, the Company shall issue and sell to the Purchaser and the Purchaser
shall purchase 831,290 shares of Common Stock of the Company, representing 22%
of the issued and outstanding Common Stock of the Company at the Closing (as
defined below), taking into account vested stock options of the Company (the
"Shares"), subject to adjustment as set forth in Section 3.2 of this Agreement
for an aggregate purchase price of $10,000,000. The closing of the purchase and
sale of the Shares (the "Closing") shall take place at the offices of the
Purchaser immediately following the execution hereof, which Closing is
anticipated to be September 3, 1998 or such later date as the parties shall
agree. The date of the Closing is hereinafter referred to as the "Closing Date."
(ii) At the Closing, the parties shall deliver or shall cause
to be delivered such items as are required to be delivered by them in accordance
with the terms of this Agreement, including the following: (A) The Company shall
deliver (1) stock certificates representing the Shares, registered in the name
of the Purchaser, (2) the legal opinion of Hale & Schenkman, counsel to the
Company, substantially in the form of Exhibit A attached hereto, and (3) all
other documents, instruments and writings required to have been delivered at or
prior to the Closing Date by the Company pursuant to this Agreement; and (B) the
Purchaser shall deliver (1) $10,000,000 in United Sates dollars in immediately
available funds by wire transfer to an account designated prior to the Closing
Date in writing by the Company for such purpose and (2) all documents,
instruments and writings required to have been delivered at or prior to the
Closing Date by the Purchaser pursuant to this Agreement.
<PAGE> 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchaser:
(a) Organization and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not have or result
in a material adverse effect on the results of operations, assets, prospects or
condition (financial or otherwise) of the Company taken as a whole.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company, and no further
action is required by the Company. This Agreement has been duly executed by the
Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms. The Company is not in violation of any of the
provisions of its respective certificate of incorporation, by-laws or other
charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company. Except as disclosed in
Schedule 2.1(c), there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or,
except as a result of the purchase and sale of the Shares, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. A "Person" means an
individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Shares. The Shares are duly authorized
and, when issued and paid for in accordance with the terms hereof, shall have
been validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively, "Liens"),
other than as set forth herein.
2
<PAGE> 4
(e) No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, by-laws or other
charter documents, (ii) conflict with, or constitute a default under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
indenture or instrument (evidencing a Company debt or otherwise) to which the
Company is a party or by which any property or asset of the Company is bound or
affected as could not, individually or in the aggregate, have or result in a
material adverse effect, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which the Company is subject (including
Federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected, as could not, individually or in the
aggregate, have or result in a material adverse effect. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental authority, except for violations which, individually or in
the aggregate, could not have or result in a material adverse effect.
(f) Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing of registration with, any court or other Federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement, other than
(i) applicable Blue Sky filings and (ii) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a material adverse effect (the consents, waivers, authorizations,
orders, notices and filings referred to in (i) and (ii) of this section are,
collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in Schedule 2.1(g), there is no action, suit, notice of violation, proceeding or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its properties before or by any court,
governmental or administrative agency or regulatory authority (Federal, state,
county, local or foreign) which (i) adversely affects or challenges the
legality, validity or enforceability of this Agreement or the Shares or (ii)
could, individually or in the aggregate, have or result in a material adverse
effect.
(h) Financial Statements. The financial statements, financial
statement schedules and notes to such financial statements and schedules of the
Company ("Company Financial Statements") for the year ended December 31, 1997
and the six (6) months ended June 30, 1998, are complete and correct and were
prepared in accordance with the Company's internal accounting practices
acceptable to the Company applied on a consistent basis, except as noted in
Schedule 2.1(h), and fairly present the information purported to be shown
therein. All such Company Financial Statements have been prepared from the books
and records of the Company, which accurately and fairly reflect the transactions
and dispositions of the assets of the Company. The Company does not have any
liabilities, contingent or otherwise, whether due or to become due, known or
unknown, other than as indicated on the June 30, 1998 balance sheet included in
the Company Financial Statements and as set forth in this Agreement, which
would,
3
<PAGE> 5
individually or in the aggregate, have a material adverse effect on the Company.
The Company has adequately funded all accrued employee benefit costs, and such
funding is reflected in the balance sheets included in the Company Financial
Statements.
(i) No Default or Violation. Except as specifically disclosed
in Schedule 2.1(i), the Company (i) is not in default under or in violation of
(and no event has occurred which has not been waived which, with notice or lapse
of time or both, would result in a default by the Company under), nor has the
Company received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound, (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is in violation of any statute, rule or regulation
of any governmental authority, except as could not individually or in the
aggregate, have or result in a material adverse effect.
(j) Working Capital at June 30, 1998. As stated on its June
30, 1998 balance sheet, the Company had, and the subsequent audit as described
in Section 3.2 of this Agreement will report, a deficit working capital of no
more than $8.5 million at June 30, 1998.
(k) Taxes. Except as specifically disclosed in Schedule
2.1(k), all taxes, assessments and other governmental charges that the Company
reasonably believes are due and payable, other than those presently payable
without penalty or interest, have been timely paid, and the Company has timely
filed all Federal, state and other tax returns required by law to be filed by
it. All such tax reports or returns are true, complete and correct in all
respects with regard to the Company for the periods covered thereby.
(l) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Shares to the Purchaser as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither the Company
nor any Person acting on its behalf has taken any action which could subject the
offering, issuance or sale of the Shares to the registration requirements of the
Securities Act.
(m) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(n) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker or bank with respect to the transactions contemplated
by this Agreement. The Purchaser shall have no obligation with respect to any
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this section that may be due in connection with
the transactions contemplated by this Agreement other than fees or commissions
incurred by the Purchaser. The Company shall indemnify and hold harmless the
Purchaser, its employees, officers, directors and agents, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
reasonable costs of preparation and reasonable attorneys' fees) and expenses
suffered in respect of any such claimed or existing fees, as such fees and
expenses are incurred, other than fees or commissions incurred by the Purchaser.
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<PAGE> 6
(o) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has (i) distributed any offering materials in
connection with the offering and sale of the Shares or (ii) solicited any offer
to buy or sell the Shares by means of any form of general solicitation or
advertising.
(p) Exclusivity. The Company shall not issue and sell the
Shares to any Person other than the Purchaser.
(q) Seniority. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation or
dissolution or otherwise.
(r) Patents and Trademarks. The Company has, or has rights to
use, all, if any, patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary or
material for use in connection with its business, and which the failure to so
have would have a material adverse effect. To the best knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(s) Registration Rights; Rights of Participation. The Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Securities and Exchange Commission (the "Commission") or any
other governmental authority which has not been satisfied, and no Person has any
right of first refusal, preemptive right, right of participation or any similar
right to participate in the transactions contemplated by this Agreement.
(t) Regulatory Permits. The Company possesses all
certificates, authorizations and permits issued by the appropriate Federal,
state or foreign regulatory authorities necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of any material permit.
(u) Title. The Company has good and marketable title in fee
simple to all, if any, real property and personal property owned by it which is
material to the business of the Company, in each case free and clear of all
Liens, except for liens, claims or encumbrances as do not materially,
individually or in the aggregate, interfere with the use made and proposed to be
made of such property by the Company . Any real property and facilities held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company.
(v) Disclosure. The Company understands and confirms that the
Purchaser shall be relying on the foregoing representations in the sale of the
Shares pursuant to this Agreement and in effecting transactions in securities of
the Company. All disclosure provided to
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<PAGE> 7
the Purchaser regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct and do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization and Qualification. The Purchaser is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Purchaser is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or result in a material adverse effect on the
results of operations, assets, prospects or condition (financial or otherwise)
of the Purchaser taken as a whole.
(b) Authorization; Enforcement. The Purchaser has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and otherwise to carry out its
obligations thereunder. The execution and delivery of this Agreement by the
Purchaser and the consummation by it of the transactions contemplated thereby
have been duly authorized by all necessary action on the part of the Purchaser,
and no further action is required by the Purchaser. This Agreement has been duly
executed by the Purchaser and, when delivered in accordance with the terms
hereof, will constitute the valid and binding obligation of the Purchaser
enforceable against the Purchaser in accordance with its terms. The Purchaser is
not in violation of any of the provisions of its respective certificate of
incorporation, by-laws or other charter documents.
(c) Certain Fees. No fees or commissions will be payable by
the Purchaser to any broker, financial advisor or consultant, finder, placement
agent, investment banker or bank with respect to the transactions contemplated
by this Agreement. The Company shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this section that may be due in connection with the
transactions contemplated by this Agreement other than fees or commissions
incurred by the Company. The Purchaser shall indemnify and hold harmless the
Company, its employees, officers, directors and agents, and their respective
Affiliates, from and against all claims, losses, damages, costs (including the
reasonable costs of preparation and reasonable attorneys' fees) and expenses
suffered in respect of any such claimed or existing fees, as such fees and
expenses are incurred, other than fees or commissions incurred by the Company.
(d) Investment Intent. The Purchaser is acquiring the Shares
for its own account for investment purposes only and not with a view to or for
distributing or reselling such Shares or any part thereof or interest therein,
without prejudice, however, to Purchaser's rights to sell such securities in
compliance with applicable state securities laws and under an exemption from
such registration under Federal securities laws.
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<PAGE> 8
(e) Purchaser Status. At the time the Purchaser was offered
the Shares, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(f) Experience of the Purchaser. The Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Shares and has so
evaluated the merits and risks of such investment.
(g) Reliance. The Purchaser understands and acknowledges that
(i) the Shares are being offered and sold to it as "restricted securities,"
without registration under the Securities Act or any state securities laws in a
private placement that is exempt from the registration provisions of the
Securities Act and may not be transferred, offered or sold except pursuant to an
effective registration statement under the Securities Act or an available
exemption from registration under the Securities Act and in accordance with
applicable state securities laws, and (ii) the availability of such exemption
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations, and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Restrictions. The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1, of the following legend on the Shares:
THESE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND WERE ISSUED IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT THE TRANSACTION IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE SECURITIES LAWS.
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<PAGE> 9
THESE SHARES ARE SUBJECT TO A RIGHT OF FIRST REFUSAL ON THE PART OF THE
COMPANY TO PURCHASE SUCH SHARES, AS MORE PARTICULARLY DESCRIBED IN
SECTION 3.4 OF THE STOCK PURCHASE AGREEMENT DATED SEPTEMBER 4, 1998
BETWEEN THE COMPANY AND BILLING CONCEPTS CORP.
3.2 Audit of Working Capital Deficit; Option to Purchase Additional
Shares of Common Stock. The Company agrees to commence, within thirty (30) days
of the Closing Date, an audit performed by a nationally recognized accounting
firm, based on generally accepted accounting principles, of its books and
records at June 30, 1998. The Company has warranted and represented in Section
2.1(j) of this Agreement that the deficit working capital at June 30, 1998 will
be no more than $8.5 million. In the event the audit concludes that the deficit
working capital is in excess of $8.5 million, the Company then shall have a
period of thirty (30) days to obtain a second opinion from a national accounting
firm. In the event the second opinion differs from the audit determination
concerning the working capital, then in that event, the Company and the
Purchaser agree to employ a mutually acceptable third national accounting firm
to arbitrate the matter. In the event the Company does not elect to obtain a
second opinion or in the event the arbitration favors the Purchaser, the
Purchaser, at its option, shall have the right to purchase additional equity in
the amount of the deficit working capital in excess of $8.5 million at the same
price per share as the purchase of the 22% of the issued and outstanding capital
stock of the Company at the Closing set forth in Article I of this Agreement.
3.3 The Company's Right of First Refusal. In the event the Purchaser
elects to sell some or all of the Shares, including any additional shares of
Common Stock purchased under the terms of Section 3.2, the Purchaser agrees to
give written notice to the Company describing in reasonable detail the proposed
terms and conditions of such sale, the person to whom the sale is to be made,
and attached to it shall be a term sheet or similar document relating thereto.
The Company shall have fifteen (15) business days after receipt of such notice
to close the proposed sale on substantially the terms and conditions disclosed
in the Purchaser's written notice . If the Company shall fail to close on the
proposed sale within such fifteen (15)-day period, the Purchaser may effect such
sale substantially on the terms and to the persons as set forth in the written
notice and in accordance with Section 3.1 herein. If the Purchaser should fail
to close its transaction within thirty (30) days of the Company's election not
to, or failure to, exercise its right of first refusal, then the Company shall
again have the right of first refusal set forth above in this paragraph.
3.4 Purchaser's Right of First Refusal. The Company shall not, directly
or indirectly, without the prior written consent of the Purchaser, offer, sell,
grant any option to purchase or otherwise dispose of (or announce any offer,
sale, grant or any option to purchase or other disposition) any of its or its
affiliates' equity, equity-equivalent securities or promissory notes in a
transaction intended to be exempt or not subject to registration under the
Securities Act of 1933, as amended (a "Subsequent Placement"), for a period of
five (5) years after the Closing, except (i) the granting of options or warrants
to employees, officers and directors, and the issuance of shares upon exercise
of options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, as shown in Exhibit B attached hereto, (ii) shares of
Common Stock issued upon exercise of any currently outstanding warrants and upon
conversion
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<PAGE> 10
of any currently outstanding convertible securities of the Company, in each case
as shown in Exhibit C attached hereto, and (iii) mergers or acquisitions not
designed to raise capital, unless (A) the Company delivers to the Purchaser a
written notice (the "Subsequent Placement Notice") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the person with whom such Subsequent
Placement shall be effected, and attached to which shall be a term sheet or
similar document relating thereto, and (B) the Purchaser shall not have notified
the Company by 5:00 p.m. (Central Time) on the tenth (10th) business day after
its receipt of the Subsequent Placement Notice of its willingness to provide (or
to cause its sole designee to provide), subject to completion of mutually
acceptable documentation and closing within thirty (30) days of such Subsequent
Placement Notice, financing to the Company on substantially the terms set forth
in the Subsequent Placement Notice. If the Purchaser shall fail to notify the
Company of its intention to enter into such negotiations within such time period
or fail to close within such thirty (30)-day period, the Company may effect the
Subsequent Placement substantially upon the terms and to the persons (or
affiliates of such persons) set forth in the Subsequent Placement Notice;
provided that the Company shall provide the Purchaser with a second Subsequent
Placement Notice, and the Purchaser shall again have the right of first refusal
set forth above in this paragraph, if the Subsequent Placement subject to the
initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within ninety
(90) days after the date of the initial Subsequent Placement Notice with the
person (or an affiliate of such person) identified in the Subsequent Placement
Notice.
3.5 Board of Director Representation. At the Closing, the Company
agrees that its Board of Directors shall consist of five (5) members, of which
the Purchaser shall have the right to appoint two (2) members, to serve for so
long as the Purchaser owns at least 10% of the issued and outstanding shares of
the Company. The other three (3) members of the Board of Directors shall be
Donald C. Licciardello, President, Chief Executive Officer and Chairman of the
Board, and those persons appointed by him, as they may be changed from time to
time. At the Closing, the Purchaser, the Company and Donald C. Licciardello
shall enter into a Voting Agreement in the form attached as Exhibit 3.5 hereto.
3.6 Furnishing of Information. So long as the Purchaser owns Shares,
the Company will prepare and furnish to the Purchaser annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements.
3.7 Integration. The Company shall not, and shall use its best
reasonable efforts to ensure that no Affiliate shall, sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Shares in a manner that would require the registration
under the Securities Act of the sale of the Shares to the Purchaser.
3.8 Notice of Breaches. (a) Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in this Agreement
discovered by either party subsequent to the Closing Date However, no disclosure
by either party pursuant to this section shall be deemed to cure any breach of
any representation, warranty or other agreement contained in this Agreement.
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<PAGE> 11
(b) Notwithstanding the generality of Section 3.4(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by this Agreement violates or
would violate any written agreement or understanding between such lender and the
Company, and the Company shall promptly furnish by facsimile to the purchaser of
the Shares a copy of any written statement in support of or relating to such
claim or notice.
3.9 Use of Proceeds. The Company shall use the net proceeds from the
sale of the Shares hereunder for working capital purposes and not for the
satisfaction of any portion of Company debt to stockholders or their affiliates
or to redeem any Company equity or equity-equivalent securities. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3.10 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company, and
except as set forth in Schedule 3.10, the Company shall not transfer, sell or
otherwise dispose of any Intellectual Property Rights, or allow any of the
Intellectual Property Rights to become subject to any Liens, or fail to renew
such Intellectual Property Rights (if renewable and it would otherwise lapse if
not renewed) which would have, individually or in the aggregate, a material
adverse effect on the Company, without the prior written consent of the
Purchaser.
3.11 Reimbursement. The Company shall reimburse the Purchaser for its
reasonable legal expenses and other reasonable expenses (including the cost of
investigation and preparation) as incurred by the Purchaser in any action,
proceeding or investigation brought by third parties, including stockholders of
the Company, against the Company or the Purchaser in connection with or as a
result of (i) any undertaking, act, omission or transaction of the Company or
(ii) as a result of the consummation of the transactions contemplated by this
Agreement, which constitutes a breach of the Company's representations under
this Agreement. In addition, other than with respect to any matter in which the
Purchaser is a named party, the Company will pay the Purchaser the charges, as
reasonably determined by the Purchaser, for the time of any officers or
employees of the Purchaser devoted to appearing and preparing to appear as
witnesses, assisting in preparation for hearings, trials or pretrial matters, or
otherwise with respect to inquiries, hearings, trials and other proceedings
relating to such claims. The reimbursement obligations of the Company under this
paragraph shall be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any Affiliates of the
Purchaser who are actually named in such action, proceeding or investigation,
and directors, agents, employees and controlling persons (if any), as the case
may be, of the Purchaser and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchaser and any such Affiliate and any
such Person. The Company also agrees that neither the Purchaser nor any such
Affiliates, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the
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<PAGE> 12
Company in connection with or as a result of the consummation of this Agreement
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company result from the actions or conduct of the Purchaser or
entity in connection with the transactions contemplated by this Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, contains the entire understanding of the parties
with respect to the subject matter hereof and supersedes all prior agreements
and understandings, oral or written, with respect to such matters, which the
parties acknowledge have been merged into this Agreement and the Exhibits and
Schedules hereto.
