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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, 1999
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 10, 1999 was
approximately $274,585,893. There were 38,538,371 shares of the Registrant's
Common Stock outstanding as of December 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2000
Annual Meeting of Stockholders to be held on March 22, 2000, 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, 1999
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ITEM PAGE
NUMBER NUMBER
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Index..................................................................... 2
PART I
1. Business.................................................................. 3
2. Properties................................................................ 14
3. Legal Proceedings......................................................... 14
4. Submission of Matters to a Vote of Security Holders....................... 15
PART II
5. Market for the Company's Common Equity and Related Stockholder Matters.... 16
6. Selected Financial Data................................................... 17
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 19
7A. Quantitative and Qualitative Disclosure About Market Risk................. 28
8. Financial Statements and Supplementary Data............................... 28
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 49
PART III
10. Directors and Executive Officers of the Company........................... 50
11. Executive Compensation.................................................... 50
12. Security Ownership of Certain Beneficial Owners and Management............ 50
13. Certain Relationships and Related Transactions............................ 50
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 51
Signatures................................................................ 54
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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.
INTRODUCTION
Billing Concepts Corp. (the "Company" or "BCC") is a business services and
technology company with operations in three principal segments - LEC Billing
("Billing"), Software ("Aptis," Inc.) and Internet. See Note 14 of "Notes to
Consolidated Financial Statements" for certain financial information by business
segment.
LEC BILLING
GENERAL
Billing provides third-party billing clearinghouse and information
management services to the telecommunications industry. 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." Billing's
customers include direct dial long distance telephone companies, operator
services providers, information providers, competitive local exchange companies,
Internet service providers and integrated communications services providers.
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. Although such carriers can bill end
users directly, Billing provides these carriers with a cost-effective means of
billing and collecting residential and small commercial accounts through the
local telephone companies. Second, the Company offers zero plus - zero minus LEC
billing services to customers providing operator services largely to the
hospitality, penal and private pay telephone industries. Billing processes
records for telephone calls that require operator assistance and/or alternative
billing options such as collect and person-to-person calls, third-party billing
and calling card billing. 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. 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 access pay-per-call
transactions, cellular services, paging services, voice mail services, Internet
access, Caller ID and other nonregulated telecommunications equipment. Finally,
in addition to its full-service LEC billing product, Billing also offers billing
management services to customers who have their own billing and collection
agreements with the local telephone companies. These management services may
include data processing, accounting, end-user customer service and
telecommunication tax processing and reporting.
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The Company 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, Billing can provide its services
to those long distance carriers and operator services providers who would
otherwise not be able to make the investments in billing and collection
agreements with the local telephone companies, fees, systems, infrastructure and
volume commitments required to establish and maintain the necessary
relationships with the local telephone companies. The Company is obligated to
pay certain local telephone companies a total of approximately $5.2 million,
$3.4 million and $0.9 million during fiscal 2000, 2001 and 2002, respectively,
for future minimum usage charges under billing and collection agreements that,
unless automatically renewed, expire at varying dates through the end of fiscal
2002. 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 future minimum usage volumes with all of these vendors.
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, now MCI Worldcom
("MCI"), and Sprint Incorporated ("Sprint"), could afford the option of billing
directly through the local telephone companies. Several companies, including
Billing, entered into these billing and collection agreements and became
aggregators of telephone call records for operator services providers and second
and third-tier long distance carriers, thereby becoming "third-party
clearinghouses."
The operator services industry began to develop in 1986 with deregulation
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 zero-plus and zero-minus
telephone calls must either obtain billing and collection agreements with the
local telephone companies or utilize the services of a third-party clearinghouse
that has the billing and collection agreements required.
Third-party clearinghouses such as Billing process these telephone call
records and other transactions and submit them to the local telephone companies
for inclusion in their monthly bills to end users. As the local telephone
companies collect payments from end users, they remit them to the third-party
clearinghouses that, in turn, remit payments to their carrier customers.
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. ("ZPDI").
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, Billing entered into a
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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 distance and operator services
businesses. These customers had two main concerns: (i) that USLD's long distance
and operator services businesses could gain knowledge of its competitors through
call records processed by Billing and (ii) that Billing was somehow subsidizing
USLD's long distance and operator services businesses with which these customers
compete. 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.