4.2 Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be personally delivered or sent by
reliable overnight express delivery (such as Federal Express). Any such notice,
request, consent or other communication shall be deemed delivered at such time
as it is personally delivered on a business day, or on the date of actual,
prepaid delivery on a business day by a reliable overnight express delivery
service, as the case may be. The address for all notices, requests, consents and
other communications hereunder shall be as follows:
If to the Purchaser: Billing Concepts Corp.
7411 John Smith Drive, Suite 200
San Antonio, Texas 78229
Telephone (210) 949-7007
Facsimile (210) 949-7014
Attention: Kelly E. Simmons
Senior Vice President and
Chief Financial Officer
With copy to: W. Audie Long, Esq.
Senior Vice President and General Counsel
Billing Concepts Corp.
7411 John Smith Drive, Suite 200
San Antonio, Texas 78229
Telephone (210) 949-7022
Facsimile (210) 949-7024
If to the Company: Princeton TeleCom Corporation
165 Wall Street
Princeton, New Jersey 08540
Telephone (609) 609-683-3501
Facsimile (609) 924-1096
Attention: Donald C. Licciardello
President and Chief Executive
Officer
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<PAGE> 13
With copy to: Russell U. Schenkman, Esq.
Hale & Schenkman
Thirteen Roszel Road, Suite C-225
Princeton, New Jersey 08540
Telephone (609) 452-0110
Facsimile (609) 799-1555
Or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.3 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchaser, or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
4.4 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchaser. The Purchaser may not assign
this Agreement or any of the rights or obligations hereunder without the prior
written consent of the Company, except that the Purchaser may assign its rights
hereunder to a wholly owned subsidiary.
4.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns, is not for the benefit of, nor may any provision hereof be enforced by,
any other Person.
4.7 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of San Antonio, County of Bexar, State of Texas, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
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<PAGE> 14
4.8 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Shares.
4.9 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.10 Publicity. The Company and the Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby, and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser, or include the name of the Purchaser in any filing with the
Commission, or any regulatory agency, trading facility or stock market, without
the prior written consent of the Purchaser, except to the extent such disclosure
is required by law, in which case the Company shall provide the Purchaser with
prior notice of such disclosure.
4.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
4.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
and the Company will be entitled to specific performance of the obligations of
each under this Agreement. Each of the Company and the Purchaser agrees that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive, in any action for specific performance of any such
obligation, the defense that a remedy at law would be adequate.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Stock
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
ATTEST: PRINCETON TELECOM CORPORATION
By: /s/ C. Richard Corl By: /s/ Donald C. Licciardello
--------------------------------- ---------------------------------
C. Richard Corl, Secretary Name: Donald C. Licciardello
-------------------------------
Title: President
------------------------------
BILLING CONCEPTS CORP.
By: /s/ Kelly E. Simmons
---------------------------------
Name: Kelly E. Simmons
-------------------------------
Title: Senior Vice President & CFO
------------------------------
14
<PAGE> 1
EXHIBIT 3.3
================================================================================
AMENDED AND RESTATED
BYLAWS
OF
BILLING CONCEPTS CORP.
(A DELAWARE CORPORATION)
================================================================================
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
BILLING 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
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list of stockholders of the Corporation may be examined. The notice of an annual
meeting shall state that the meeting is called for the election of directors and
for the transaction of other business that may properly come before the meeting
and shall, if any other action which could be taken at a special meeting is to
be taken at such annual meeting, state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information or documents prescribed
by the Delaware General Corporation Law. Except as otherwise provided by the
Delaware General Corporation Law, a copy of the notice of any meeting shall be
given, personally or by mail, not less than ten days nor more than sixty days
before the date of the meeting, unless the lapse of the prescribed period of
time shall have been waived, and directed to each stockholder at his record
address or at such other address that he may have furnished by request in
writing to the Secretary of the Corporation. Notice by mail shall be deemed to
be given when deposited, with postage thereon prepaid, in the United States
mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need not be 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,
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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 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.
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ARTICLE III.
DIRECTORS
3.1 The business of the Corporation shall be managed by its board of
directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders. The use of the phrase "whole board of directors" herein refers
to the total number of directors that the Corporation would have if there were
no vacancies.
3.2 A director need not be stockholder, a citizen of the United
States or a resident of the State of Delaware. Except as otherwise fixed by or
pursuant to the provisions of Article IV of the Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
additional directors under specified circumstances, the number of the directors
of the Corporation shall be fixed from time to time by the board of directors,
but shall not be less than three.
The directors, other than those who may be elected by the holders
of any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, as determined by the board of directors of the Corporation, one
class to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1997, another class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1998, and
another class to be originally elected for a term expiring at the annual meeting
of stockholders to be held in 1999, with each class to hold office until its
successors are elected and qualified. At each annual meeting of the stockholders
of the Corporation, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. Advance notice of stockholder nominations for the election of
directors shall be given in the manner provided in Section 3.16 of this Article
III of these Bylaws.
3.3 Except as otherwise provided for or fixed by or pursuant to the
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, newly created directorships resulting from any increase
in the number of directors and any vacancies on the board of directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then in
office, even though less than a quorum of the board of directors. Any directors
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of directors constituting the board of directors shall shorten the term of any
incumbent director. Subject to the rights of any class or series of
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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-Chairperson 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
upon 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.
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No notice shall be required for regular meetings for which the
time and place have been fixed. Notice need not be given to any director or to
any member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein. Attendance of any such
person at a meeting shall constitute a waiver of notice of such meeting, except
when he attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors need be specified in
any notice or written waiver of notice.
3.11 A majority of the whole board of directors shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided that
such majority shall constitute at least one third of the whole board of
directors. A majority of the directors present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as otherwise
specifically provided herein or in the Certificate of Incorporation, and except
as otherwise provided by the Delaware General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act 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
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committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise the powers and authority of the board of directors
in the management of the business and affairs of the Corporation with the
exception of any authority the delegation of which is prohibited by Section 141
of the Delaware General Corporation Law, and may authorize the seal of the
Corporation to be affixed to all papers that may require it.
COMPENSATION
3.15 The directors may be paid their expenses, if any, of attendance
at each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors and/or a stated salary or
other compensation as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
NOMINATION
3.16 Subject to the rights of holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the board of directors
or a proxy committee appointed by the board of directors or by any stockholder
entitled to vote in the election of directors. However, any stockholder entitled
to vote in the election of directors at a meeting may nominate a director only
if written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of stockholders,
ninety days in advance of the date established by the Bylaws for the holding of
such meeting, and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the 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
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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.
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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 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 powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURER
5.10 The Treasurer shall have the custody of the corporate funds and
securities and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the board of directors.
5.11 The Treasurer shall have the authority to invest the normal funds
of the Corporation in the purchase and acquisition of investments 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
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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.
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
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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 and 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 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,
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the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the board of directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining the stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the board of
directors and prior action by the board of directors is required by the Delaware
General Corporation Law, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the board of directors adopts the
resolution taking such prior action.
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.
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ARTICLE VII.
GENERAL PROVISIONS
DIVIDENDS
7.1 Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
7.2 Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
7.3 The board of directors shall present at each annual meeting and
at any special meeting of the stockholders when called for by vote of the
stockholders a full and clear statement of the business and condition of the
Corporation.
CHECKS
7.4 All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
CORPORATE SEAL
7.5 The corporate seal shall be in such form as the board of
directors shall prescribe.
FISCAL YEAR
7.6 The fiscal year of the Corporation shall end on September 30.
ARTICLE VIII.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
8.1 The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether
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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 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 8.1and 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
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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 any service as a director, officer, employee or agent of the
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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
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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.
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 CONCEPTS CORP., a Delaware corporation, as in effect on
the date hereof.
WITNESS my hand and seal of the Corporation.
Dated: February 26, 1998 /s/ W. Audie Long
------------------------ ------------------------------------
SECRETARY of
BILLING CONCEPTS CORP.
(SEAL)
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EXHIBIT 10.8
BILLING CONCEPTS CORP.
1996 EMPLOYEE COMPREHENSIVE STOCK PLAN
(AMENDED AS OF FEBRUARY 26, 1998)
1. PURPOSE. The purpose of this 1996 Employee Comprehensive Stock Plan,
as amended (the "Plan"), is to further the success of Billing 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
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"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 30% of the
combined voting power of the Company's then outstanding voting securities, or
(ii) at any time during the 24-month period after a tender offer, merger,
consolidation, sale of assets or contested election, or any combination of such
transactions, at least a majority of the Board shall cease to consist of
"continuing directors" (meaning directors of the Company who either were
directors prior to such transaction or who subsequently became directors and
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least two thirds of the directors then still in office
who were directors prior to such transaction), or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 70% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement of sale or disposition by the Company of all or
substantially all of the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as
amended.
(g) "Committee" means the Committee administering the Plan
described in Section 3 hereof.
(h) "Common Stock" means the Company's common stock, par value
$.01 per share.
(i) "Continuous Status as an Employee" means that the
employment relationship with any one or more of (i) the Company, (ii) any
Parent, (iii) any Subsidiary or (iv) USLD has not been terminated or
interrupted.
(j) "Date of Grant" means the date on which an Award is
granted under an Award Agreement executed by the Company and a Participant
pursuant to the Plan.
(k) "Disinterested Person" means a "disinterested person" as
such term is defined in Rule 16b-3 promulgated under the Exchange Act or any
successor provision.
(l) "Effective Date" means the effective date of this Plan
specified in Section 14 hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934,
as it may be amended from time to time.
(n) "Good Reason" shall mean the occurrence of any of the
following events: (a) removal from the principal office held by the Participant
on the date of the most recent Award, or a material reduction in the
Participant's authority or responsibility, including, without limitation,
involuntary removal from the Board, but not including termination of the
Participant
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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.
(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.
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(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 Ten Million Five Hundred Thousand
(10,500,000). 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.
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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.
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 canceled 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.
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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 unless the
remaining shares that have become so purchasable are less than one hundred (100)
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
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<PAGE> 7
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 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.
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<PAGE> 8
(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 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 designee or estate as provided in
Section 9(c) above) does not exercise his options within the time specified in
the Plan and the Award Agreement, the unexercised options shall terminate and
the shares of Common Stock covered by such options shall revert to the Plan.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) General. The Committee, in its sole discretion, may make
Awards of Restricted Stock to selected Participants, which Awards shall be
evidenced by an Award Agreement that contains such terms and conditions,
including vesting, as the Committee may determine. As a condition to any Award
of Restricted Stock hereunder, the Committee may require a Participant to pay to
the Company the amount (such as the par value of such shares) required to be
received by the Company in order to assure compliance with applicable state law.
Any Award of Restricted Stock for which such requirement is established shall
automatically expire if not purchased in accordance with the Committee's
requirements within sixty (60) days after the Date of Grant.
Subject to the terms and conditions of the respective Award
Agreement, the Participant, as the owner of the Common Stock issued as
Restricted Stock and any Retained Distributions with respect thereto, shall have
the rights of a stockholder, including, but not limited to, voting rights as to
such Common Stock and the right to receive cash dividends or distributions
thereon when, as and if paid.
Within the limits set forth in the Plan, an Award of
Restricted Stock may be subject to such vesting requirements as may be fixed by
the Committee. Vesting may be accelerated by a Change of Control. Vesting may
also be accelerated upon death, permanent disability or Retirement.
Unless otherwise provided in the Award Agreement, in the event
that an Award of Restricted Stock is made to a Participant whose employment or
service is subsequently terminated by reason of death, permanent disability or
Retirement or for such other reason as the
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<PAGE> 9
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 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.
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<PAGE> 10
(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 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.
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<PAGE> 11
12. AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN. The Board may,
at any time, amend or terminate the Plan. 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
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.
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<PAGE> 12
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.
(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.
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<PAGE> 13
(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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<PAGE> 1
EXHIBIT 10.9
[Date]
[Name]
[Address]
[Address]
Dear [Mr./Ms.] [LastName]:
On behalf of Billing Concepts Corp. ("Billing"), I am pleased to
announce that the Committee, operating under the Billing 1996 Employee
Comprehensive Stock Plan, as amended (the "Plan"), has awarded you (the
"Employee") a non-qualified stock option to purchase [Shares] shares of common
stock of Billing (the "Shares"). The option to acquire the Shares is awarded and
granted upon the following terms and conditions, as well as those terms,
conditions and limitations as set forth in the Plan, which is attached hereto
and incorporated herein for all purposes:
1. The exercise price for each share of common stock is $[Price].
2. For so long as you are employed by Billing, or any of its
subsidiaries, the right to exercise such option shall vest as follows:
[Vesting]
3. Subject to Paragraph 5 herein, the options which have vested in
accordance with the schedule set forth in Paragraph 2 above may be exercised at
any time on or before [ExpireDate]. No partial exercise of such options may be
for less than 100 full shares unless the remaining shares that have become
purchasable are less than 100 shares. In no event shall Billing be required to
transfer fractional shares to the Employee.
4. The option granted under this Agreement shall be exercisable from
time to time, as provided above, by the payment in cash or check to Billing of
the exercise price of the shares which the Employee elects to purchase. Billing
shall not be required to
<PAGE> 2
[Mr./Ms.][Name]
[Date]
Page 2
transfer or deliver any certificate or certificates for shares of Billing's
common shares purchased upon exercise of the option granted under this Agreement
until all then applicable requirements of law have been met.
5. Subject to the limitations imposed pursuant to Section 9 of the
Plan, the option and all rights granted by this Agreement, to the extent those
rights have not been exercised, will terminate and become null and void on
[ExpireDate]. If the Employee dies, the person or persons to whom his/her vested
rights under the option shall pass, whether by will or by the applicable laws of
descent and distribution, may exercise such vested option to the extent the
Employee was entitled to exercise the option on the date of death, at any time
within a period of one (1) year after his/her death, but not after [ExpireDate].
Notwithstanding the above, the Employee's rights to the non-vested and
vested options which have not been exercised, and all rights granted by this
Agreement, shall in all events terminate and become null and void if the
Employee is employed either as an employee or consultant by any company, joint
venture, partnership or individual which the Committee determines, in its sole
discretion, is in competition with Billing.
6. During the lifetime of the Employee, the option and all rights
granted in this Agreement shall be exercisable only by the Employee, and, except
as Paragraph 5 above otherwise provides, the option and all rights granted under
this Agreement shall not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of such option or of such rights
contrary to the provisions of this Agreement, or upon the levy of any attachment
or similar process upon such option or such rights, such option and such rights
shall immediately become null and void.
7. Notwithstanding the foregoing, upon a Change of Control (as
defined in the Plan) all non-vested options shall immediately vest.
8. In the event of any change in the common shares of Billing
subject to the option granted hereunder, through merger, consolidation,
reorganization, recapitalization, stock split, stock dividend or other change in
the corporate structure, without consideration, appropriate adjustment shall be
made by Billing in the number or kind of shares subject to such option and the
price per share. Upon the dissolution or liquidation of Billing, the option
granted under this Agreement shall terminate and become null and void, but the
Employee shall have the right immediately prior to such dissolution or
<PAGE> 3
[Mr./Ms.][Name]
[Date]
Page 3
liquidation to exercise the option granted hereunder to the full extent not
before exercised.
9. Neither the Employee nor his/her executor, administrator, heirs
or legatees shall be or have any rights or privileges of a stockholder of
Billing in respect of the shares transferable upon exercise of the option
granted under this Agreement, unless and until certificates representing such
shares shall have been endorsed, transferred and delivered and the transferee
has caused his/her name to be entered as a stockholder of record on the books of
Billing. Nothing contained in the Plan or this Agreement shall confer upon the
Employee any right to continue in the employ of Billing or any of its
subsidiaries or interfere in any way with the right of Billing or its
subsidiaries (subject to the terms of any separate agreement to the contrary) to
terminate the Employee's employment or to increase or decrease the employee's
compensation at any time.
10. The Shares underlying your options have been registered with the
Securities and Exchange Commission, and the Shares issued upon the exercise of
your options will be freely tradable, subject, with respect to Shares held by
"affiliates" of Billing, to compliance with Rule 144 of the Securities and
Exchange Commission.
11. Billing does not attempt to advise you on tax or other
consequences arising from your acquisition of the Shares through the exercise of
the option. However, attached you will find a memorandum which explains the
characteristics of stock options and certain tax matters with reference to
non-qualified stock options. FOR SPECIFIC TAX CONSEQUENCES TO YOU, PLEASE
CONSULT WITH YOUR TAX ADVISOR.
12. The terms and conditions of the Plan, unless expressly
supplemented by this Agreement, shall continue unchanged and in full force and
effect. To the extent that any terms or provisions of this Agreement are or may
be deemed expressly inconsistent with any terms or conditions of the Plan, the
terms of the Plan shall control.
13. The Employee hereby agrees to take whatever additional actions
and execute whatever additional documents Billing may in its reasonable judgment
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on the Employee pursuant to the express
provisions of this Agreement.
14. The rights of the Employee are subject to modification and
termination in certain events as provided in this Agreement and the Plan.
<PAGE> 4
[Mr./Ms.][Name]
[Date]
Page 4
15. This Agreement shall be governed by, and construed in accordance
with, the substantive laws of the State of Delaware applicable to contracts made
and to be wholly performed therein.
16. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17. This Agreement and the Plan constitute the entire agreement
between the parties with respect to the subject matter hereof, and supersede all
previous written or oral negotiations, commitments, representations and
agreements with respect thereto.
If the foregoing represents your understanding of the terms and
conditions upon which your options have been granted, please execute in the
space provided below, returning an executed copy to the undersigned.
Sincerely, AGREED AND ACCEPTED:
Parris H. Holmes, Jr. -------------------------------
Chairman of the Board and [NAME]
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
1996 NON-EMPLOYEE DIRECTOR PLAN
BILLING CONCEPTS CORP.
(AMENDED AS OF JANUARY 30, 1998)
1. Purpose. The purpose of this Plan is to advance the interests of
Billing 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) "Board" shall mean the Board of Directors of Billing Concepts Corp.
(b) "Committee" shall mean the committee, if any, appointed by the
Board pursuant to Section 12 hereof.
(c) "Date of Grant" shall mean the date on which an Option is granted
to an Eligible Person pursuant to Section 4 hereof.