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. Billing, 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. Billing monitors and tracks each account receivable by customer and
by batch throughout the billing and collection process. The local telephone
companies then include these telephone call records and other transactions in
their monthly local telephone bills and remit the collected funds to the Company
for payment to its customers. The complete cycle can take up to 18 months from
the time the records are submitted for billing until all bad debt reserves are
"trued up" with actual bad debt experience. However, the billing and collection
agreements provide for the local telephone companies to purchase the accounts
receivable, with recourse, within a 40 to 90 day period. The payment cycle from
the time call records are transmitted to the local telephone companies to the
initial receipt of funds by the Company is, on average, approximately 55 days.
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 trade 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
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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.
Billing provides end-user inquiry and investigation (customer service) for
billed telephone call records. This service allows end users to inquire
regarding calls for which they were billed. The Company's customer service
telephone number is included in the local telephone company bill to the end
user, and the Company's customer service representatives are authorized to
resolve end-user disputes regarding such calls.
Billing earns its revenues based on (i) a processing fee that is assessed
to customers either as a fee charged for each telephone call record or other
transaction processed or as percentage of the customer's revenue that is
submitted by the Company to the local telephone companies for billing and
collection and (ii) a customer service inquiry fee that is assessed to customers
either as a fee charged for each record processed by the Company or as a fee
charged for each billing inquiry made by end users. Any charges assessed to the
Company by local telephone companies for billing and collection services are
also included in revenues and are passed through to the customer.
Through its advance funding program, Billing offers its customers the
option to receive, within five days of the customer's submission of records to
Billing, a significant portion of the revenue associated with such records. The
customer pays interest for the period of time between the purchase of records by
the Company and the time the local telephone company submits payment to Billing
for the subject records. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations Advance Funding Program and Receivable
Financing Facility."
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 Billing's customers submit their records to the Company using
electronic transmission protocols directly into the Company's electronic
bulletin board, which is accessible through the Internet via the Company's
"BCWebTrack" website. These records are automatically accessed by Billing's
proprietary software, processed, and submitted to the local telephone companies
electronically. Upon completion of the billing process, the Company provides
reports through its BCWebTrack website relating to billable records and returns
any unbillable records to its customers electronically through the BCWebTrack
Record Manager.
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 Billing's customer service representatives who handle
billing inquiries. Detail of records older than 12 months is stored on CD-ROM
and magnetic tape for at least seven years. Since timely submission of call
records to the local telephone companies is critical to prompt collections and
high collection rates, Billing has made a significant investment in computer
systems so that its customers' call records are processed and submitted to the
local telephone companies in a timely manner, generally within 24 hours of
receipt by Billing.
The Company's contracts with its customers provide for the 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, Billing updates tables within each of the local telephone
companies' billing systems to control the type of
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records processed, the products or services allowed by the local telephone
companies, and the printing of the customer's name on the end user's monthly
bill. While these local telephone company tables are being updated, the
Company's technical support staff tests the customer's records through its
proprietary software to ensure that the records can be transmitted to the local
telephone companies.
Billing maintains a relatively small direct sales force of seven people
and accomplishes most of its marketing efforts through active participation in
telecommunications industry trade shows, educational seminars and workshops. The
Company advertises to a limited extent in trade journals and other industry
publications.
CUSTOMERS
The Company provides 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.
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COMPETITION
The Company competes with several other billing clearinghouses in
servicing the telecommunications industry. Management believes that Billing is
the largest participant in the third-party clearinghouse industry in the United
States followed by OAN Services, Inc. Management believes that competition among
the clearinghouses is driven by 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 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.
Since most customers in the billing clearinghouse industry are under
contract with Billing or one of its competitors, management believes that the
majority of the existing market may be committed for up to five 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 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. 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. In
addition, the clearinghouse industry continues to come under pressure from
competitors offering a means of billing end users directly as consumer demand
increases for bundled services that can be directly billed cost-effectively due
to the larger size of such convergent accounts. The ongoing consolidation in the
communications industry is also making it more feasible for the resulting larger
companies to have their own LEC billing agreements or bill consumers directly.
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 telecommunications 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.
RESEARCH AND DEVELOPMENT
Billing internally funds research and development activities with respect
to efforts associated with creating new and enhanced billing services products.
Billing is currently exploring customer care software applications that allow
consumers to view their bills and request adjustments or make payments via the
Internet. Research and development expenses in both 1999 and 1998 were $1.2
million compared to $0.6 million in 1997. Billing intends to continue its
research and development efforts in the future and therefore expects that
research and development expenses will remain at levels similar to 1999.