(d) "Director" shall mean a member of the Board.
(e) "Eligible Person(s)" shall mean those persons who are Directors of
the Company and who are not employees of the Company or a Subsidiary.
(f) "Fair Market Value" of a Share on any date of reference shall be
the closing price on such date, or, if such date is not a business day, 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.
(g) "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.
<PAGE> 2
(h) "Non-qualified Stock Option" shall mean an option that is not an
incentive stock option as defined in Section 422 of the Internal Revenue Code.
(i) "Option" shall mean any option granted under Section 4 of this
Plan.
(j) "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.
(k) "Plan" shall mean this 1996 Non-Employee Director Plan of Billing
Concepts Corp., as amended from time to time.
(l) "Share(s)" shall mean a share or shares of the common stock, par
value one cent ($0.01) per share, of the Company.
(m) "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 EIGHT HUNDRED THOUSAND (800,000)
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
canceled or surrendered as to any Shares, new Options may thereafter be granted
covering such Shares. Any Option granted hereunder shall be a Non-qualified
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 Section 4
shall be in addition to any other Options granted pursuant to this Plan, 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 is an Eligible Person shall
automatically receive an Option for THIRTY THOUSAND (30,000) Shares on
the date such Eligible Person is initially appointed or elected a
Director of the Company, and such Options shall vest as to TEN THOUSAND
(10,000) Shares on each of the first three anniversaries of the Date of
Grant;
2
<PAGE> 3
(ii) 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 at which such Director is reelected to the
Board of Directors of the Company, an option to purchase THIRTY
THOUSAND (30,000) Shares, and such Option shall vest as to TEN THOUSAND
(10,000) Shares on each of the first three anniversaries of the Date of
Grant.
(d) Any Option that may be granted pursuant to subparagraph (c) of this
Section 4 prior to the approval of this Plan by the stockholders of the Company
may be exercised on or after the Date of Grant subject to the approval of this
Plan by the stockholders of the Company within twelve (12) months after the
effective date of this Plan. If any Optionee exercises an Option prior to such
stockholder approval, the Optionee must tender the exercise price at the time of
exercise and the Company shall hold the Shares to be issued pursuant to such
exercise until the stockholders approve this Plan. If this Plan is approved by
the stockholders, the Company shall issue and deliver the Shares as to which the
Option has been exercised. If this Plan is not approved by the stockholders, the
Company shall return the exercise price to the Optionee.
5. Discretionary Grant of Options. In addition to the Options
automatically granted under Section 4 of this Plan, the Committee may grant
Options at any time during the term of this Plan to any Eligible Person. Subject
only to the applicable limitations set forth in this Plan and applicable law,
the number of Shares to be covered by an Option shall be as determined by the
Committee. Each Option granted pursuant to this Section 5 shall be evidenced by
an Option Agreement and shall contain such terms as are not inconsistent with
this Plan or any applicable law.
6. Option Price. The Option price per Share of any Option granted
pursuant to this Plan shall be one hundred percent (100%) of the Fair Market
Value per Share on the Date of Grant.
7. Exercise of Options. Options may be exercised at any time after
the date on which the Options, or any portion thereof, are vested until the
Option expires pursuant to Section 8. An Option shall be deemed exercised when
(i) the Company has received written notice of such exercise in accordance with
the terms of the Option Agreement, (ii) full payment of the aggregate Option
price of the Shares as to which the Option is exercised has been made and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if any, that
the Committee determines to be necessary for the Company to withhold in
accordance with applicable federal or state income tax withholding requirements.
Pursuant to procedures approved by the Committee, tax withholding requirements,
at the option of an Optionee, may be met by withholding Shares otherwise
deliverable to the Optionee upon the exercise of an Option. Unless further
limited by the Committee in any Option Agreement, the Option price of any Shares
purchased shall be paid solely in cash, by certified or cashier's check, by
money order, with Shares (but with Shares only if permitted by the Option
Agreement or otherwise permitted by the Committee in its sole discretion at the
time of exercise) or by a combination of the above; provided, however, that the
Committee in its sole discretion may accept a personal check in full or partial
payment of any Shares. If the exercise price is paid in whole or in part with
Shares, the value of the Shares surrendered shall be their Fair Market Value on
the date the Shares are received by the Company.
3
<PAGE> 4
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) and Section 5, thirty (30) days after the date that an Optionee ceases to
be a Director 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 than an Optionee ceases to be a Director
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 sixth (6th) 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
4
<PAGE> 5
changes in the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
10. Transferability of Options. Each Option Agreement shall provide
that such Option shall not be transferable by the Optionee 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 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.
5
<PAGE> 6
(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.
13. Interpretation. (a) If any provision of this Plan is held invalid
for any reason, such holding shall not affect the remaining provisions hereof,
but instead this Plan shall be construed and enforced as if such provision had
never been included in this Plan.
(b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE
EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY
LAWS OF ANY STATE.
(c) Headings contained in this Plan are for convenience only and shall
in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine or neuter gender shall be
a reference to such other gender as is appropriate.
14. Section 83(b) Election. If as a result of exercising an Option an
Optionee receives Shares that are subject to a "substantial risk of forfeiture"
and are not "transferable" as those terms are defined for purposes of Section
83(a) of the Code, then such Optionee may elect under Section 83(b) of 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.
6
<PAGE> 1
EXHIBIT 10.11
((Date))
((Title)) ((FirstName)) ((LastName))
((Company))
((Address1))
((City)), ((State)) ((PostalCode))
Dear ((Title)) ((LastName)):
On behalf of Billing Concepts Corp. ("BCC"), I am pleased to announce that you
(the "Participant") have been awarded, under the terms of the 1996 Non-Employee
Director Plan of BCC, as amended (the "Plan"), a non-qualified stock option to
purchase ((Shares)) shares of common stock of BCC (the "Shares"). The option to
acquire the Shares is awarded and granted upon the following terms and
conditions as well as those terms, conditions, and limitations as set forth in
the Plan, which is attached hereto and incorporated herein for all purposes:
1. The exercise price for each share of common stock is $((Price)).
2. For so long as you are a director of BCC, the right to exercise
such option shall vest as follows:
((Vesting))
3. Subject to Paragraph 5 herein, the options which have vested in
accordance with the schedule set forth in Paragraph 2 above may be exercised at
any time on or before ((Expiration Date)). No partial exercise of such option
may be for less than 100 full shares unless the remaining shares that have
become purchasable are less than 100 shares. In no event shall BCC be required
to transfer fractional shares to the Participant.
<PAGE> 2
((Title)) ((FirstName)) ((LastName))
((Date))
Page 2
4. The option granted under this Agreement shall be exercisable from
time to time, as provided above, by the payment in cash or check to BCC of the
exercise price of the shares which the Participant elects to purchase. BCC shall
not be required to transfer or deliver any certificate or certificates for
shares of BCC's common shares purchased upon exercise of the option granted
under this Agreement until all then applicable requirements of law have been
met.
5. Subject to the limitations imposed pursuant to the Plan, the
option and all rights granted by this Agreement, to the extent those rights have
not been exercised, will terminate and become null and void on ((Expiration
Date)). If the Participant dies while a director of BCC, the person or persons
to whom his vested rights under the option shall pass, whether by will or by the
applicable laws of descent and distribution, may exercise such vested option to
the extent the Participant was entitled to exercise the option on the date of
death, at any time within a period of one year after his death, but not after
Expiration Date.
6. During the lifetime of the Participant, the option and all rights
granted in this Agreement shall be exercisable only by the Participant, and
except as Paragraph 5 above otherwise provides, the option and all rights
granted under this contract shall not be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of such option or of
such rights contrary to the provisions of this Agreement, or upon the levy of
any attachment or similar process upon such option or such rights, such option
and such rights shall immediately become null and void.
7. In the event of any change in the common shares of BCC subject to
the option granted hereunder, through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, combination or exchange of
shares, issuance of rights, spin-off or other change in the capital structure,
without consideration, appropriate adjustment shall be made by BCC in the number
of shares subject to such option and the price per share. Upon the dissolution
or liquidation of BCC, the option granted under this Agreement shall terminate
and become null and void, but the Participant shall have the right immediately
prior to such dissolution or liquidation to exercise the option granted
hereunder to the full extent not before exercised.
<PAGE> 3
((Title)) ((FirstName)) ((LastName))
((Date))
Page 3
8. Neither the Participant nor his executor, administrator, heirs or
legatees shall be or have any rights or privileges of a stockholder of BCC in
respect of the shares transferable upon exercise of the option granted under
this Agreement, unless and until certificates representing such shares shall
have been endorsed, transferred and delivered and the transferee has caused
his/her name to be entered as a stockholder of record on the books of BCC.
9. The Shares underlying your options have been registered with the
Securities and Exchange Commission, and the Shares issued upon the exercise of
your options will be freely tradable, subject, with respect to Shares held by
"affiliates" of BCC, to compliance with Rule 144 of the Securities and Exchange
Commission.
10. BCC does not attempt to advise you on any tax or other
consequences arising from your acquisition of the Shares through the exercise of
the option.
11. The terms and conditions of the Plan, unless expressly
supplemented by this Agreement, shall continue unchanged and in full force and
effect. To the extent that any terms or provisions of this Agreement are or may
be deemed expressly inconsistent with any terms or conditions of the Plan, the
terms of this Agreement shall control.
12. The Participant hereby agrees to take whatever additional actions
and execute whatever additional documents BCC may in its reasonable judgment
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on the Participant pursuant to the express
provisions of this Agreement.
13. The rights of the Participant are subject to modification and
termination in certain events as provided in this Agreement and the Plan.
14. This Agreement shall be governed by, and construed in accordance
with, the substantive laws of the State of Delaware applicable to contracts made
and to be wholly performed therein.
15. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE> 4
((Title)) ((FirstName)) ((LastName))
((Date))
Page 4
16. This Agreement and the Plan constitute the entire agreement between the
parties with respect to the subject matter hereof, and supersede all previous
written or oral negotiations, commitments, representations and agreements with
respect thereto.
If the foregoing represents your understanding of the terms and conditions upon
which your options have been granted, please execute in the space provided
below, returning an executed copy to the undersigned.
Sincerely, AGREED AND ACCEPTED:
Parris H. Holmes, Jr. ---------------------------------
Chairman of the Board and ((FirstName)) ((LastName))
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.12
BILLING CONCEPTS CORP.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
The Billing Concepts Corp. Employee Stock Purchase Plan (the "Plan") is
designed to encourage employees of Billing 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.
<PAGE> 2
"Enrollment Period" refers to the designated period that precedes each
Enrollment Date during which employees eligible to participate are
provided the opportunity to enroll in the Plan. The Enrollment Period
is approximately two weeks in duration and, generally, will expire
approximately 10 to 14 days prior to the Enrollment Date. The exact
dates for each Enrollment Period will be communicated to all eligible
employees prior to the Enrollment Period.
"Exercise Date" refers to the last stock trading day in a Participation
Period.
"Fair Market Value" refers to the Closing Market Price on either the
first or last stock trading day in the Participation Period as
determined in accordance with Section 9.
"Participant" refers to any employee meeting the eligibility
requirements specified in Section 5 who has enrolled in the Plan.
"Participation Period" refers to the six-month period from the
Effective Date through January 31, 1997, and after that latter date
refers to periods of February 1 through July 31 and August 1 through
January 31, during which periods payroll deductions will be made to
purchase stock under the Plan, or such other period as the Committee
may at any time prescribe.
"Plan" shall refer to this Billing 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
-2-
<PAGE> 3
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 two
million (2,000,000) shares of Common Stock. If the total number of
shares that Employees elect to purchase under the Plan exceeds the
shares available, the Committee will allot shares among Employees.
In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, spin-off, combination of shares,
merger, consolidation, offering of rights or other similar change in
the capital structure of Billing, the Committee may make such
adjustment, if any, as it deems appropriate in the number, kind and
purchase price of the shares available for purchase under the Plan, in
the maximum number of shares that may be issued under the Plan and in
the Participation Periods, subject to the approval of the Board and in
accordance with Section 20 of the Plan.
If Billing is acquired in a transaction whereby it is not the surviving
entity or all or substantially all of Billing's assets are acquired,
the Committee shall determine a Plan termination date. This date shall
precede the expected effective date of such acquisition by not more
than sixty (60) days. Employee Contribution Amounts accumulated during
the period between the most recent Enrollment Date and Plan termination
date shall be used to purchase shares for Participants in the manner
provided in Section 9 utilizing the Plan termination date as the
Exercise Date for determining the purchase price for shares of Common
Stock. In the event the Plan is terminated and the acquisition
transaction is not consummated, the Plan may be reactivated on a date
determined by the Committee.
5. ELIGIBILITY REQUIREMENTS
Each Employee, except as described in the next following paragraph,
shall become eligible to participate in the Plan in accordance with
this Section 5 on the first Enrollment Date following employment by the
Company. Participation in the Plan is voluntary.
The following Employees are not eligible to Participate in the Plan:
i) Employees who have not completed at least six (6) months of
continuous service with the Company as of the Enrollment Date;
and
ii) Employees who would, immediately upon enrollment in the Plan,
own directly or indirectly, or hold options or rights to
acquire, an aggregate of five percent (5%) or more of the
total combined voting power or value of all outstanding shares
of all classes of Billing or any Subsidiary.
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.
-3-
<PAGE> 4
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
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<PAGE> 5
Date or (B) the date on which the Participant terminates
employment;
ii) in no event shall the right to purchase shares of Common Stock
during any Participation Period extend beyond twenty-seven
(27) months from the Enrollment Date;
iii) payment for shares purchased shall be made only with amounts
contributed through payroll deductions;
iv) purchase of shares shall be accomplished only in accordance
with Section 9;
v) the price per share shall be determined as provided in Section
9;
vi) the right to purchase shares of Common Stock (taken together
with all other such rights then outstanding under this Plan
and under all other similar stock purchase plans of Billing or
any Subsidiary) will in no event give the Participant the
right to purchase a number of shares of Common Stock during a
Participation Period in excess of the number of shares of
Common Stock derived by dividing $12,500.00 by the Fair Market
Value of the Common Stock on the applicable Grant Date, as
defined in Section 9, determined in accordance with Section 9;
and
vii) the right to purchase shares of Common Stock shall in all
respects be subject to the terms and conditions of the Plan,
as interpreted by the Committee from time to time.
8. METHOD OF PAYMENT
Payment of shares of Common Stock shall be made as of the applicable
Exercise Date with amounts contributed through payroll deductions
collected over the Plan's designated Participation Period, with the
first such deduction commencing with the payroll period ending after
the Enrollment Date. Each Participant will authorize such deductions
from his or her pay for each month during the Participation Period. No
changes in monthly deduction amounts are permitted subsequent to the
Enrollment Period other than ceasing ongoing payroll deductions for the
remainder of the Participation Period. Payroll deductions will be made
in equal installments on each of the first two payrolls of each month
during the Participation Period. No lump sum or prepayments are
permitted. Employees may select any monthly Employee Contribution
Amount as long as the following requirements are met:
i) at least $10.00 is deducted each month;
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
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<PAGE> 6
of Billing or any Subsidiary). If for any reason a
Participant's contributions to the Plan exceed $10,625.00
during any Participation Period, such excess amounts shall be
refunded to the Participant as soon as practicable after such
excess has been determined to exist.
A Participant may suspend payroll deductions at any time during a
Participation Period by given written notice to Billing's Human
Resources Department on the appropriate forms, which will be processed
effective for the first payroll period that is administratively
feasible. In such case, the Participant's account balance shall still
be used to purchase Common Stock at the end of the Participation
Period. Any Participant who suspends payroll deductions during any
Participation Period cannot resume payroll deductions during such
period and must re-enroll in the Plan during a subsequent Enrollment
Period in order to participate in any future Participation Periods.
Except in the case of termination of employment, the amount in a
Participant's account at the end of any Participation Period shall be
applied to the purchase of shares, as provided in Section 9.
9. PURCHASE OF SHARES
The right to purchase shares of Common Stock granted by the Company
under the Plan is for the term of a Participation Period. The price to
be paid for the Common Stock to be purchased at the expiration of such
Participation Period shall be determined as the lower of: (a) 85% of
the Closing Market Price on the first trading day of the Participation
Period (Grant Date) or (b) 85% of the Closing Market Price on the last
trading day in the Participation Period (Exercise Date). These dates
constitute the date of grant and the date of exercise for valuation
purposes under Section 423 of the Code.
The number of shares of Common Stock, including fractional shares,
purchased on behalf of a Participant shall be recorded in the
Designated Broker stock trading account established for each
Participant as soon as administratively feasible, but no later than
five (5) business days following the last business day of the preceding
Participation Period. The number of shares purchased shall be computed
by dividing the aggregate Employee Contribution Amount by the price for
the Common Stock determined in the manner described in the preceding
paragraph. Participants shall be treated as the record owners of the
shares, with all rights of a stockholder, effective as of the date the
shares are posted to the Participant's stock trading account. Any fees
associated with maintaining these stock trading accounts shall be the
obligation of the Company.
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
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<PAGE> 7
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.
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
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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.
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<PAGE> 9
18. RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder under his or her
rights to purchase Common Stock until he or she becomes a stockholder
as herein provided. A Participant will become a stockholder with
respect to shares for which payment has been completed as provided in
Section 9 effective as of the date the shares are posted to the
Participant's stock trading account.
19. MODIFICATION AND TERMINATION
The Board may amend or terminate the Plan at any time as permitted by
law, with the exception that the provisions of the Plan (including,
without limitation, the provisions of Sections 8 and 9) that constitute
a formula award for purposes of Rule 16b-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended ("Rule 16b-3"), may not be amended more than once
every six (6) months, other than to comply with changes in the Code, or
the rules thereunder. No amendment shall be effective unless within one
(1) year after the change is adopted by the Board it is approved by the
holders of a majority of the voting power of Billing's outstanding
shares:
i) if and to the extent such amendment is required to be
approved by stockholders to continue the exemption
provided for in Rule 16b-3 (or any successor
provision); or
ii) if such amendment would cause the rights granted
under the Plan to purchase shares of Common Stock to
fail to meet the requirements of Section 423 of the
Code (or any successor provision).