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SOFTWARE
GENERAL
Aptis develops, markets and supports convergent billing and customer care
software applications. Aptis' customers include Network Service Providers
("NSPs"), Internet Service Providers ("ISPs"), Integrated Communications
Providers ("ICPs") and other providers of enhanced data services via the
Internet. Aptis offers products and services to these companies through
licensing agreements and outsourcing arrangements.
Aptis has developed, and continues to enhance, sophisticated software
applications in order to meet the current and evolving billing requirements of
its customers. The Company's software applications support complex billing of
NSP, ISP and ICP customers in a multi-service environment. Aptis' convergent
billing platform has the capability to produce a single convergent bill whereby
multiple services and products such as local exchange, long distance, wireless
and data communications can be billed directly to the end user under one,
unified billing statement. The software also has the flexibility to be
configured to meet a company's unique business rules and product set.
In addition to its software products, a full range of professional
services are also available through the Company. These services include
consulting, development and systems operations services centered on the Internet
and communications industry and its software products. Aptis also provides
ongoing support, maintenance and training related to customers' billing and
customer care systems. In addition to its software applications and services,
Aptis is a reseller of IBM AS/400 hardware that is used as the hardware platform
to host certain Aptis software applications.
DEVELOPMENT OF BUSINESS
BCC entered the software market in June 1997 in conjunction with the
acquisition of Computer Resources Management, Inc. ("CRM"). At that time the
software division was re-named Billing Concepts Systems, Inc. (`BCS"). CRM had
developed and sold billing applications to the long distance and convergent
services markets. Additionally, in October 1998, BCC acquired Expansion Systems
Corp. ("ESC") and integrated it into BCS. ESC had developed a customer care and
billing application for ISPs that automates the registration of new Internet
subscribers and creates bills for customers' services. In December 1998, BCC
completed the merger of Communications Software Consultants, Inc. ("CommSoft").
CommSoft was an international software development and consulting firm
specializing in the telecommunications industry. In April 1999, BCC announced
that BCS would operate under the name Aptis. Through these actions, Aptis has
expanded its potential markets to include companies focused on providing
sophisticated broadband Internet Protocol ("IP") and enhanced data services.
INDUSTRY BACKGROUND
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 have grown
significantly and 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 such direct billing solutions through its software operations.
Increased competition has ISPs rushing to offer a proliferation of
services that did not exist a few years ago: on-line chat, e-commerce support,
broadband services, Voice over Internet Protocol (VoIP), on-line backup, MP3,
Web site design and marketing and application leasing and maintenance. Several
causes of this rush relate to the facts that customer need is acute and demand
is strong. Also, revenues from traditional dial-up services are dramatically
declining due in part to competition from free services. Bandwidth is difficult
to acquire for smaller ISPs, and their costs are steadily increasing.
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Adding new service offerings is a necessity to stay in business. Finding a
way to maintain high levels of accessibility to the Internet, developing new
avenues for generating revenue, and streamlining operations to lower costs are
the preeminent management challenges for ISPs. In light of the changing business
environment, ISPs are creating larger, more loyal customer bases and need to be
able to bill them.
New Internet services and the need for innovative billing options also has
added to the demand for customer care and billing systems. IP and enhanced
service providers are faced with commoditization of services, rapid introduction
of new and more complex services and demands to generate more revenues from new
and existing customers. Many of these services are being offered by companies
who already offer other communications and/or enhanced data services and who
want to combine usage onto a single customer account, which is known in the
industry as convergent billing. This demand for convergent billing of Internet,
enhanced data and communications services has driven growth and spending by
Internet and communications companies on customer care and billing solutions.