20. BOARD AND STOCKHOLDER APPROVAL; EFFECTIVE DATE
The Plan was approved by the Board and by the sole stockholder of
Billing on July 10, 1996. The Plan will become effective as of
August 1, 1996.
21. GOVERNMENTAL APPROVALS OR CONSENTS
The Plan and any offering or sale made to Employees under the Plan are
subject to any governmental approvals or consents that may be or become
applicable in connection therewith. Subject to the provisions of
Section 19, the Board may make such changes in the Plan and include
such terms in any offering under the Plan as may be desirable to comply
with the rules or regulations of any governmental authority.
22. USE OF FUNDS
All Employee Contribution Amounts received or held by the Company under
this Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such amounts.
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<PAGE> 10
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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EXHIBIT 10.17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
entered into the 1st day of October, 1997, by and between Parris H. Holmes, Jr.
("Employee") and Billing Information Concepts Corp., a Delaware corporation (the
"Company"). Subject to the conditions set forth below, this Agreement is to be
effective as of October 1, 1997.
WITNESSETH:
WHEREAS, the Company, Employee and U.S. Long Distance Corp., a Delaware
corporation ("USLD") previously entered into an Amended and Restated Employment
Agreement effective as of the distribution of the common stock of the Company to
holders of USLD's common stock, following which Employee was employed as the
Company's Chairman of the Board and Chief Executive Officer; and
WHEREAS, the Company and Employee now wish to amend and restate the
terms of that prior Employment Agreement so as to set forth the ongoing terms of
Employee's employment with the Company and each party's duties and obligations
to the other on and after the Effective Date of the Amendment and Restatement of
the Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Prior Agreement is
hereby amended and restated in its entirety effective as of October 1, 1997 (the
"Effective Date") to read as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as the Company's Chairman of the Board and Chief Executive
Officer, and Employee agrees to serve the Company in such capacities or in such
other capacities (subject to Employee's termination rights under Section 4.2) as
the Board of Directors of the Company may direct, all upon the terms and subject
to the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote sufficient business time,
energy and skill to the affairs of the Company as shall reasonably be necessary
to discharge Employee's duties in such capacities. Employee may participate in
social, civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement.
<PAGE> 2
ARTICLE II
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the Effective Date and
continue for a period of four years, provided that, on each one-year anniversary
of this Agreement, the term of this Agreement shall automatically be extended
for an additional one year. This Agreement is subject to earlier termination as
hereinafter provided.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from Company an
annual base salary of $375,000 (before standard deductions) during the first
year of this Agreement. Employee's annual base salary shall be subject to review
and adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $375,000, without
Employee's consent. Employee's annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
(a) AUTOMOBILE ALLOWANCE. An automobile to be chosen by the
Employee, replaceable every two years and complete payment of all operating,
insurance and maintenance expenses attendant thereto. Upon termination of the
Company's obligation to provide this benefit, Employee shall have an option,
exercisable within 90 days of such termination, to purchase such automobile at
its net book value as shown upon the Company's records as of the date of
termination.
(b) COUNTRY CLUB MEMBERSHIP. Payment in full of membership
fees and dues to a country club of the Employee's choice in the area of his
employment together with payment or reimbursement of all charges incurred at
such club relating to entertainment of business guests. Upon termination of this
Agreement under Section 4.1, 4.2 or 4.6 hereof, such country club membership
shall be transferred to Employee without further consideration.
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<PAGE> 3
(c) HEALTH CLUB MEMBERSHIP. Payment in full of membership fees
and dues in a lunch or health club of the Employee's choice, in the area of his
employment together with payment or reimbursement of all charges incurred at
such club relating to entertainment of business guests.
(d) LIFE INSURANCE. Whole life insurance policies in the
aggregate amount of One Million Dollars ($1,000,000) to be owned by Employee or
his designee. The premiums are to be paid by the Company pursuant to a split
dollar program, whereby only a portion of the premium paid is taxable to
Employee. The policy is to be collaterally assigned by Employee or other owner
of the policy to reimburse the Company for certain premiums paid under the split
dollar program.
(e) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that may,
from time to time, be provided by the Company to its executive officers.
(f) OTHER BENEFITS. Employee shall also be entitled to receive
any other benefits provided by the Company to all employees of Company as a
group, or all executive officers of the Company as a group, including any profit
sharing, 401(k) or retirement benefits.
(g) VACATION PAY. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and policy of
the Company.
(h) HOLIDAYS. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(i) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the
provisions of this Section 4.1, this Agreement may be terminated by the Company
without cause upon 30 days prior written notice thereof given to Employee. In
the event of termination pursuant to this Section 4.1, (a) the Company shall pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the four-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), (b) Employee shall be entitled to all benefits under Section 3.4
hereof, through the expiration of the four year term then in effect, to the
extent continuation of such benefits is not prohibited by applicable state
and/or federal law, and (c) all outstanding stock options held by Employee not
already vested and exercisable shall become fully vested and exercisable.
Payment by the Company in accordance with this Section shall constitute
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<PAGE> 4
Employee's full severance pay and the Company shall have no further obligation
to Employee arising out of such termination.
4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may
at any time voluntarily terminate his employment for "good reason" (as defined
below) upon 30 days prior written notice thereof to the Company. In the event of
such voluntary termination for "good reason," (a) the Company shall pay
Employee, within 15 days of such termination, a lump-sum payment equal to
(without discounting to present value) his then effective base salary under
Section 3.1 hereof through the expiration of the four-year term then in effect
(without giving effect to any further extensions thereof under Article II
hereof), (b) the Company shall provide the continued benefit coverage described
in Section 4.1 in the event of the Employee's termination by the Company without
cause, and (c) all outstanding stock options held by Employee not already vested
and exercisable shall become fully vested and exercisable.
For purposes of this Agreement, "good reason" shall mean the occurrence
of any of the following events:
(a) Removal from the offices Employee holds on the date of this
Agreement or a material reduction in Employee's authority
or responsibility, including, without limitation,
involuntary removal from the Board of Directors, but not
including termination of Employee for "cause," as defined
below;
(b) relocation of the Company's headquarters from Bexar County,
Texas;
(c) a reduction in the Employee's then effective base salary
under Section 3.1; or
(d) The Company otherwise commits a material breach of this
Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination 30 days before the effective date of such termination and by
granting Employee at least 30 days to cure the cause. In the event the
employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of the
Company). Except as otherwise provided in this Agreement, the determination of
whether Employee shall be terminated for "cause" shall be made by the Board of
Directors of the Company, in the reasonable exercise of its business judgment,
and shall be limited to the occurrence of the following events:
(a) 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 appeal);
(b) Willful refusal without proper legal cause to perform, or
gross negligence in performing, Employee's duties and
responsibilities;
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<PAGE> 5
(c) Material breach of fiduciary duty to the Company through
the misappropriation of Company funds or property; or
(d) The unauthorized absence of Employee from work (other than
for sick leave or disability) for a period of 30 working
days or more during any period of 45 working days during
the term of this Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate 90 days following the Employee's
death. Likewise, if the Employee becomes unable to perform the essential
functions of the position, with or without reasonable accommodation, on account
of illness, disability, or other reason whatsoever for a period of more than six
consecutive or nonconsecutive months in any twelve-month period, this Agreement
shall terminate effective 90 days following such incapacity, and Employee (or
his legal representatives) shall be entitled only to the base salary earned pro
rata to the date of such termination with no entitlement to any base salary
continuation payments or benefits continuation (except as specifically provided
by the terms of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation to
the Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary earned
pro rata to the date of his resignation, but no base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company). On or after the date the Company
receives notice of Employee's resignation, the Company may, at its option, pay
Employee his base salary through the effective date of his resignation and
terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein,
should Employee at any time within 12 months of the occurrence of a "change of
control" (as defined below) cease to be an employee of the Company (or its
successor), by reason of (i) termination by the Company (or its successor) other
than for "cause" (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 appeal), or a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), then in any such event, (1) the
Company shall pay Employee, within 45 days of the severance of employment
described in this Section 4.6, a lump-sum payment equal to (without discounting
to present value) his then effective base salary under Section 3.1 hereof
through the expiration of the four-year term then in effect (without giving
effect to any further extensions thereof under Article II hereof), (2) the
Company shall provide the continued benefit coverage described in Section 4.1 in
the event of the Employee's termination by the Company without cause, and (3)
all outstanding stock options held by Employee not already vested and
exercisable shall become fully vested and exercisable.
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(b) Employee shall be entitled to an additional payment, to
the extent all payments to Employee (whether pursuant to this Agreement or any
other agreement whatsoever) in connection with a change of control as defined in
this Section 4.6 do not exceed in aggregate, the maximum amount that could be
paid to Employee, without triggering an excess parachute payment under Section
280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
resulting excise tax under Section 4999 of the Code, (referred to herein as the
"maximum payment amount") equal to an amount, which when added to the amounts
payable to the Employee under paragraph (a) equals the maximum payment amount;
it being the express intention of the parties that Employee in all cases
(whether through this Agreement or any other agreement whatsoever) receive the
maximum payment amount in connection with a change of control without creating
an excess parachute payment. If such a payment is required under this paragraph
(b) in addition to the amounts set forth in paragraph (a) above, it shall be
paid at the time and in the manner set forth under paragraph (a)(1).
(c) In determining the amount to be paid to Employee under
this Section 4.6, as well as the limitation determined under Section 280G of the
Code, (i) no portion of the total payments which Employee has waived in writing
prior to the date of the payment of benefits under this Agreement will be taken
into account, (ii) no portion of the total payments which nationally recognized
tax counsel (whether through consultation or retention of any actuary,
consultant or other expert), selected by the Company's independent auditors and
acceptable to Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account, (iii) no portion of the total payments which
Tax Counsel determines to be reasonable compensation for services rendered
within the meaning of Section 280G(b)(4) of the Code will be taken into account,
and (iv) the value of any non-cash benefit or any deferred payment or benefit
included in the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
(d) As used in this Section, voluntary termination by Employee
for "good reason upon change of control" shall mean (i) removal of Employee from
the offices Employee holds on the date of this Agreement, (ii) a material
reduction in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation of
the Company's headquarters from Bexar County, Texas, (iv) a reduction in
Employee's then effective base salary under Section 3.1, or (v) the Company
otherwise commits a breach of this Agreement.
(e) As used in this Agreement, a "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 Securities Exchange Act of 1934, as amended (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 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 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
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<PAGE> 7
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.
(f) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code (such excise tax,
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax, and any interest in respect
of such penalties, additions to tax or additional amounts, being collectively
referred herein to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment or payments (individually referred to herein as a
"Gross-Up Payment" and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an amount such that after payment
by Employee of all taxes (as defined in paragraph (p) below) imposed upon the
Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(g) Subject to the provisions of paragraph (h) through (n)
below, any determination (individually, a "Determination") required to be made
under this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and Employee
within 15 business days of the termination of Employee's employment, if
applicable, or such other time or times as is reasonably requested by the
Company or Employee. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute") within
15 business days after delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as determined pursuant to such
Determination shall, at the Company's expense, be paid by the Company to
Employee within five business days of Employee's receipt of such Determination.
The existence of a Dispute shall not in any way affect Employee's right to
receive the Gross-Up Payment in accordance with such Determination. If there is
no Dispute, such Determination shall be binding, final and conclusive upon the
Company and Employee, subject in all respects, however, to the provisions of
paragraph (h) through (n) below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof)
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which will not have been made by the Company should have been made
("Underpayment"), and if upon any reasonable written request from Employee or
the Company to Tax Counsel, or upon Tax Counsel's own initiative, Tax Counsel,
at the Company's expense, thereafter determines that Employee is required to
make a payment of any Excise Tax or any additional Excise Tax, as the case may
be, Tax Counsel shall, at the Company's expense, determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Employee resulting from any Final Determination (as defined in
paragraph (o) below) that any Payment is subject to the Excise Tax.
(i) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending or
threatened audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by Employee against the Company under this paragraph (i) ("Claim"),
including, but not limited to, a claim for indemnification of Employee by the
Company under paragraph (h) above, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives
or delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes
claimed is due from Employee, but in no event sooner than five calendar
days after the Company receives or delivers such Tax Claim Notice), the
Company shall have notified Employee in writing ("Election Notice")
that the Company does not dispute its obligations (including, but not
limited to, its indemnity obligations) under this Agreement and that
the Company elects to contest, and to control the defense or
prosecution of, such Employee Claim at the Company's sole risk and sole
cost and expense; and
(ii) the Company shall have advanced to Employee on an
interest-free basis, the total amount of the tax claimed in order for
Employee, at the Company's request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and
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the Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after tax basis, from any tax imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and
(iii) the Company shall reimburse Employee for any and all
costs and expenses resulting from any such request by the Company and
shall indemnify and hold Employee harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such
reimbursement.
(k) Subject to the provisions of paragraph (j) above, the
Company shall have the right to defend or prosecute, at the sole cost, expense
and risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by the Company to a
Final Determination; provided, however, that (i) the Company shall not, without
Employee's prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect Employee, (ii) any request from
the Company to Employee regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the taxable year of
Employee with respect to which the contested issues involved in, and amount of,
the Employee Claim relate is limited solely to such contested issues and amount,
and (iii) the Company's control of any contest or proceeding shall be limited to
issues with respect to the Employee Claim and Employee shall be entitled to
settle or contest, in his sole and absolute discretion, any other issue raised
by the Internal Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such Employee Claim, Employee
shall provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Employee Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Employee Claim. The Company shall keep
Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all
written materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee's expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven
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and shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of any Gross-Up Payments and other
payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails
to deliver an Election Notice to Employee within the period provided in
paragraph (j)(i) above or, after delivery of such Election Notice, the Company
fails to comply with the provisions of paragraph (j)(ii) above and (iii) and (k)
above, then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof. If requested by
Employee, the Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with Employee and his authorized representatives in
order to contest effectively such Employee Claim. The Company may attend, but
not participate in or control, any defense, prosecution, settlement or
compromise of any Employee Claim controlled by Employee pursuant to this
paragraph (m) and shall bear its own costs and expenses with respect thereto. In
the case of any Employee Claim that is defended or prosecuted by Employee,
Employee shall, from time to time, be entitled to current payment, on a fully
grossed-up after tax basis, from the Company with respect to costs and expenses
incurred by Employee in connection with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph (n),
the Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final
Determination" shall mean (i) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (iii) any disallowance
of a claim for refund or credit in respect to an overpayment of tax unless a
suit is filed on a timely basis; or (iv) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and "taxes"
mean any and all taxes of any kind whatsoever (including, but not limited to,
any and all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax,
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or additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to direct
or cause the direction of the management and policies of such entity or other
person, whether through the ownership of voting securities, by contract or
otherwise.
(r) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
costs and expenses (including reasonable attorneys', accountants' and experts'
fees and expenses) incurred by Employee from time to time as a result of any
contest (regardless of the outcome) by the Company or others contesting the
validity or enforcement of, or liability under, any term or provision of this
Agreement, plus in each case interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION, NONCOMPETITION AND COOPERATION
5.1 NONDISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information, proprietary data or trade secrets of the Company (or any of its
subsidiaries), including but not limited to customer, business planning or
business strategy information, except as required by applicable law or legal
process; provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries). All documents which Employee prepared
or which may have been provided or made available to Employee in the course of
work for the Company shall be deemed the exclusive property of the Company and
shall remain in the Company's possession. Upon the termination of
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Employee's employment with the Company, regardless of the reason for such
termination, Employee shall promptly deliver to the Company all materials of a
confidential nature relating to the business of the Company (or any of its
subsidiaries) which are within Employee's possession or control.
5.2 NONCOMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. For this reason and
in consideration of the benefits of this Agreement, specifically including but
not limited to applicable termination pay provisions, as well as
confidential/proprietary/trade secret information provided to Employee, Employee
hereby agrees that, during the term of this Agreement and for a period of
eighteen months thereafter, he shall not (except in the course of his employment
under this Agreement and in furtherance of the business of the Company (or any
of its subsidiaries)) (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business Segment")
that is directly competitive with any significant business of the Company in one
of its major commercial or geographic markets or (ii) hold an interest (except
as a holder of less than 5% interest in a publicly traded firm or mutual funds,
or as a minority stockholder or unitholder in a form not publicly traded) in a
company, partnership or firm with a Business Segment that is directly
competitive, without the prior written consent of the Company.
5.3 VALIDITY OF NONCOMPETITION. The foregoing provisions of Section
5.2 shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NONCOMPETITION COVENANTS INDEPENDENT. The covenants of the
Employee contained in Section 5.2 will be construed as independent of any other
provision in this Agreement; and the existence of any claim or cause of action
by the Employee against the Company will not constitute a defense to the
enforcement by the Company of said covenants. The Employee understands that the
covenants contained in Section 5.2 are essential elements of the transaction
contemplated by this Agreement and, but for the agreement of the Employee to
Section 5.2, the Company would not have agreed to enter into such transaction.
The Employee has been advised to consult with counsel in order to be informed in
all respects concerning the reasonableness and propriety of Section 5.2 and its
provisions with specific regard to the nature of the business conducted by the
Company and the Employee acknowledges that Section 5.2 and its provisions are
reasonable in all respects.
5.5 COOPERATION. In the event of termination, and regardless of the
reason for such termination, Employee agrees to cooperate with the Company and
its representatives by responding to questions, attending meetings, depositions,
administrative proceedings and court hearings, executing documents and
cooperating with the Company and its legal counsel with respect to issues,
claims, litigation or administrative proceedings of which Employee has personal
or corporate knowledge. Employee further agrees to maintain in strict confidence
any information or knowledge Employee has regarding current or future claims,
litigation or administrative proceedings involving the Company (or any of its
subsidiaries). Employee agrees that any communication with a party adverse to
the Company, or with a representative, agent or counsel for such adverse party,
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relating to any claim, litigation or administrative proceeding, shall be solely
and exclusively through counsel for the Company.
5.6 REMEDIES. In the event of a breach or threatened breach by the
Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall
be entitled to a temporary restraining order and an injunctive restraining the
Employee from the commission of such breach. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of money damages.