PRODUCTS AND SERVICES
With the expansion into the software development business in 1997, the
Company broadened its product offerings to include customer care and billing
solutions and entered additional markets not previously served. Aptis ICP TM
(Integrated Communications Product) is the Company's comprehensive software
suite that is a fully integrated, comprehensive and adaptable billing and
customer care solution designed to meet the evolving needs of integrated
communications providers, including and emphasizing the CLEC market and those
companies offering VoIP and/or enhanced data communications. Aptis ICP is a
Web-enabled, remotely accessible software solution that integrates existing
product technology. Aptis ICP has enhanced the convergent architecture model by
providing a common application that provides key functionality in all
communications industry segments and provides tools for order fulfillment,
service assurance and billing and rating. Aptis ICP enables virtually all
communications carriers (facilities-based, competitive, incumbent, resale,
wholesale or any combination) to facilitate growth and market expansion. As an
example, the hierarchical account structure inherent in the system easily
accommodates mergers and acquisitions, new market penetration and large,
multi-level corporate billing. In addition, the common application in Aptis ICP
provides the framework for optional software functionality to be added . Aptis
ICP offers components that deliver enhanced capabilities for every segment of
the communications industry, including Internet, cable television, local, long
distance and wireless. These components may be further customized to achieve
operational goals by adding tools for provisioning, polling, point-of-sale,
facilities inventory management, data transfer interfaces and more. Further,
open application programming interfaces (APIs) provide pre-integration with
other third-party applications.
With the acquisition of ESC in October 1998, Aptis added TotalBill TM to
its product suite. With TotalBill version 3.0, Aptis introduces a broader IP and
data focused product strategy that incorporates distributed server architecture,
multi-platform availability and a host of other features such as upgraded
hierarchical account structures, anytime billing and an automated workflow
engine. TotalBill 3.0 is a browser-based, Oracle billing and customer management
software solution specifically designed for Internet and enhanced data service
providers. Taking full advantage of a distributed server environment, TotalBill
provides separate registration, application, data and reports servers. This
architecture enables distributed workloads, ensures greater scalability and
allows for geographically dispersed service centers and allows Aptis to bring an
innovative measured-service billing solution to the emerging ASP (Application
Service Provider) market. With TotalBill version 3.0, Aptis is updating and
upgrading billing features such as hierarchical and anytime billing.
Hierarchical billing enables service providers the flexibility and scalability
needed to facilitate and manage complex billing scenarios for businesses with
dispersed and growing offices, departments and employees. Anytime billing
enables providers to generate bills via predetermined user intervals or by
individually processing bills on demand in order to meet customized billing
cycles. TotalBill 3.0 also will rate virtually any metered IP service or
scenario, including flat rate, usage based and volume discounting. TotalBill's
innovative standards-based workflow engine acts as a master process control to
provide customized provisioning and interfaces with internal and external
entities. TotalBill's workflow engine allows service providers to automate many
of the processes normally associated with billing and collecting revenues.
Instant-Reg TM, the customer profile management component of TotalBill
3.0, provides a highly flexible customer self-care and provisioning system that
can be incorporated into the provider's existing Internet Web site or in a
portal environment. This feature allows customers to register, self-maintain and
modify their profile, which frees internal resources for other tasks and reduces
expensive customer support costs.
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With the acquisition of CommSoft in December 1998, Aptis obtained
CommSoft's flagship product, which 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 collections. It is a suite of business operation software for local
telephone, long distance, paging, cellular and PCS services. More specifically,
the core modules of the product include Subscriber Management and Billing,
Rating and Call Plans, Customer Care, and Telephone Plant Inventory Systems. In
addition to the billing product, Aptis acquired modules for Carrier Access
Billing, Full Function Accounting and complete Inventory Management. CommSoft's
14 plus years of success with local and wireless telephone companies, coupled
with Aptis' 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 Aptis, the Company has a broader depth of telecom
functionality to offer its customers.
In 1998, Aptis 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 support to customers in the IP and communications
industry. The organization has entered into a number of long-term arrangements
to provide outsourced services and consulting services to the ICP and TotalBill
customers.
OPERATIONS
Aptis ICP and TotalBill are delivered to customers in a number of ways.
Aptis offers various outsourcing and facilities management options that allow
providers to take advantage of Aptis 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 use of the application in a defined
enterprise, and they acquire their own hardware and operations resources. In
most situations, Aptis provides additional services for the implementation,
conversion and training required to make the application operational from its
professional services staff. If a customer desires some unique enhancements to
the application, professional services staff provides the service at an
additional fee.
Aptis revenues are earned 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. Aptis revenues also
include retail sales of IBM AS/400 hardware and operating software.
CUSTOMERS
Aptis provides direct billing systems sales and development to the
following categories of communications services providers:
o Network Service Providers ("NSP"): Companies providing
business-to-business enhanced data services based on next generation network
architecture.