ARTICLE VI
ARBITRATION
Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with
issues of nondisclosure, noncompetition and cooperation, with respect to which
the Company reserves the right to petition a court directly for injunction or
other relief, any controversy of any nature whatsoever, including but not
limited to tort claims or contract disputes, between the parties to this
Agreement or between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. ss.ss.1-15, as amended. Each
of the parties to this Agreement shall appoint one person as an arbitrator to
hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and cancels and supersedes all other agreements
between the parties which may have related to the subject matter contained in
this Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The
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failure at any time to enforce any of the provisions of this Agreement shall in
no way be construed as a waiver of such provisions and shall not affect the
right of either party thereafter to enforce each and every provision hereof in
accordance with its terms.
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter in to this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that
it is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company representat and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement and that its execution and performance of this Agreement is not a
violation or breach of any other agreements between Company and any other person
or entity. The Company represents and warrants that this Agreement is a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose
any obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such other
relief which a court of competent jurisdiction may deem appropriate.
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7.10 NOTICES. All notices and other communications under this
Agreement shall be in writing and shall be given in person or by either personal
delivery, overnight delivery, or first class mail, certified or registered with
return receipt requested, with postage or delivery charges prepaid, and shall be
deemed to have been duly given when delivered personally, upon actual receipt,
and on the next business day when sent via overnight delivery, or three days
after mailing first class, certified or registered with return receipt
requested, to the respective persons named below:
If to the Company: Corporate Secretary
Billing Information Concepts Corp.
7411 John Smith Dr.
San Antonio, Texas 78229
If to the Employee: Parris H. Holmes, Jr.
13906 Bluff Wind
San Antonio, Texas 78216
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: BILLING INFORMATION CONCEPTS CORP.
By /s/ Lee Cooke
-----------------------------------------
Name: Lee Cooke
Title: Chairman, Compensation Committee
EMPLOYEE: /s/ Parris H. Holmes, Jr.
--------------------------------------------
Parris H. Holmes, Jr.
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EXHIBIT 10.18
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (this "Agreement") is
entered into this 1st day of October, 1997, by and between Alan W. Saltzman
("Employee") and Billing Information Concepts Corp., a Delaware corporation (the
"Company"). Subject to the conditions set forth below, this Agreement is to be
effective as of October 1, 1997.
WITNESSETH:
WHEREAS, the Company, Employee and U.S. Long Distance Corp., a Delaware
corporation ("USLD") previously entered into an Amended and Restated Employment
Agreement effective as of the distribution of the common stock of the Company to
holders of USLD's common stock, following which Employee was employed as the
Company's President and Chief Operating Officer; and
WHEREAS, the Company and Employee now wish to amend and restate that
prior Employment Agreement so as to set forth the ongoing terms of Employee's
employment with the Company and each party's duties and obligations to the other
on and after the Effective Date of the Amendment and Restatement of the
Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Prior Agreement is
hereby amended and restated in its entirety effective as of October 1, 1997 (the
"Effective Date") to read as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as President and Chief Operating Officer of the Company, and
Employee agrees to serve the Company in such capacity or in such other
capacities (subject to Employee's termination rights under Section 4.2) as the
Board of Directors of the Company may direct, all upon the terms and subject to
the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the Company,
acting through its Board of Directors, shall reasonably deem necessary to
discharge Employee's duties in such capacities. Employee may participate in
social, civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement. Employee shall
not engage in any other business activity during the term of this Agreement
without the prior written consent of the Company, other than the passive
management of employee's personal investments or activities which would not
materially detract from Employee's ability to perform his duties under this
Agreement.
<PAGE> 2
ARTICLE II
TERM OF EMPLOYMENT
The term of this Agreement shall commence on the Effective Date and
continue for a period of two years. The term of this Agreement shall be
automatically extended on each two-year anniversary of this Agreement for an
additional two-year term unless, at least thirty (30) days prior to the end of
the then effective two-year term, the Company shall give Employee written notice
of its election to terminate this Agreement as of the end of the then effective
two-year term. In the event the Company elects to so terminate this Agreement,
(a) the Company shall pay Employee, within fifteen (15) days of the effective
date of such termination, a lump-sum payment equal to (without discounting to
present value) two times his then effective annual base salary under Section 3.1
hereof, (b) shall continue Employee's medical, health and disability benefits
for two years from such termination, and (c) all outstanding stock options held
by Employee not already vested and exercisable shall become fully vested and
exercisable. Payment of such sum by the Company shall constitute Employee's full
severance pay and the Company shall have no further obligation to Employee
arising out of such termination. This Agreement is also subject to earlier
termination as hereinafter provided.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from the Company an
annual base salary of $240,000 (before standard deductions) during the first
year of this Agreement. Employee's annual base salary shall be subject to review
and adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $240,000 without
Employee's consent. Employee's annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
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(a) AUTOMOBILE ALLOWANCE. An automobile to be chosen by the
Employee, replaceable every two years and complete payment of all operating,
insurance and maintenance expenses attendant thereto. Upon termination of the
Company's obligation to provide this benefit, Employee shall have an option,
exercisable within 90 days of such termination, to purchase such automobile at
its net book value as shown upon the Company's records as of the date of
termination.
(b) COUNTRY CLUB MEMBERSHIP. Payment in full of membership
fees and dues to a country club of the Employee's choice in the area of his
employment together with payment or reimbursement of all charges incurred at
such club relating to entertainment of business guests. Upon termination of this
Agreement under Section 4.1, 4.2 or 4.6 hereof, such country club membership
shall be transferred to Employee without further consideration.
(c) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that may,
from time to time, be provided by the Company to its executive officers.
(d) OTHER BENEFITS. Employee shall also be entitled to receive
any other benefits provided by the Company to all employees of the Company as a
group, or all executive officers of the Company as a group, including but not
limited to, any profit sharing, 401(k), retirement benefits or executive
deferred compensation arrangements.
(e) VACATION PAY. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and policy of
the Company.
(f) HOLIDAYS. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(g) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the provisions
of this Section 4.1, this Agreement may be terminated by the Company without
cause upon thirty (30) days' prior written notice thereof given to Employee. In
the event of termination pursuant to this Section 4.1, (a) the Company shall pay
Employee, within fifteen (15) days of the effective date of such termination, a
lump-sum payment equal to (without discounting to present value) two times his
then effective annual base salary under Section 3.1 hereof, (b) Employee shall
be entitled to all benefits under Section 3.3 hereof, through the expiration of
the two-year term then in effect, and (c) all outstanding stock options held by
Employee not already vested and exercisable shall become fully vested and
exercisable. Payment of such sum by the Company shall constitute Employee's full
severance pay and the Company shall have no further obligation to Employee
arising out of such termination.
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4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below). In the event of such voluntary termination for "good reason," (a) the
Company shall pay Employee, within fifteen (15) days of the effective date of
such termination, a lump-sum payment equal to (without discounting to present
value) two times his then effective annual base salary under Section 3.1 hereof,
and (b) all outstanding stock options held by Employee not already vested and
exercisable shall become fully vested and exercisable.
For purposes of this Agreement, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal from the offices Employee holds on the date
of this Agreement or a material reduction in
Employee's authority or responsibility, including,
without limitation, involuntary removal from the
Board of Directors, but not including termination of
Employee for "cause," as defined below;
(b) Relocation of the Company's headquarters from Bexar
County, Texas;
(c) A reduction in Employee's then effective base salary
under Section 3.1; or
(d) The Company otherwise commits a material breach of
this Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination thirty (30) days before the effective date of such termination and
by granting Employee at least thirty (30) days to cure the cause. In the event
the employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of the
Company). Except as otherwise provided in this Agreement, the determination of
whether Employee shall be terminated for "cause" shall be made by the Board of
Directors of the Company, in the reasonable exercise of its business judgment,
and shall be limited to the occurrence of the following events:
(a) 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 appeal);
(b) Willful refusal without proper legal cause to
perform, or gross negligence in performing,
Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company
through the misappropriation of Company funds or
property; or
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(d) The unauthorized absence of Employee from work (other
than for sick leave or disability) for a period of
thirty (30) working days or more during any period of
forty-five (45) working days during the term of this
Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions of
the position, with or without reasonable accommodation, on account of illness,
disability, or other reason whatsoever for a period of more than six consecutive
or nonconsecutive months in any twelve-month period, this Agreement shall
terminate effective upon such incapacity, and Employee (or his legal
representatives) shall be entitled only to the base salary earned pro rata to
the date of such termination with no entitlement to any base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering thirty (30) days' written notice of
resignation to the Company. In the event of such voluntary termination other
than for "good reason" (as defined above), Employee shall be entitled to his
base salary earned pro rata to the date of his resignation, but no base salary
continuation payments or benefits continuation (except as specifically provided
by the terms of an employee benefit plan of the Company). On or after the date
the Company receives notice of Employee's resignation, the Company may, at its
option, pay Employee his base salary through the effective date of his
resignation and terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein,
should Employee at any time within 12 months of the occurrence of a "change of
control" (as defined below) cease to be an employee of the Company (or its
successor), by reason of (i) termination by the Company (or its successor) other
than for "cause" (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 appeal), or a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), then in any such event, (1) the
Company shall pay Employee, within forty-five (45) days of the severance of
employment described in this Section 4.6, a lump-sum payment equal to (without
discounting to present value) two times his then effective base salary under
Section 3.1 hereof, and (2) all outstanding stock options held by Employee not
already vested and exercisable shall become fully vested and exercisable. In
addition, the Company shall continue all benefits under Section 3.3 hereof,
through the expiration of the two-year term then in effect, to the extent
continuation of such benefit is not prohibited by applicable State and/or
federal law.
(b) Employee shall be entitled to the payment set forth in (a)
above, regardless of whether or not that payment, when aggregated with all
payments to Employee (whether pursuant to this Agreement or any other agreement
whatsoever) in connection with a change of control as defined in this Section
4.6 exceeds in aggregate, the maximum amount that could be paid to Employee,
without triggering an excess parachute payment under Section 280G(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the resulting excise
tax under Section 4999 of the Code (referred to herein as the "maximum payment
amount").
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(c) In determining the limitation determined under Section
280G of the Code, (i) no portion of the total payments which Employee has waived
in writing prior to the date of the payment of benefits under this Agreement
will be taken into account, (ii) no portion of the total payments which
nationally recognized tax counsel (whether through consultation or retention of
any actuary, consultant or other expert), selected by the Company's independent
auditors and acceptable to Employee (referred to herein as "Tax Counsel"),
determines not to constitute a "parachute payment" within the meaning of Section
280G(b)(2) of the Code will be taken into account, (iii) no portion of the total
payments which Tax Counsel determines to be reasonable compensation for services
rendered within the meaning of Section 280G(b)(4) of the Code will be taken into
account, and (iv) the value of any non-cash benefit or any deferred payment or
benefit included in the total payments will be determined by the Company's
independent auditors in accordance with Sections 280G(d)(3) and (iv) of the
Code.
(d) As used in this Section, voluntary termination by Employee
for "good reason upon change of control" shall mean (i) removal of Employee from
the offices Employee holds on the date of this Agreement, (ii) a material
reduction in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation of
the Company's headquarters from Bexar County, Texas, (iv) a reduction in
Employee's then effective base salary under Section 3.1, or (v) the Company
otherwise commits a breach of this Agreement.
(e) As used in this Agreement, a "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 Securities Exchange Act of 1934, as amended (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 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 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.
(f) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred
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to herein as a "Payment," and any two or more of such payments or distributions
being referred to herein as "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (such excise tax, together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to
such excise tax, and any interest in respect of such penalties, additions to tax
or additional amounts, being collectively referred herein to as the "Excise
Tax"), then Employee shall be entitled to receive an additional payment or
payments (individually referred to herein as a "Gross-Up Payment" and any two or
more of such additional payments being referred to herein as "Gross-Up
Payments") in an amount such that after payment by Employee of all taxes (as
defined in paragraph (p) below) imposed upon the Gross-Up Payment, Employee
retains an amount of such Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(g) Subject to the provisions of paragraphs (h) through (n)
below, any determination (individually, a "Determination") required to be made
under this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and Employee
within fifteen (15) business days of the termination of Employee's employment,
if applicable, or such other time or times as is reasonably requested by the
Company or Employee. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute") within
fifteen (15) business days after delivery of Tax Counsel's opinion with respect
to such Determination. The Gross-Up Payment, if any, as determined pursuant to
such Determination shall, at the Company's expense, be paid by the Company to
Employee within five business days of Employee's receipt of such Determination.
The existence of a Dispute shall not in any way affect Employee's right to
receive the Gross-Up Payment in accordance with such Determination. If there is
no Dispute, such Determination shall be binding, final and conclusive upon the
Company and Employee, subject in all respects, however, to the provisions of
paragraphs (h) through (n) below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the Company
should have been made ("Underpayment"), and if upon any reasonable written
request from Employee or the Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at the Company's expense, thereafter determines that
Employee is required to make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at the Company's expense,
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of Employee resulting from any Final Determination (as defined in
paragraph (o) below) that any Payment is subject to the Excise Tax.
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(i) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending or
threatened audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by Employee against the Company under this paragraph (i) ("Claim"),
including, but not limited to, a claim for indemnification of Employee by the
Company under paragraph (h) above, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within thirty (30) calendar days after the
Company receives or delivers, as the case may be, the Tax Claim Notice
relating to such Employee Claim (or such earlier date that any payment
of the taxes claimed is due from Employee, but in no event sooner than
five calendar days after the Company receives or delivers such Tax
Claim Notice), the Company shall have notified Employee in writing
("Election Notice") that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to control the
defense or prosecution of, such Employee Claim at the Company's sole
risk and sole cost and expense; and
(ii) the Company shall have advanced to Employee on
an interest-free basis, the total amount of the tax claimed in order
for Employee, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding
in, for example, United States Tax Court) and shall indemnify and hold
Employee harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse Employee for any
and all costs and expenses resulting from any such request by the
Company and shall indemnify and hold Employee harmless, on fully
grossed-up after-tax basis, from any tax imposed as a result of such
reimbursement.
(k) Subject to the provisions of paragraph (j) above, the
Company shall have the right to defend or prosecute, at the sole cost, expense
and risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently
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by the Company to a Final Determination; provided, however, that (i) the Company
shall not, without Employee's prior written consent, enter into any compromise
or settlement of such Employee Claim that would adversely affect Employee, (ii)
any request from the Company to Employee regarding any extension of the statute
of limitations relating to assessment, payment, or collection of taxes for the
taxable year of Employee with respect to which the contested issues involved in,
and amount of, the Employee Claim relate is limited solely to such contested
issues and amount, and (iii) the Company's control of any contest or proceeding
shall be limited to issues with respect to the Employee Claim and Employee shall
be entitled to settle or contest, in his sole and absolute discretion, any other
issue raised by the Internal Revenue Service or any other taxing authority. So
long as the Company is diligently defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to the Company any information
reasonably requested by the Company that relates to such Employee Claim, and
shall otherwise cooperate with the Company and its representatives in good faith
in order to contest effectively such Employee Claim. The Company shall keep
Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all
written materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee's expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails
to deliver an Election Notice to Employee within the period provided in
paragraph (j)(i) above or, after delivery of such Election Notice, the Company
fails to comply with the provisions of paragraph (j)(ii) above and (iii) and (k)
above, then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof. If requested by
Employee, the Company shall cooperate, and shall cause its affiliates to
cooperate, in good faith with Employee and his authorized representatives in
order to contest effectively such Employee Claim. The Company may attend, but
not participate in or control, any defense,
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prosecution, settlement or compromise of any Employee Claim controlled by
Employee pursuant to this paragraph (m) and shall bear its own costs and
expenses with respect thereto. In the case of any Employee Claim that is
defended or prosecuted by Employee, Employee shall, from time to time, be
entitled to current payment, on a fully grossed-up after tax basis, from the
Company with respect to costs and expenses incurred by Employee in connection
with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph (n),
the Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final
Determination" shall mean (i) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (iii) any disallowance
of a claim for refund or credit in respect to an overpayment of tax unless a
suit is filed on a timely basis; or (iv) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to direct
or cause the direction of the management and policies of such entity or other
person, whether through the ownership of voting securities, by contract or
otherwise.
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(r) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
costs and expenses (including reasonable attorneys', accountants' and experts'
fees and expenses) incurred by Employee from time to time as a result of any
contest (regardless of the outcome) by the Company or others contesting the
validity or enforcement of, or liability under, any term or provision of this
Agreement, plus in each case interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 NONDISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information, proprietary data or trade secrets of the Company (or any of its
subsidiaries), including but not limited to customer, business planning or
business strategy information, except as required by applicable law or legal
process; provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries). All documents which Employee prepared
or which may have been provided or made available to Employee in the course of
work for the Company shall be deemed the exclusive property of the Company and
shall remain in the Company's possession. Upon the termination of Employee's
employment with the Company, regardless of the reason for such termination,
Employee shall promptly deliver to the Company all materials of a confidential
nature relating to the business of the Company (or any of its subsidiaries)
which are within Employee's possession or control.
5.2 NONCOMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. For this reason and
in consideration of the benefits of this Agreement, specifically including but
not limited to applicable termination pay provisions, as well as
confidential/proprietary/trade secret information provided to Employee, Employee
hereby agrees that, during the term of this Agreement and for a period of
eighteen months thereafter, he shall not (except in the course of his employment
under this Agreement and in furtherance of the business of the Company (or any
of its subsidiaries)) (i) engage in as principal, consultant or employee in any
segment of a business of a company, partnership or firm ("Business
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Segment") that is directly competitive with any significant business of the
Company in one of its major commercial or geographic markets or (ii) hold an
interest (except as a holder of less than 5% interest in a publicly traded firm
or mutual funds, or as a minority stockholder or unitholder in a form not
publicly traded) in a company, partnership or firm with a Business Segment that
is directly competitive, without the prior written consent of the Company.
5.3 VALIDITY OF NONCOMPETITION. The foregoing provisions of Section 5.2
shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NONCOMPETITION COVENANTS INDEPENDENT. The covenants of the Employee
contained in Section 5.2 will be construed as independent of any other provision
in this Agreement; and the existence of any claim or cause of action by the
Employee against the Company will not constitute a defense to the enforcement by
the Company of said covenants. The Employee understands that the covenants
contained in Section 5.2 are essential elements of the transaction contemplated
by this Agreement and, but for the agreement of the Employee to Section 5.2, the
Company would not have agreed to enter into such transaction. The Employee has
been advised to consult with counsel in order to be informed in all respects
concerning the reasonableness and propriety of Section 5.2 and its provisions
with specific regard to the nature of the business conducted by the Company and
the Employee acknowledges that Section 5.2 and its provisions are reasonable in
all respects.