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 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. The local telephone company in the case of residential and
small commercial accounts bills these calls to the end user.
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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. The local telephone company in the case
of residential and small commercial accounts bills these calls to the end user.
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 Wireless Carriers: Carriers that provide direct dial telecommunications
services by means of cellular or PCS technology that is not dependent on
traditional landlines.
o Cable Companies: Facilities-based companies that possess their own
cable networks to provide cable television access and may also offer telephone
and Internet services.
In 1999, an aggressive marketing and advertising campaign was implemented
to increase industry understanding and awareness of Aptis' capabilities and
vision. As a means of highlighting Aptis' expanded capabilities, a new identity,
positioning and messaging were created. This new identity is consistently
pervasive through all advertising and marketing materials. A program designed to
insure high visibility and contact with the industry began in July 1998 and is
supported by advertising, public relations and participation in key industry
events. Aptis added significant direct sales resources to the organization,
industry experience, knowledgeable individuals and strategic partnerships with
other vendors serving the industry. Aptis will continue to pursue key marketing
relationships with companies providing complementary products and services.
Aptis maintains a direct sales force of fifteen people and accomplishes most of
its marketing efforts through active participation in Internet and
communications industry trade shows, educational seminars and workshops. The
Company advertises in trade journals and other industry publications.
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 services provided. Aptis plans to focus its
marketing efforts on licensing its state-of-the-art direct billing software to
such customers. The Company has targeted as likely candidates for such direct
billing products and services the following types of customers: network and
enhanced data service providers, Internet service providers, long distance
providers serving commercial accounts, cellular services providers, competitive
local access providers and cable television companies.
COMPETITION
The market for telecommunications billing systems and services is highly
competitive, and Aptis anticipates that this competition will increase. Aptis
competes with both independent providers of billing systems and services and
with the internal billing departments of telecommunications service providers.
Aptis expects that the continued growth and merging of the enhanced data,
Internet and communications 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. Aptis 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. Aptis also feels that its ability
to compete depends on a number of competitive factors outside its control. Some
of these factors include the development 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.
Aptis also competes with a number of companies that have substantially
greater financial, technical, sales and marketing resources, as well as greater
name recognition. As a result, the Company's competitors may be able to adapt
more quickly to emerging technologies, changes in customer requirements or to
devote greater resources to the promotion and sale of their products. The
Company does not currently hold any patents and relies upon a combination of
contractual
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non-disclosure obligations as well as statutory and common law copyright,
trademark and trade secret laws to establish and maintain its proprietary rights
to its products. Aptis believes that because of the rapid pace of technological
change in the enhanced data, Internet, communications 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.
RESEARCH AND DEVELOPMENT
Research and development expenses were $4.5 million, $2.1 million and $1.1
million in 1999, 1998 and 1997, respectively. Aptis is actively involved in
ongoing research and development efforts associated with creating new billing
modules and enhanced products related to its convergent billing software
platform for both telecommunications and Internet service providers. Aptis will
continue to significantly increase its investment in research and development
efforts and expects that research and development expenses will be approximately
$9 to $10 million in 2000.
INTERNET
Over the last five years, the Internet and the Worldwide Web have grown at
an explosive rate. The growth of the Internet is a global phenomenon that is
fundamentally changing the way business is conducted. The increase in the number
of Internet users, coupled with the proliferation of new types of on-line and
electronic commerce, or e-commerce, has fueled the emergence of new service
providers such as ISPs and Internet telephony providers. In addition,
traditional telecommunications carriers have entered the Internet market,
providing on-line and e-commerce services to both businesses and consumers. One
of the consequences of the widespread growth and acceptance of Web use is that
consumers are rapidly embracing the ability to pay their bills and conduct other
personal business over the Internet. This trend has generated a growing interest
by large national and regional bill senders to publish their bills
electronically. The Company has embraced the Internet phenomenon and addressed
it in its core LEC billing and Aptis businesses. Additionally, the Company has
invested in acquisition opportunities directly related to the Internet, as
discussed below.
In September 1998, BCC acquired 22% of the capital stock of Princeton eCom
Corporation ("PTC"), formerly known as Princeton Telecom Corporation. PTC,
founded in 1983 by a group of Princeton University professors, is a privately
held company headquartered in Princeton, New Jersey specializing in
comprehensive electronic bill presentment and payment services via the Internet
to financial institutions and large businesses. PTC's services eliminate the
need for companies to generate and mail paper bills as well as the need for
consumers to write and mail paper checks. PTC also provides electronic lockbox
(ELS) and credit card balance transfer services. Through September 30, 1999, the
Company acquired additional shares of PTC common stock, increasing the Company's
ownership to approximately 24% at September 30, 1999. In November 1999, the
Company announced that it recently signed an agreement to increase its ownership
interest in PTC to 27% with an additional equity investment of $2.6 million. The
Company also anticipates additional equity investments in PTC as PTC positions
itself for further growth.
In November 1999, the Company completed the acquisition of FIData, Inc., a
company located in San Antonio, Texas that provides Internet-based automated
loan approval products to the financial services industries. FIData was formed
in 1987 to provide the credit union industry with self-service technology. The
proprietary products of FIData facilitate Internet-based automated approval of
consumer loans. The FIData state-of-the-art technology is easily installed and
may rapidly change a lender's website into an interactive revenue and
self-service center. In addition to credit unions, the FIData products have
application in the banking, insurance, mortgage and retail markets. In
conjunction with the FIData transaction, the Company also completed the
acquisition of a company located in Austin, Texas that is developing an
Internet-based financial services website focused on the credit union industry
and its members.
As of the date of this report, the Company has invested $21.7 million, and
committed an additional $2.6 million of capital resources in the Internet arena
and plans to make further significant investments of capital in Internet-related
operations over the foreseeable future. The Company will continue to review
additional strategic Internet acquisition opportunities that will complement or
enhance its existing operations.
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EMPLOYEES
At September 30, 1999, the Company had 806 full-time employees and 22
part-time employees, as follows: LEC billing - 395 full-time and 18 part-time;
Aptis - 323 full-time and 4 part-time; Internet - 10 full-time; and corporate
office - 78 full-time employees. None of the Company's employees are represented
by a union. The company believes that its employee relations are good.
ITEM 2. PROPERTIES
At September 30, 1999, the Company occupied approximately 130,000 square
feet of space at 7411 John Smith Drive, San Antonio, Texas, which serves as a
customer service facility for LEC Billing and the corporate and operational
headquarters for the Company's LEC billing and Software divisions. The lease
expires in October 2006 and has certain expansion options, renewal options and
rights of first refusal. At September 30, 1999, the company's LEC billing
operations 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 a third LEC billing customer service
facility at 802 N. Carancahua, Corpus Christi, Texas, where it occupied
approximately 29,000 square feet at September 30, 1999, under a lease that
expires in September 2005. The Company's Software operations occupy
approximately 29,000 square feet in Austin, Texas, approximately 54,000 square
feet in Albany, New York and approximately 7,500 square feet in Glendale,
California under leases that expire at varying dates through 2008. The Company's
Internet operations are also headquartered at the leased premises in Austin. In
November 1999, the Company signed an agreement to lease approximately 75,000
square feet of office space in Austin, Texas that will eventually serve as the
headquarters for the Company's Software operations. This lease expires in 2010
and has certain renewal options. 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
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
The Company had a $1.0 million default judgment entered against it in
September 1999 as a result of a garnishment action in Wisconsin state court. The
Company was not alleged to have done anything wrong, and its liability is based
solely on a failure by former in-house counsel to timely answer the garnishment
lawsuit. The underlying judgment was against a former customer of the Company.
The class plaintiff's attempt to collect that judgment through moneys held by
the Company on behalf of its former customer gave rise to the garnishment action
against the Company. The Company entered into a Stipulation of Settlement in
this matter which will require a minimum final settlement amount of $0.8
million. During 1999, the Company recorded a charge that it believes is adequate
for the final settlement.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. Billing Concepts has and will continue to cooperate and engage the BCP
staff in good faith negotiations. The Company is unable to predict what action,
if any, the FTC will take regarding the BCP staff's proposed complaint or what,
if any, financial impact would result.
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The Company is involved in various other 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, litigation
or proceedings to which the Company is a party, including those described above,
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 occurs.
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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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
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, 1997, through December 10, 1999, 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.