5.5 COOPERATION. In the event of termination, and regardless of the
reason for such termination, Employee agrees to cooperate with the Company and
its representatives by responding to questions, attending meetings, depositions,
administrative proceedings and court hearings, executing documents and
cooperating with the Company and its legal counsel with respect to issues,
claims, litigation or administrative proceedings of which Employee has personal
or corporate knowledge. Employee further agrees to maintain in strict confidence
any information or knowledge Employee has regarding current or future claims,
litigation or administrative proceedings involving the Company (or any of its
subsidiaries). Employee agrees that any communication with a party adverse to
the Company, or with a representative, agent or counsel for such adverse party,
relating to any claim, litigation or administrative proceeding, shall be solely
and exclusively through counsel for the Company.
5.6 REMEDIES. In the event of a breach or threatened breach by the
Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall
be entitled to a temporary restraining order and an injunctive restraining the
Employee from the commission of such breach. Nothing herein shall be construed
as prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of money damages.
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ARTICLE VI
ARBITRATION
Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with
issues of nondisclosure, noncompetition and cooperation, with respect to which
the Company reserves the right to petition a court directly for injunction or
other relief, any controversy of any nature whatsoever, including but not
limited to tort claims or contract disputes, between the parties to this
Agreement or between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. Sections 1-15, as amended.
Each of the parties to this Agreement shall appoint one person as an arbitrator
to hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other agreements between the
parties which may have related to the subject matter contained in this
Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter in to this Agreement and to perform each of the terms and
covenants of it.
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Employee represents and warrants that he is not restricted or prohibited,
contractually or otherwise, from entering into and performing this Agreement,
and that his execution and performance of this Agreement is not a violation or
breach of any other agreement between Employee and any other person or entity.
7.5 THE COMPANY'S REPRESENTATIONS. The Company represents and warrants
that it is free to enter into this Agreement and to perform each of the terms
and covenants of it. The Company represents and warrants that it is not
restricted or prohibited, contractually or otherwise, from entering into and
performing this Agreement and that its execution and performance of this
Agreement is not a violation or breach of any other agreements between the
Company and any other person or entity. The Company represents and warrants that
this Agreement is a legal, valid and binding agreement of the Company,
enforceable in accordance with its terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such other
relief which a court of competent jurisdiction may deem appropriate.
7.10 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal delivery,
overnight delivery, or first class mail, certified or registered with return
receipt requested, with postage or delivery charges prepaid, and shall be deemed
to have been duly given when delivered personally, upon actual receipt, and on
the next business day when sent via overnight delivery, or three days after
mailing first class, certified or registered with return receipt requested, to
the respective persons named below:
If to the Company: Corporate Secretary
Billing Information Concepts Corp.
7411 John Smith Drive, Suite 1500
San Antonio, Texas 78229
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If to the Employee: Kelly E. Simmons
7411 John Smith Dr.
San Antonio, Texas 78229
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: BILLING INFORMATION CONCEPTS CORP.
By: /s/ Parris H. Holmes, Jr.
---------------------------------
Parris H. Holmes, Jr.
Chairman of the Board and
Chief Executive Officer
EMPLOYEE: /s/ ALAN W. SALTZMAN
---------------------------------
Alan W. Saltzman
The Compensation Committee of Billing Information Concepts Corp. hereby agrees
to the above Employment Agreement between Billing Information Concepts Corp. and
the Employee all as set forth above.
COMPENSATION COMMITTEE
By /s/ Lee Cooke
---------------------------------
Name: Lee Cooke
Title: Chairman
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<PAGE> 1
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into this 15th
day of January, 1998, by and between Kelly E. Simmons ("Employee") and Billing
Information Concepts Corp., a Delaware corporation (the "Company") to be
effective as October 1, 1997 (the "Effective Date").
WITNESSETH:
WHEREAS, the Company and Employee previously entered into an Amended
and Restated Employment Agreement effective as of the distribution of the common
stock of the Company to holders of U.S. Long Distance Corp.'s common stock,
following which Employee was employed as the Senior Vice President and Chief
Financial Officer; and
WHEREAS, the Company and Employee now wish to amend and restate the
that prior Employment Agreement so as to set forth the ongoing terms Employee's
employment with the Company and each party's duties and obligations to the other
on and after the Effective Date of the Amendment and Restatement of the
Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Prior Agreement is
hereby amended and restated in its entirety effective as of October 1, 1997 (the
"Effective Date") to read as follows:
ARTICLE I
DUTIES
1.1 DUTIES. During the term of this Agreement, the Company agrees to
employ Employee as Senior Vice President and Chief Financial Officer of the
Company, and Employee agrees to serve the Company in such capacities or in such
other capacities (subject to Employee's termination rights under Section 4.2) as
the Board of Directors of the Company may direct, all upon the terms and subject
to the conditions set forth in this Agreement.
1.2 EXTENT OF DUTIES. Employee shall devote substantially all of his
business time, energy and skill to the affairs of the Company as the Company,
acting through its Board of Directors, shall reasonably deem necessary to
discharge Employee's duties in such capacities. Employee may participate in
social, civic, charitable, religious, business, education or professional
associations, so long as such participation would not materially detract from
Employee's ability to perform his duties under this Agreement. Employee shall
not engage in any other business activity during the term of this Agreement
without the prior written consent of the Company, other than the
<PAGE> 2
passive management of employee's personal investments or activities which would
not materially detract from Employee's ability to perform his duties under this
Agreement.
ARTICLE II
TERM OF EMPLOYMENT
2.1 GENERAL TERM OF EMPLOYMENT. The term of this Agreement shall
commence on the Effective Date and continue for a period of two years. The term
of this Agreement shall be automatically extended on each two year anniversary
of this Agreement for an additional two-year term unless, at least 30 days prior
to the end of the then effective two-year term, the Company shall give Employee
written notice of its election to terminate this Agreement as of the end of the
then effective two-year term. In the event the Company elects to so terminate
this Agreement, the Company shall pay Employee, within 15 days of the effective
date of such termination, a lump-sum payment equal to (without discounting to
present value) one times' his then effective annual base salary under Section
3.1 hereof and shall continue Employee's medical, health and disability benefits
for one year from such termination. Payment of such sums and continuation of
such medical benefits by the Company shall constitute Employee's full severance
pay and the Company shall have no further obligation to Employee arising out of
such termination. This Agreement is also subject to earlier termination as
hereinafter provided.
ARTICLE III
COMPENSATION
3.1 ANNUAL BASE COMPENSATION. As compensation for services rendered
under this Agreement, Employee shall be entitled to receive from Company an
annual base salary of $185,000 (before standard deductions) during the initial
term of this Agreement. Employee's annual base salary shall be subject to review
and adjustment by the Compensation Committee of the Company (the "Compensation
Committee") on an annual basis, provided that any such adjustment shall not
result in a reduction in Employee's annual base salary below $185,000 without
Employee's consent. Employee's annual base salary shall be payable at regular
intervals in accordance with the prevailing practice and policy of the Company.
3.2 INCENTIVE BONUS. As additional compensation for services rendered
under this Agreement, the Compensation Committee may, in its sole discretion and
without any obligation to do so, declare that Employee shall be entitled to an
annual incentive bonus (whether payable in cash, stock, stock rights or other
property) as the Compensation Committee shall determine. If any such bonus is
declared, the bonus shall be payable in accordance with the terms prescribed by
the Compensation Committee.
3.3 OTHER BENEFITS. Employee shall, in addition to the compensation
provided for in Sections 3.1 and 3.2 above, be entitled to the following
additional benefits:
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(a) AUTOMOBILE ALLOWANCE. An automobile to be chosen by the
Employee, replaceable every two years and complete payment of all operating,
insurance and maintenance expenses attendant thereto. Upon termination of the
Company's obligation to provide this benefit, Employee shall have an option,
exercisable within 90 days of such termination, to purchase such automobile at
its net book value as shown upon the Company's records as of the date of
termination.
(b) MEDICAL, HEALTH AND DISABILITY BENEFITS. Employee shall be
entitled to receive all of the medical, health and disability benefits that may,
from time to time, be provided by the Company to its executive officers.
(c) OTHER BENEFITS. Employee shall also be entitled to receive
any other benefits provided by the Company to all employees of Company as a
group, or all executive officers of the Company as a group, including any profit
sharing, 401(k) or retirement benefits.
(d) VACATION PAY. Employee shall be entitled to an annual
vacation as determined in accordance with the prevailing practice and policy of
the Company.
(e) HOLIDAYS. Employee shall be entitled to holidays in
accordance with the prevailing practice and policy of the Company.
(f) REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all expenses reasonably incurred by Employee on behalf of the
Company in accordance with the prevailing practice and policy of the Company.
ARTICLE IV
TERMINATION
4.1 TERMINATION BY THE COMPANY WITHOUT CAUSE. Subject to the provisions
of this Section 4.1, this Agreement may be terminated by the Company without
cause upon 30 days prior written notice thereof given to Employee. In the event
of termination pursuant to this Section 4.1, (a) the Company shall pay Employee,
within 15 days of the effective date of such termination, a lump-sum payment
equal to (without discounting to present value) two times' his then effective
annual base salary under Section 3.1 hereof and (b) Employee shall be entitled
to all benefits under Section 3.3 hereof, through the expiration of the two year
term then in effect, to the extent continuation of such benefits is not
prohibited by application state and/or federal law. Payment of such sum by the
Company and two year's continuation of benefits provided under Section 3.3 shall
constitute Employee's full severance pay and the Company shall have no further
obligation to Employee arising out of such termination.
4.2 VOLUNTARY TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee may at
any time voluntarily terminate his employment for "good reason" (as defined
below). In the event of such voluntary termination for "good reason," (a) the
Company shall pay Employee, within 15 days of the effective date of such
termination, a lump-sum payment equal to (without discounting to
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<PAGE> 4
present value) two times' his then effective annual base salary under Section
3.1 hereof and (b) the Company shall provide the continued benefit coverage
described in Section 4.1.
For purposes of this Agreement, "good reason" shall mean the
occurrence of any of the following events:
(a) Removal from the offices Employee holds on the date
of this Agreement or a material reduction in
Employee's authority or responsibility, including,
without limitation, involuntary removal from the
Board of Directors, but not including termination of
Employee for "cause," as defined below;
(b) A reduction in the Employee's then effective base
salary under Section 3.1; or
(c) The Company otherwise commits a material breach of
this Agreement.
4.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
this Agreement at any time if such termination is for "cause" (as defined
below), by delivering to Employee written notice describing the cause of
termination 30 days before the effective date of such termination and by
granting Employee at least 30 days to cure the cause. In the event the
employment of Employee is terminated for "cause," Employee shall be entitled
only to the base salary earned pro rata to the date of such termination with no
entitlement to any base salary continuation payments or benefits continuation
(except as specifically provided by the terms of an employee benefit plan of the
Company). Except as otherwise provided in this Agreement, the determination of
whether Employee shall be terminated for "cause" shall be made by the Board of
Directors of the Company, in the reasonable exercise of its business judgment,
and shall be limited to the occurrence of the following events:
(a) 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 appeal);
(b) Willful refusal without proper legal cause to
perform, or gross negligence in performing,
Employee's duties and responsibilities;
(c) Material breach of fiduciary duty to the Company
through the misappropriation of Company funds or
property; or
(d) The unauthorized absence of Employee from work (other
than for sick leave or disability) for a period of 30
working days or more during any period of 45 working
days during the term of this Agreement.
4.4 TERMINATION UPON DEATH OR PERMANENT DISABILITY. In the event that
Employee dies, this Agreement shall terminate upon the Employee's death.
Likewise, if the Employee becomes unable to perform the essential functions of
the position, with or without reasonable accommodation, on account of illness,
disability, or other reason whatsoever for a period of more
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<PAGE> 5
than six consecutive or nonconsecutive months in any twelve-month period, this
Agreement shall terminate effective upon such incapacity, and Employee (or his
legal representatives) shall be entitled only to the base salary earned pro rata
to the date of such termination with no entitlement to any base salary
continuation payments or benefits continuation (except as specifically provided
by the terms of an employee benefit plan of the Company).
4.5 VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon delivering 30 days' written notice of resignation to
the Company. In the event of such voluntary termination other than for "good
reason" (as defined above), Employee shall be entitled to his base salary earned
pro rata to the date of his resignation, but no base salary continuation
payments or benefits continuation (except as specifically provided by the terms
of an employee benefit plan of the Company). On or after the date the Company
receives notice of Employee's resignation, the Company may, at its option, pay
Employee his base salary through the effective date of his resignation and
terminate his employment immediately.
4.6 TERMINATION FOLLOWING CHANGE OF CONTROL.
(a) Notwithstanding anything to the contrary contained herein,
should Employee at any time within 12 months of the occurrence of a "change of
control" (as defined below) cease to be an employee of the Company (or its
successor), by reason of (i) termination by the Company (or its successor) other
than for "cause" (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 appeal), or a material
breach of fiduciary duty to the Company through the misappropriation of Company
funds or property) or (ii) voluntary termination by Employee for "good reason
upon change of control" (as defined below), then in any such event, (1) the
Company shall pay Employee, within 45 days of the severance of employment
described in this Section 4.6, a lump-sum payment equal to (without discounting
to present value) two times' his then effective base salary under Section 3.1
hereof and (2) all outstanding stock options held by Employee not already vested
and exercisable shall become fully vested and exercisable. In addition, Company
shall continue all benefits under Section 3.3 hereof, through the expiration of
the two year term then in effect, to the extent continuation of such benefits is
not prohibited by applicable state and/or federal law.
(b) Employee shall also be entitled to an additional payment,
to the extent all payments to Employee (whether pursuant to this Agreement or
any other agreement whatsoever) in connection with a change of control as
defined in this Section 4.6 do not exceed in aggregate, the maximum amount that
could be paid to Employee, without triggering an excess parachute payment under
Section 280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the resulting excise tax under Section 4999 of the Code, (referred to herein
as the "maximum payment amount") equal to an amount, which when added to the
amounts payable to the Employee under paragraph (a) equals the maximum payment
amount; it being the express intention of the parties that Employee in all cases
(whether through this Agreement or any other agreement whatsoever) receive the
maximum payment amount in connection with a change of control without creating
an excess parachute payment. If such a payment is required under this paragraph
(b) in addition to the amounts
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<PAGE> 6
set forth in paragraph (a) above, it shall be paid at the time and in the manner
set forth under paragraph (a) above.
(c) In determining the amount to be paid to Employee under
this Section 4.6, as well as the limitation determined under Section 280G of the
Code, (i) no portion of the total payments which Employee has waived in writing
prior to the date of the payment of benefits under this Agreement will be taken
into account, (ii) no portion of the total payments which nationally recognized
tax counsel (whether through consultation or retention of any actuary,
consultant or other expert), selected by the Company's independent auditors and
acceptable to Employee, (referred to herein as "Tax Counsel") determines not to
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code will be taken into account, (iii) no portion of the total payments which
Tax Counsel determines to be reasonable compensation for services rendered
within the meaning of Section 280G(b)(4) of the Code will be taken into account,
and (iv) the value of any non-cash benefit or any deferred payment or benefit
included in the total payments will be determined by the Company's independent
auditors in accordance with Sections 280G(d)(3) and (iv) of the Code.
(d) As used in this Section, voluntary termination by Employee
for "good reason upon change of control" shall mean (i) removal of Employee from
the offices Employee holds on the date of this Agreement, (ii) a material
reduction in Employee's authority or responsibility, including, without
limitation, involuntary removal from the Board of Directors, (iii) relocation of
the Company's headquarters from Bexar County, Texas, (iv) a reduction in
Employee's then effective base salary under Section 3.1, or (v) the Company
otherwise commits a breach of this Agreement.
(e) As used in this Agreement, a "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 Securities Exchange Act of 1934, as amended (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 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 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.
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(f) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company or any of its affiliates to or for the benefit of
Employee, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise (any such payments or distributions
being individually referred to herein as a "Payment," and any two or more of
such payments or distributions being referred to herein as "Payments"), would be
subject to the excise tax imposed by Section 4999 of the Code (such excise tax,
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax, and any interest in respect
of such penalties, additions to tax or additional amounts, being collectively
referred herein to as the "Excise Tax"), then Employee shall be entitled to
receive an additional payment or payments (individually referred to herein as a
"Gross-Up Payment" and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an amount such that after payment
by Employee of all taxes (as defined in paragraph (p) below) imposed upon the
Gross-Up Payment, Employee retains an amount of such Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(g) Subject to the provisions of paragraph (h) through (n)
below, any determination (individually, a "Determination") required to be made
under this Section 4.6, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by Tax Counsel. Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to the Company and Employee
within 15 business days of the termination of Employee's employment, if
applicable, or such other time or times as is reasonably requested by the
Company or Employee. If Tax Counsel makes the initial Determination that no
Excise Tax is payable by Employee with respect to a Payment or Payments, it
shall furnish Employee with an opinion reasonably acceptable to Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments.
Employee shall have the right to dispute any Determination (a "Dispute") within
15 business days after delivery of Tax Counsel's opinion with respect to such
Determination. The Gross-Up Payment, if any, as determined pursuant to such
Determination shall, at the Company's expense, be paid by the Company to
Employee within five business days of Employee's receipt of such Determination.
The existence of a Dispute shall not in any way affect Employee's right to
receive the Gross-Up Payment in accordance with such Determination. If there is
no Dispute, such Determination shall be binding, final and conclusive upon the
Company and Employee, subject in all respects, however, to the provisions of
paragraph (h) through (n) below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code, it is possible that Gross-Up
Payments (or portions thereof) which will not have been made by the Company
should have been made ("Underpayment"), and if upon any reasonable written
request from Employee or the Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at the Company's expense, thereafter determines that
Employee is required to make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall, at the Company's expense,
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to Employee.
(h) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
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<PAGE> 8
tax liability of Employee resulting from any Final Determination (as defined in
paragraph (o) below) that any Payment is subject to the Excise Tax.