HIGH LOW
---- ---
Fiscal Year Ended 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 $17 $10
2nd quarter $11 7/8 $7 15/16
3rd quarter $14 $9 7/8
4th quarter $11 3/16 $4 1/2
Fiscal Year Ending September 30, 2000:
1st quarter (through December 10, 1999) $7 1/8 $4 7/32
STOCKHOLDERS
At December 10, 1999, there were 38,538,371 shares of Common Stock
outstanding, held by 503 holders of record. The last reported sales price of the
Common Stock on December 10, 1999, was $7 1/8 per 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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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, 1999, 1998, 1997, 1996 and 1995, and the balance sheet data
at September 30, 1999, 1998, 1997, 1996 and 1995, presented below are derived
from the audited Consolidated Financial Statements of the Company. The data
presented below for the fiscal years ended September 30, 1999, 1998 and 1997,
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,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Operating revenues ......................................................... $181,324 $176,023 $132,237 $109,421 $ 84,104
Gross profit ............................................................... 71,805 67,845 49,802 39,046 30,578
Advance funding program income ............................................. 3,798 7,919 7,255 6,564 4,582
Advance funding program expense ............................................ 125 126 688 1,367 1,351
Special charges ............................................................ 1,529 2,000 21,252 0 0
Income from operations ..................................................... 23,521 40,266 14,285 29,041 22,486
Net income (5) ............................................................. 15,822 26,703 4,238 18,096 14,253
Basic net income per common share (5) ...................................... $ 0.43 $ 0.74 $ 0.13 -- --
Pro forma basic net income per common share (1) ............................ -- -- -- $ 0.57 $ 0.49
Weighted average common shares outstanding ................................. 37,116 35,844 33,525 -- --
Pro forma weighted average common shares outstanding (1) ................... -- -- -- 31,703 29,137
Diluted net income per common share (5) .................................... $ 0.42 $ 0.71 $ 0.12 -- --
Pro forma diluted net income per common share (1) .......................... -- -- -- $ 0.54 $ 0.45
Weighted average common shares and common share equivalents outstanding .... 37,685 37,488 35,092 -- --
Pro forma weighted average common shares and common share
equivalents outstanding (1) .............................................. -- -- -- 33,275 31,667
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital ............................................................ $ 73,553 $ 60,247 $ 28,015 $ 13,604 $ 17,361
Total assets ............................................................... 255,079 266,613 171,288 139,286 107,688
Long-term debt and capital leases, less current portion .................... 0 2,468 2,805 5,185 2,365
USLD's investment in and advances to BCC ................................... 0 0 0 0 21,387
Additional paid-in capital (2) ............................................. 63,771 60,028 42,905 19,628 0
Retained earnings (3) ...................................................... 48,213 34,141 7,438 3,200 0
SEPTEMBER 30,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
OPERATING DATA:
EBITDA (4) ................................................................. $ 32,850 $ 47,364 $ 18,352 $ 31,309 $ 23,805
</TABLE>
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(1)The per share and weighted average common shares and common share
equivalents outstanding data for the years ended September 30, 1996 and 1995
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)Without the effect of special and certain other charges and excluding its
Internet operations, the Company recorded net income of $21.3 million, $27.9
million and $21.9 million and diluted net income per common share of $0.57,
$0.80 and $0.66 for the years ended September 30, 1999, 1998 and 1997,
respectively.
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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.
RESULTS OF OPERATIONS - CONSOLIDATED
The following table presents certain items in the Company's Consolidated
Statements of Income as a percentage of total revenues:
YEAR ENDED SEPTEMBER 30,
1999 1998 1997
---- ---- ----
Operating revenues............................... 100.0% 100.0% 100.0%
Cost of revenues................................. 60.4 61.5 62.3
----- ----- -----
Gross profit..................................... 39.6 38.5 37.7
Selling, general and administrative expenses..... 19.5 13.1 11.4
Research and development......................... 3.2 1.9 1.3
Advance funding program income, net.............. (2.0) (4.4) (5.0)
Depreciation and amortization expense............ 5.1 4.0 3.1
Special charges.................................. 0.8 1.1 16.1
----- ----- -----
Income from operations........................... 13.0 22.8 10.8
Other income, net................................ 2.1 2.5 0.4
----- ----- -----
Income before provision for income taxes......... 15.1 25.3 11.3
Provision for income taxes....................... (6.4) (10.2) (8.0)
----- ----- -----
Net income....................................... 8.7% 15.1% 3.2%
===== ===== =====
The Company's revenues are derived primarily from the provision of billing
clearinghouse and information management services to telecommunications services
providers ("Local Exchange Carrier billing" or "LEC billing") by its LEC billing
division ("Billing"). Through its subsidiary, Aptis, Inc. ("Aptis"), the Company
also operates a software division ("Software") that develops, markets and
supports convergent billing and customer care software applications for
telecommunications and Internet service providers and provides direct billing
outsourcing services. In addition, the Company has Internet operations
("Internet") that include equity interests in Princeton eCom Corporation
("PTC"), formerly known as Princeton Telecom Corporation, and an
Internet-related company located in Austin, Texas. Total revenues for 1999 were
$181.3 million compared to $176.0 million in 1998 and $132.2 million in 1997,
representing increases of 3.0% and 33.1%, respectively. The increase in total
revenues from 1998 was primarily due to the increase in Aptis revenues while the
increase from 1997 was primarily attributable to the increase in LEC billing
revenues. Gross profit margin of 39.6% reported for 1999 compares to 38.5%
achieved in 1998 and 37.7% achieved in 1997. The improvement from year to year
is attributable to the growth of Aptis revenues as a percentage of total
revenues due to the higher margins associated with Aptis sales. The Company's
consolidated gross profit margin could increase in subsequent periods as a
result of an increased contribution of higher gross margin Aptis revenues.