(i) If a party hereto receives any written or oral
communication with respect to any question, adjustment, assessment or pending or
threatened audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by Employee against the Company under this paragraph (i) ("Claim"),
including, but not limited to, a claim for indemnification of Employee by the
Company under paragraph (h) above, then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(j) If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as are
reasonably designated by the Company (it being understood and agreed by the
parties hereto that the terms of any such retention shall expressly provide that
the Company shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes
claimed is due from Employee, but in no event sooner than five calendar
days after the Company receives or delivers such Tax Claim Notice), the
Company shall have notified Employee in writing ("Election Notice")
that the Company does not dispute its obligations (including, but not
limited to, its indemnity obligations) under this Agreement and that
the Company elects to contest, and to control the defense or
prosecution of, such Employee Claim at the Company's sole risk and sole
cost and expense; and
(ii) the Company shall have advanced to Employee on an
interest-free basis, the total amount of the tax claimed in order for
Employee, at the Company's request, to pay or cause to be paid the tax
claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of paragraph (l) below, sue for a
refund of such tax if such claim for refund is disallowed by the
appropriate taxing authority (it being understood and agreed by the
parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding
in, for example, United States Tax Court) and shall indemnify and hold
Employee harmless, on a fully grossed-up after tax basis, from any tax
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and
(iii) the Company shall reimburse Employee for any and all
costs and expenses resulting from any such request by the Company and
shall indemnify and hold Employee harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such
reimbursement.
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(k) Subject to the provisions of paragraph (j) above, the
Company shall have the right to defend or prosecute, at the sole cost, expense
and risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by the Company to a
Final Determination; provided, however, that (i) the Company shall not, without
Employee's prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect Employee, (ii) any request from
the Company to Employee regarding any extension of the statute of limitations
relating to assessment, payment, or collection of taxes for the taxable year of
Employee with respect to which the contested issues involved in, and amount of,
the Employee Claim relate is limited solely to such contested issues and amount,
and (iii) the Company's control of any contest or proceeding shall be limited to
issues with respect to the Employee Claim and Employee shall be entitled to
settle or contest, in his sole and absolute discretion, any other issue raised
by the Internal Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such Employee Claim, Employee
shall provide or cause to be provided to the Company any information reasonably
requested by the Company that relates to such Employee Claim, and shall
otherwise cooperate with the Company and its representatives in good faith in
order to contest effectively such Employee Claim. The Company shall keep
Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all
written materials pertaining to any such Employee Claim), and Employee or his
authorized representatives shall be entitled, at Employee's expense, to
participate in all conferences, meetings and proceedings relating to any such
Employee Claim.
(l) If, after actual receipt by Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to paragraph (j)(ii) above, the extent of the liability of the Company
hereunder with respect to such tax claimed has been established by a Final
Determination, Employee shall promptly pay or cause to be paid to the Company
any refund actually received by, or actually credited to, Employee with respect
to such tax (together with any interest paid or credited thereon by the taxing
authority and any recovery of legal fees from such taxing authority related
thereto), except to the extent that any amounts are then due and payable by the
Company to Employee, whether under the provisions of this Agreement or
otherwise. If, after the receipt by Employee of an amount advanced by the
Company pursuant to paragraph (j)(ii) above, a determination is made by the
Internal Revenue Service or other appropriate taxing authority that Employee
shall not be entitled to any refund with respect to such tax claimed and the
Company does not notify Employee in writing of its intent to contest such denial
of refund prior to the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of any
Gross-Up Payments and other payments required to be paid hereunder.
(m) With respect to any Employee Claim, if the Company fails
to deliver an Election Notice to Employee within the period provided in
paragraph (j)(i) above or, after delivery of such Election Notice, the Company
fails to comply with the provisions of paragraph (j)(ii) above and (iii) and (k)
above, then Employee shall at any time thereafter have the right (but not the
obligation), at his election and in his sole and absolute discretion, to defend
or prosecute, at the sole cost, expense and risk of the Company, such Employee
Claim. Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof.
9
<PAGE> 10
If requested by Employee, the Company shall cooperate, and shall cause its
affiliates to cooperate, in good faith with Employee and his authorized
representatives in order to contest effectively such Employee Claim. The Company
may attend, but not participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim controlled by Employee pursuant
to this paragraph (m) and shall bear its own costs and expenses with respect
thereto. In the case of any Employee Claim that is defended or prosecuted by
Employee, Employee shall, from time to time, be entitled to current payment, on
a fully grossed-up after tax basis, from the Company with respect to costs and
expenses incurred by Employee in connection with such defense or prosecution.
(n) In the case of any Employee Claim that is defended or
prosecuted to a Final Determination pursuant to the terms of this paragraph (n),
the Company shall pay, on a fully grossed-up after tax basis, to Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to Employee, together with the costs and
expenses, on a fully grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by the Company to Employee, within
ten calendar days after such Final Determination. In the case of any Employee
Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after tax basis, to Employee in immediately available funds the full
amount of any taxes arising or resulting from or incurred in connection with
such Employee Claim at least ten calendar days before the date payment of such
taxes is due from Employee, except where payment of such taxes is sooner
required under the provisions of this paragraph (n), in which case payment of
such taxes (and payment, on a fully grossed-up after tax basis, of any costs and
expenses required to be paid under this paragraph (n) shall be made within the
time and in the manner otherwise provided in this paragraph (n).
(o) For purposes of this Agreement, the term "Final
Determination" shall mean (i) a decision, judgment, decree or other order by a
court or other tribunal with appropriate jurisdiction, which has become final
and non-appealable; (ii) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not limited
to, a closing agreement under Section 7121 of the Code; (iii) any disallowance
of a claim for refund or credit in respect to an overpayment of tax unless a
suit is filed on a timely basis; or (iv) any final disposition by reason of the
expiration of all applicable statutes of limitations.
(p) For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind whatsoever (including, but not
limited to, any and all Excise Taxes, income taxes, and employment taxes),
together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such taxes and any interest in respect of
such penalties, additions to tax, or additional amounts.
(q) For purposes of this Agreement, the terms "affiliate" and
"affiliates" mean, when used with respect to any entity, individual, or other
person, any other entity, individual, or other person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with such entity, individual or person. The term
"control" and derivations thereof when used in the immediately preceding
sentence means the ownership, directly or indirectly, of 50% or more of the
voting securities of an entity or other person or possessing the power to direct
or cause the direction of the management and
10
<PAGE> 11
policies of such entity or other person, whether through the ownership of voting
securities, by contract or otherwise.
(r) The Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from and against any and all
costs and expenses (including reasonable attorneys', accountants' and experts'
fees and expenses) incurred by Employee from time to time as a result of any
contest (regardless of the outcome) by the Company or others contesting the
validity or enforcement of, or liability under, any term or provision of this
Agreement, plus in each case interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code.
4.7 EXCLUSIVITY OF TERMINATION PROVISIONS. The termination provisions
of this Agreement regarding the parties' respective obligations in the event
Employee's employment is terminated, are intended to be exclusive and in lieu of
any other rights or remedies to which Employee or the Company may otherwise be
entitled at law, in equity or otherwise. It is also agreed that, although the
personnel policies and fringe benefit programs of the Company may be
unilaterally modified from time to time, the termination provisions of this
Agreement are not subject to modification, whether orally, impliedly or in
writing, unless any such modification is mutually agreed upon and signed by the
parties.
ARTICLE V
CONFIDENTIAL INFORMATION AND NONCOMPETITION
5.1 NONDISCLOSURE. During the term of this Agreement and thereafter,
Employee shall not, without the prior written consent of the Board of Directors,
disclose or use for any purpose (except in the course of his employment under
this Agreement and in furtherance of the business of the Company) confidential
information, proprietary data or trade secrets of the Company (or any of its
subsidiaries), including but not limited to customer, business planning or
business strategy information, except as required by applicable law or legal
process; provided, however, that confidential information shall not include any
information known generally to the public or ascertainable from public or
published information (other than as a result of unauthorized disclosure by
Employee) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Company (or any of its subsidiaries). All documents which Employee prepared
or which may have been provided or made available to Employee in the course of
work for the Company shall be deemed the exclusive property of the Company and
shall remain in the Company's possession. Upon the termination of Employee's
employment with the Company, regardless of the reason for such termination,
Employee shall promptly deliver to the Company all materials of a confidential
nature relating to the business of the Company (or any of its subsidiaries)
which are within Employee's possession or control.
5.2 NONCOMPETITION. The Company and Employee agree that the services
rendered by Employee hereunder are unique and irreplaceable. For this reason and
in consideration of the benefits of this Agreement, specifically including but
not limited to applicable termination pay provisions, as well as
confidential/proprietary/trade secret information provided to Employee,
11
<PAGE> 12
Employee hereby agrees that, during the term of this Agreement and in the event
Employee voluntarily quits pursuant to Section 4.5 or is terminated for cause
pursuant to Section 4.3, for a period of eighteen months thereafter, he shall
not (except in the course of his employment under this Agreement and in
furtherance of the business of the Company (or any of its subsidiaries)) (i)
engage in as principal, consultant or employee in any segment of a business of a
company, partnership or firm ("Business Segment") that is directly competitive
with any significant business of the Company in one of its major commercial or
geographic markets or (ii) hold an interest (except as a holder of less than 5%
interest in a publicly traded firm or mutual funds, or as a minority stockholder
or unitholder in a form not publicly traded) in a company, partnership or firm
with a Business Segment that is directly competitive, without the prior written
consent of the Company.
5.3 VALIDITY OF NONCOMPETITION. The foregoing provisions of Section 5.2
shall not be held invalid because of the scope of the territory covered, the
actions restricted thereby, or the period of time such covenant is operative.
Any judgment of a court of competent jurisdiction may define the maximum
territory, the actions subject to and restricted by Section 5.2 and the period
of time during which such agreement is enforceable.
5.4 NONCOMPETITION COVENANTS INDEPENDENT. The covenants of the Employee
contained in Section 5.2 will be construed as independent of any other provision
in this Agreement; and the existence of any claim or cause of action by the
Employee against the Company will not constitute a defense to the enforcement by
the Company of said covenants. The Employee understands that the covenants
contained in Section 5.2 are essential elements of the transaction contemplated
by this Agreement and, but for the agreement of the Employee to Section 5.2, the
Company would not have agreed to enter into such transaction. The Employee has
been advised to consult with counsel in order to be informed in all respects
concerning the reasonableness and propriety of Section 5.2 and its provisions
with specific regard to the nature of the business conducted by the Company and
the Employee acknowledges that Section 5.2 and its provisions are reasonable in
all respects.
5.5 COOPERATION. In the event of termination, and regardless of the
reason for such termination, Employee agrees to cooperate with the Company and
its representatives by responding to questions, attending meetings, depositions,
administrative proceedings and court hearings, executing documents and
cooperating with the Company and its legal counsel with respect to issues,
claims, litigation or administrative proceedings of which Employee has personal
or corporate knowledge. Employee further agrees to maintain in strict confidence
any information or knowledge Employee has regarding current or future claims,
litigation or administrative proceedings involving the Company (or any of its
subsidiaries). Employee agrees that any communication with a party adverse to
the Company, or with a representative, agent or counsel for such adverse party,
relating to any claim, litigation or administrative proceeding, shall be solely
and exclusively through counsel for the Company.
5.6 REMEDIES. In the event of a breach or threatened breach by the
Employee of any of the provisions of Sections 5.1, 5.2 or 5.5, the Company shall
be entitled to a temporary restraining order and an injunctive restraining the
Employee from the commission of such breach. Nothing
12
<PAGE> 13
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of money damages.
ARTICLE VI
ARBITRATION
Except for the provisions of Sections 5.1, 5.2 and 5.5 dealing with
issues of nondisclosure, noncompetition and cooperation, with respect to which
the Company reserves the right to petition a court directly for injunction or
other relief, any controversy of any nature whatsoever, including but not
limited to tort claims or contract disputes, between the parties to this
Agreement or between the Employee, his heirs, executors, administrators, legal
representatives, successors, and assigns and the Company and its affiliates,
arising out of or related to the Employee's employment with the Company, any
resignation from or termination of such employment and/or the terms and
conditions of this Agreement, including the implementation, applicability and
interpretation thereof, shall, upon the written request of one party served upon
the other, be submitted to and settled by arbitration in accordance with the
provisions of the Federal Arbitration Act, 9 U.S.C. ss.ss.1-15, as amended. Each
of the parties to this Agreement shall appoint one person as an arbitrator to
hear and determine such disputes, and if they should be unable to agree, then
the two arbitrators shall chose a third arbitrator from a panel made up of
experienced arbitrators selected pursuant to the procedures of the American
Arbitration Association (the "AAA") and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. Each party shall be responsible for the fees and expenses of its
arbitrator and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The terms of the commercial arbitration rules of AAA
shall apply except to the extent they conflict with the provisions of this
paragraph. It is further agreed that any of the parties hereto may petition the
United States District Court for the Western District of Texas, San Antonio
Division, for a judgment to be entered upon any award entered through such
arbitration proceedings.
ARTICLE VII
MISCELLANEOUS
7.1 COMPLETE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and cancels and supersedes all other agreements between the
parties which may have related to the subject matter contained in this
Agreement.
7.2 MODIFICATION; AMENDMENT; WAIVER. No modification, amendment or
waiver of any provisions of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision hereof in accordance with its terms.
13
<PAGE> 14
7.3 GOVERNING LAW; JURISDICTION. This Agreement and performance under
it, and all proceedings that may ensue from its breach, shall be construed in
accordance with and under the laws of the State of Texas.
7.4 EMPLOYEE'S REPRESENTATIONS. Employee represents and warrants that
he is free to enter in to this Agreement and to perform each of the terms and
covenants of it. Employee represents and warrants that he is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement, and that his execution and performance of this Agreement is not a
violation or breach of any other agreement between Employee and any other person
or entity.
7.5 COMPANY'S REPRESENTATIONS. Company represents and warrants that it
is free to enter into this Agreement and to perform each of the terms and
covenants of it. Company represents and warrants that it is not restricted or
prohibited, contractually or otherwise, from entering into and performing this
Agreement and that its execution and performance of this Agreement is not a
violation or breach of any other agreements between Company and any other person
or entity. The Company represents and warrants that this Agreement is a legal,
valid and binding agreement of the Company, enforceable in accordance with its
terms.
7.6 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.7 ASSIGNMENT. The rights and obligations of the parties under this
Agreement shall be binding upon and inure to the benefit of their respective
successors, assigns, executors, administrators and heirs, provided, however,
that neither the Company nor Employee any assign any duties under this Agreement
without the prior written consent of the other.
7.8 LIMITATION. This Agreement shall not confer any right or impose any
obligation on the Company to continue the employment of Employee in any
capacity, or limit the right of the Company or Employee to terminate Employee's
employment.
7.9 ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
brought to enforce or interpret the terms of this Agreement or any obligation
owing thereunder, venue will be in Bexar County, Texas and the prevailing party
shall be entitled to reasonable attorney's fees and all costs and expenses of
suit, including, without limitation, expert and accountant fees, and such other
relief which a court of competent jurisdiction may deem appropriate.
7.10 NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given in person or by either personal delivery,
overnight delivery, or first class mail, certified or registered with return
receipt requested, with postage or delivery charges prepaid, and shall be deemed
to have been duly given when delivered personally, upon actual receipt, and on
14
<PAGE> 15
the next business day when sent via overnight delivery, or three days after
mailing first class, certified or registered with return receipt requested, to
the respective persons named below:
If to the Company: Corporate Secretary
Billing Information Concepts Corp.
7411 John Smith Dr., Suite 1500
San Antonio, Texas 78229
If to the Employee: Kelly E. Simmons
7411 John Smith Dr.
San Antonio, Texas 78229
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year indicated above.
COMPANY: BILLING INFORMATION CONCEPTS CORP.
By /s/ Parris H. Holmes, Jr.
---------------------------------
Title Chairman & CEO
------------------------------
EMPLOYEE: /s/ Kelly E. Simmons
--------------------------------------------------
Kelly E. Simmons
The Compensation Committee of Billing Information Concepts Corp. hereby agrees
to the above Employment Agreement between Billing Information Concepts Corp. and
the Employee all as set forth above.
COMPENSATION COMMITTEE
By /s/ Lee Cooke
---------------------------------
Name: Lee Cooke
Title: Chairman
15
<PAGE> 1
EXHIBIT 10.22
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to that Employment Agreement dated June 4, 1997
and effective as of June 1, 1997 (the "Agreement"), by and between Michael A.
Harrelson ("Employee"), a resident of San Antonio, Texas, and Billing Concepts
Corp., a Delaware corporation (the "Company"), whose principal executive
offices are located in San Antonio, Texas, is effective this 10th day of
August, 1998.
W I T N E S S E T H:
WHEREAS, Employee and the Company desire to amend the Agreement by
modifying Employee's monthly base salary as set forth in Section 3.1, Monthly
Base Salary, of the Agreement;
NOW, THEREFORE, for $10.00 and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Employee and the
Company hereby agree as follows:
1. Section 3.1, Monthly Base Salary, of the Agreement is hereby
amended in its entirety to read as follows:
3.1 Monthly Base Salary. As compensation for the services to be
rendered hereunder, the Company shall pay Employee a salary of
$16,667.67 per month for a period of thirty-six (36) months. Such
salary shall be payable in at least monthly installments during the
term of this Agreement.
2. The effective date of this change of such monthly base salary is
August 10, 1998.
3. All terms and conditions of the Agreement not specifically modified
herein are hereby ratified and confirmed in their entirety.
IN WITNESS WHEREOF, this Amendment No. 1 to the Agreement has been
duly executed by Employee and the Company as of the day and year first above
written.
BILLING CONCEPTS CORP.
By: /s/ Parris H. Holmes, Jr.
-----------------------------------
Name: Parris H. Holmes, Jr.
--------------------------------
Title: Chairman & CEO
-------------------------------
/s/ Michael A. Harrelson
-------------------------------------
Michael A. Harrelson
<PAGE> 1
EXHIBIT 10.25
FIRST AMENDMENT TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("Amendment") is made and
entered into as of the 1st day of March, 1997, among BILLING INFORMATION
CONCEPTS, INC., a Delaware corporation ("Borrower" ); BILLING INFORMATION
CONCEPTS CORP., a Delaware corporation ("Parent Company"); ENHANCED SERVICES
BILLING, INC., a Delaware corporation ("ESBI") (Parent Company and ESBI,
collectively, the "Guarantors"); and THE FROST NATIONAL BANK, a national
banking association, individually, as the Issuing Bank and as the Agent, THE
BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association,
individually, and each of the lenders which becomes a party to the Credit
Agreement as provided in Section 10.7 thereof (individually, a "Bank" and
collectively, the "Banks").
RECITALS
A. Borrower, Parent Company, the Agent, the Issuing Bank and the Banks
have heretofore entered into the Credit Agreement dated as of December 20, 1996
(as amended, modified, restated and supplemented from time to time, the "Credit
Agreement").
B. Borrower, Parent Company and the Banks desire to amend the Credit
Agreement to increase the amount which Borrower may loan to its customers
pursuant to Advanced Payment Agreements.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good, fair and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the terms and provisions of the Original Credit Agreement are
amended and restated as follows:
1. Defined Terms and Related Matters.
(a) Unless otherwise defined herein, the capitalized terms used
herein which are defined in the Credit Agreement shall have the
meanings specified therein.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Amendment shall refer to this
Amendment as a whole and not to any particular provision of this
Amendment.
2. Amendments. Section 6.5(viii) of the Credit Agreement is hereby
amended to read in its entirety as follows:
<PAGE> 2
"(viii) loans to customers of Borrower in the ordinary course
of business other than pursuant to Advanced Payment Agreements not
exceeding $1,000,000 in the aggregate at any time; and"
3. In order to induce the Agent, the Issuing Bank and the Banks to
enter into this Amendment, Borrower and Parent Company hereby represent and
warrant to the Agent, the Issuing Bank and the Banks that, as of the date of
this Amendment, (a) the representations and warranties set forth in the Credit
Agreement and each other Loan Document to which it is a party are true and
correct as if made on and as of the date hereof (other than those
representations and warranties expressly limited by their terms to a specific
date), (b) no Default or Event of Default has occurred and is continuing, and
(c) no event has occurred since the date of the most recent financial
statements delivered pursuant to Section 5.1 of the Credit Agreement that has
caused a Material Adverse Effect.
4. Borrower hereby acknowledges and agrees that no facts, events,
status or conditions presently exist which, either now or with the passage of
time or the giving of notice or both, presently constitute a basis for any
claim or cause of action against any of the Banks, or any defense to the
payment of any of the indebtedness evidenced or to be evidenced by any of the
Loan Documents.
5. ESBI covenants and agrees that, as to the Affiliate Guaranty
executed and delivered by ESBI in favor of the Banks as part of the Security
Documents, such Affiliate Guaranty is a continuing guarantee and shall remain
in full force and effect until the termination of the obligations of the Banks
to make Loans or issue Letters of Credit and the indefeasible payment in full
of the Obligations (as defined in such Affiliate Guaranty).
6. Parent Company covenants and agrees that, as to the Parent Guaranty
executed and delivered by Parent Company in favor of the Banks as part of the
Security Documents, such Parent Guaranty is a continuing guarantee and shall
remain in full force and effect until the termination of the obligations of the
Banks to make Loans or issue Letters of Credit and the indefeasible payment in
full of the Obligations (as defined in such Parent Guaranty).
7. As to each Security Document executed in favor of the Banks,
Borrower hereby ratifies and confirms the liens and security interests of the
Banks in and to all collateral covered by each such Security Document to which
Borrower is a party as security for the prompt and full payment and performance
of the obligations secured by each such Security Document. In furtherance of
the foregoing, all liens and security interests of each such Security Document
(which are hereby acknowledged to be valid and subsisting) are hereby carried
forward, continued, extended, modified and renewed to secure the prompt and
full payment and performance of the obligations secured by each such Security
Document.
-2-
<PAGE> 3
8. Each Loan Document is hereby amended and modified to the extent
necessary to give full force and effect to the terms of this Amendment, and
each such Loan Document shall hereafter be construed and interpreted after
giving full force and effect to the terms of this Amendment. As amended,
modified and supplemented pursuant to this Amendment, Borrower, Parent Company
and ESBI hereby ratify, confirm and restate each Loan Document to which it is a
party and agrees that each such Loan Document shall continue in full force and
effect. Each of the Loan Documents now or hereafter executed and delivered
pursuant to the terms hereof or pursuant to the terms of the Credit Agreement,
as amended hereby, or as further evidence of or security for or in connection
with the Credit Agreement, as amended hereby, is hereby amended to the extent
necessary so that any reference in any such documents, instruments or
agreements to the Credit Agreement shall be a reference to the Credit
Agreement, as amended hereby.
9. In the event that any one or more of the provisions contained in
this Amendment shall be determined invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision or provisions in every other respect and the remaining provisions of
this Amendment shall not be impaired in any way.
10. When required or implied by the context used, defined terms used
herein shall include the plural as well as the singular, and vice versa.
11. This Amendment shall be governed by and construed in accordance
with the internal laws of the State of Texas and applicable federal laws of the
United States of America. This Amendment has been entered into in Bexar County,
Texas and shall be performable for all purposes in Bexar County, Texas. The
courts within the State of Texas shall have jurisdiction over any and all
disputes arising under or pertaining to this Amendment; and any such dispute
shall be heard in the county or judicial district of the principal place of
business of The Frost National Bank.
12. This Amendment shall be binding upon and inure to the benefit of
all parties hereto and their respective successors and assigns; provided,
however, that neither Borrower nor Parent Company nor ESBI nor any of their
respective successors or assigns may, without the prior written consent of all
of the Banks, assign any rights, powers, duties or obligations hereunder.
13. This Amendment may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute but one and the same instrument.
14. This Amendment constitutes a Loan Document.
15. Upon execution of this Amendment by the Banks, Borrower, Parent
Company and ESBI shall deliver to the Agent, in form and substance satisfactory
to the Agent, the certificates and documents described on Annex A.
[signatures on next page]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized signatories as of the day and
year first above written.
BORROWER:
BILLING INFORMATION CONCEPTS, INC.
By: /s/ Kelly E. Simmons
------------------------------------------
Name: Kelly E. Simmons
----------------------------------------
Title: Senior Vice President and CFO
---------------------------------------
PARENT COMPANY:
BILLING INFORMATION CONCEPTS CORP.
By: /s/ Kelly E. Simmons
------------------------------------------
Name: Kelly E. Simmons
----------------------------------------
Title: Senior Vice President and CFO
GUARANTORS:
ENHANCES SERVICES BILLING, INC.
By: /s/ Kelly E. Simmons
------------------------------------------
Name: Kelly E. Simmons
----------------------------------------
Title: Senior Vice President and CFO
---------------------------------------
BILLING INFORMATION CONCEPTS CORP.
By: /s/ Kelly E. Simmons
------------------------------------------
Name: Kelly E. Simmons
----------------------------------------
Title: Senior Vice President and CFO
---------------------------------------
[signatures continued on following page]
-4-
<PAGE> 5
BANKS:
THE FROST NATIONAL BANK
Individually, as the Issuing Bank and as
the Agent
By: /s/ Gregg M. Chinn
-------------------------------------
Name: Gregg M. Chinn
-----------------------------------
Title: Vice President
----------------------------------
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By: /s/ Steven A. Linton
-------------------------------------
Name: Steven A. Linton
-----------------------------------
Title: Assistant Vice President
----------------------------------
-5-
<PAGE> 6
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment") is
made and entered into as of the 29th day of September, 1998, among BILLING
CONCEPTS, INC., a Delaware corporation, formerly known as BILLING INFORMATION
CONCEPTS, INC. ("Borrower"); BILLING CONCEPTS CORP., a Delaware corporation,
formerly known as BILLING INFORMATION CONCEPTS CORP. ("Parent Company");
ENHANCED SERVICES BILLING, INC., a Delaware corporation ("ESBI"); BILLING
CONCEPTS SYSTEMS, INC., a Delaware corporation, formerly known as COMPUTER
RESOURCES MANAGEMENT, INC. ("BCSI") (Parent Company, ESBI and BCSI,
collectively, the "Guarantors"); and THE FROST NATIONAL BANK, a national
banking association, individually, as the Issuing Bank and as the Agent,
NATIONSBANK, N.A., a national banking association, successor to THE BOATMEN'S
NATIONAL BANK OF ST. LOUIS, individually, and each of the lenders which becomes
a party to the Credit Agreement as provided in Section 10.7 thereof
(individually, a "Bank" and collectively, the "Banks").
RECITALS
A. Borrower, Parent Company, the Agent, the Issuing Bank and the Banks
have heretofore entered into the Credit Agreement dated as of December 20, 1996
(as amended, modified, restated and supplemented from time to time, the "Credit
Agreement").
B. Borrower, Parent Company and the Banks desire to amend the Credit
Agreement to increase the maximum amounts of Consolidated Capital Expenditures
permitted during the Fiscal Years ending September 30, 1998 and thereafter.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and for other good, fair and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the terms and provisions of the Credit Agreement are amended and
restated as follows:
1. Defined Terms and Related Matters.
(a) Unless otherwise defined herein, the capitalized terms used
herein which are defined in the Credit Agreement shall have the
meanings specified therein.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Second Amendment shall refer to this
Second Amendment as a whole and not to any particular provision of
this Second Amendment.
2. Amendments. Section 6.1(c) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(c) Consolidated Capital Expenditures to exceed (i)
$20,000,000 for the Fiscal Year ending September 30, 1997, (ii)
$10,000,000 for the Fiscal Year ending September 30, 1998, (iii)
$15,000,000 for the Fiscal Year ending September 30, 1999 or (iv)
$5,000,000 for any Fiscal Year ending September 30, 2000 or
thereafter."
<PAGE> 7
3. In order to induce the Agent, the Issuing Bank and the Banks to
enter into this Second Amendment, Borrower and Parent Company hereby represent
and warrant to the Agent, the Issuing Bank and the Banks that, as of the date
of this Second Amendment, (a) the representations and warranties set forth in
the Credit Agreement and each other Loan Document to which it is a party are
true and correct as if made on and as of the date hereof (other than those
representations and warranties expressly limited by their terms to a specific
date), (b) no Default or Event of Default has occurred and is continuing, and
(c) no event has occurred since the date of the most recent financial
statements delivered pursuant to Section 5.1 of the Credit Agreement that has
caused a Material Adverse Effect.
4. Borrower hereby acknowledges and agrees that no facts, events,
status or conditions presently exist which, either now or with the passage of
time or the giving of notice or both, presently constitute a basis for any
claim or cause of action against any of the Banks, or any defense to the
payment of any of the indebtedness evidenced or to be evidenced by any of the
Loan Documents.
5. ESBI covenants and agrees that, as to the Affiliate Guaranty
executed and delivered by ESBI in favor of the Banks as part of the Security
Documents, such Affiliate Guaranty is a continuing guarantee and shall remain
in full force and effect until the termination of the obligations of the Banks
to make Loans or issue Letters of Credit and the indefeasible payment in full
of the Obligations (as defined in such Affiliate Guaranty).
6. BCSI covenants and agrees that, as to the Affiliate Guaranty
executed and delivered by BCSI in favor of the Banks as part of the Security
Documents, such Affiliate Guaranty is a continuing guarantee and shall remain
in full force and effect until the termination of the obligations of the Banks
to make Loans or issue Letters of Credit and the indefeasible payment in full
of the Obligations (as defined in such Affiliate Guaranty).
7. Parent Company covenants and agrees that, as to the Parent Guaranty
executed and delivered by Parent Company in favor of the Banks as part of the
Security Documents, such Parent Guaranty is a continuing guarantee and shall
remain in full force and effect until the termination of the obligations of the
Banks to make Loans or issue Letters of Credit and the indefeasible payment in
full of the Obligations (as defined in such Parent Guaranty).
8. As to each Security Document executed in favor of the Banks,
Borrower hereby ratifies and confirms the liens and security interests of the
Banks in and to all collateral covered by each such Security Document to which
Borrower is a party as security for the prompt and full payment and performance
of the obligations secured by each such Security Document. In furtherance of
the foregoing, all liens and security interests of each such Security Document
(which are hereby acknowledged to be valid and subsisting) are hereby carried
forward, continued, extended, modified and renewed to secure the prompt and
full payment and performance of the obligations secured by each such Security
Document.
9. Each Loan Document is hereby amended and modified to the extent
necessary to give full force and effect to the terms of this Second Amendment,
and each such Loan Document shall hereafter be construed and interpreted after
giving full force and effect to the terms of this Second Amendment. As amended,
modified and supplemented pursuant to this
-2-
<PAGE> 8
Second Amendment, Borrower, Parent Company, ESBI and BCSI hereby ratify,
confirm and restate each Loan Document to which it is a party and agrees that
each such Loan Document shall continue in full force and effect. Each of the
Loan Documents now or hereafter executed and delivered pursuant to the terms
hereof or pursuant to the terms of the Credit Agreement, as amended hereby, or
as further evidence of or security for or in connection with the Credit
Agreement, as amended hereby, is hereby amended to the extent necessary so that
any reference in any such documents, instruments or agreements to the Credit
Agreement shall be a reference to the Credit Agreement as amended hereby.
10. In the event that any one or more of the provisions contained in
this Second Amendment shall be determined invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision or provisions in every other respect and the remaining
provisions of this Second Amendment shall not be impaired in any way.
11. When required or implied by the context used, defined terms used
herein shall include the plural as well as the singular, and vice versa.
12. This Second Amendment shall be governed by and construed in
accordance with the internal laws of the State of Texas and applicable federal
laws of the United States of America. This Second Amendment has been entered
into in Bexar County, Texas and shall be performable for all purposes in Bexar
County, Texas. The courts within the State of Texas shall have jurisdiction
over any and all disputes arising under or pertaining to this Second Amendment;
and any such dispute shall be heard in the county or judicial district of the
principal place of business of The Frost National Bank.
13. This Second Amendment shall be binding upon and inure to the
benefit of all parties hereto and their respective successors and assigns;
provided, however, that neither Borrower nor Parent Company nor ESBI nor BCSI
nor any of their respective successors or assigns may, without the prior
written consent of all of the Banks, assign any rights, powers, duties or
obligations hereunder.
14. This Second Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute but one and the same instrument.
15. This Second Amendment constitutes a Loan Document.
16. Upon execution of this Second Amendment by the Banks, Borrower,
Parent Company, ESBI and BCSI shall deliver to the Agent, in form and substance
satisfactory to the Agent, the certificates and documents described on Annex A.
[signatures on next page]
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be duly executed by their respective authorized signatories as of
the day and year first above written.
BORROWER:
BILLING CONCEPTS, INC.
By: /s/ Kelly E. Simmons
---------------------------------------------------------
Name: Kelly E. Simmons
-------------------------------------------------------
Title: Executive Vice President & Chief Financial Officer
------------------------------------------------------
PARENT COMPANY:
BILLING CONCEPTS CORP.
By: /s/ Kelly E. Simmons
---------------------------------------------------------
Name: Kelly E. Simmons
-------------------------------------------------------
Title: Executive Vice President & Chief Financial Officer
------------------------------------------------------
GUARANTORS:
ENHANCED SERVICES BILLING, INC.
By: /s/ Kelly E. Simmons
---------------------------------------------------------
Name: Kelly E. Simmons
-------------------------------------------------------
Title: Executive Vice President & Chief Financial Officer
------------------------------------------------------
BILLING CONCEPTS CORP.
By: /s/ Kelly E. Simmons
---------------------------------------------------------
Name: Kelly E. Simmons
-------------------------------------------------------
Title: Executive Vice President & Chief Financial Officer
------------------------------------------------------
BILLING CONCEPTS SYSTEMS, INC.
By: /s/ Kelly E. Simmons
---------------------------------------------------------
Name: Kelly E. Simmons
-------------------------------------------------------
Title: Executive Vice President & Chief Financial Officer
------------------------------------------------------
[signatures continued on following page]
<PAGE> 10
BANKS:
THE FROST NATIONAL BANK
Individually, as the Issuing Bank and as the Agent
By: /s/ Gregg M. Chinn
---------------------------------------------------------
Gregg M. Chinn, Vice President
NATIONSBANK, N.A., successor to
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS
By: /s/ Steven A. Linton
---------------------------------------------------------
Steven A. Linton, Assistant Vice President
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The following is a list of all subsidiaries of the Company,
jurisdiction of incorporation or organization and the percentage of shares
owned, directly or indirectly, by the Company.
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF PERCENTAGE OF
NAME INCORPORATION SHARES OWNED
- ------------------------------------- --------------- --------------
<S> <C> <C>
Billing Acquisition Corp. Delaware 100%
Billing Concepts, Inc. Delaware 100%
Billing Concepts Systems, Inc. Texas 100%
Computer Resources Management I, Inc. Delaware 100%
Concepts Acquisition Corp. Delaware 100%
Enhanced Services Billing, Inc. Delaware 100%
Interlata Aviation, Inc. Texas 100%
Princeton TeleCom Corporation Delaware 22%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the Company's
previously filed Registration Statements (SEC File No. 333-08249, 333-08251,
333-08257, 333-08303, 333-36785, 333-64325 and 333-66903).
ARTHUR ANDERSEN LLP
San Antonio, Texas
December 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR BILLING CONCEPTS CORP. AND SUBSIDIARIES AS
OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 118,291
<SECURITIES> 0
<RECEIVABLES> 34,016
<ALLOWANCES> 268
<INVENTORY> 0
<CURRENT-ASSETS> 220,292
<PP&E> 33,718
<DEPRECIATION> 11,245
<TOTAL-ASSETS> 259,064
<CURRENT-LIABILITIES> 161,664
<BONDS> 1,697
0
0
<COMMON> 342
<OTHER-SE> 91,989
<TOTAL-LIABILITY-AND-EQUITY> 259,064
<SALES> 0
<TOTAL-REVENUES> 160,762
<CGS> 0
<TOTAL-COSTS> 98,894
<OTHER-EXPENSES> 30,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184
<INCOME-PRETAX> 43,476
<INCOME-TAX> 17,529
<INCOME-CONTINUING> 25,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,947
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.74
</TABLE>