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. SG&A expenses for 1999 were $35.3 million,
or 19.5% of revenues, compared to $23.0 million, or 13.1% of revenues, in 1998,
and $15.1 million in 1997, representing 11.4% of revenues. SG&A expenses as a
percentage of revenues increased from year to year primarily due to the Aptis
operations incurring a higher level of SG&A expenses as a percentage of revenue
than the Company as a whole. This increased level of SG&A for Aptis is necessary
as Aptis builds an infrastructure consistent with expected growth. As the
revenues generated by Aptis operations have increased as a percentage of total
revenue, the overall SG&A percentage has increased accordingly.
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. Depreciation and
amortization expense as a percentage of revenues was 5.1%,
19
<PAGE>
4.0% and 3.1% in 1999, 1998 and 1997, 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. 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's new facility in 1997
that serves as both a customer service center and the corporate and operational
headquarters of the Company and leasing an additional customer service center in
1998. During 1999, 1998 and 1997, the Company recognized $626,000, $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 was $23.5 million, $40.3 million and $14.3 million
in 1999, 1998 and 1997, respectively. Income from operations for 1999 includes
special charges of $1.5 million of expenses incurred in contemplation of a
proposed separation of the Company's LEC billing and software businesses into
two separate public companies. The proposed separation was terminated in the
fourth quarter of fiscal 1999. 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 for 1997
reflects special charges of $21.3 million incurred 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 13.8%, 23.9% and 26.9% of revenues in 1999, 1998
and 1997, respectively. The decrease in income from operations, exclusive of
special charges, as a percentage of revenues from year to year is attributable
to higher SG&A, research and development and depreciation expenses and lower net
advance funding income as a percentage of revenues, offset partly by a higher
gross profit margin.
Net other income of $3.9 million in 1999 compares to net other income of
$4.4 million in 1998 and $0.6 million in 1997. The increase in net other income
for both 1999 and 1998 from 1997 was primarily due to increased interest income
from short-term investments due to higher cash balances. The increase in
interest income for 1999 was offset by the Company's $1.8 million equity in the
loss of its investee, PTC, since the Company's initial investment in September
1998. Interest expense was also lower in 1999 and 1998 due to the paydown of
long-term debt.
The Company's effective tax rate was 42.3% in 1999, 40.3% in 1998 and
71.5% in 1997. The Company's effective tax rate is higher than the federal
statutory rate due to the inclusion of state income taxes (in addition to
federal income taxes) and certain deductions taken for financial reporting
purposes that are not deductible for federal income tax purposes. Exclusive of
nondeductible in-process research and development costs related to the
acquisition of CRM and PTC and nondeductible losses from its Internet
investments, the Company's effective tax rate would have been 39.3%, 38.7% and
41.0% in 1999, 1998 and 1997, respectively.
RESULTS OF OPERATIONS - LEC BILLING
The following table presents the operating results of the Company's LEC
billing division and as a percentage of related revenues for each year:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1999 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues ......................... $ 138,646 100.0% $ 147,542 100.0% $ 120,451 100.0%
Cost of revenues ........................... 87,763 63.3 92,761 62.9 75,472 62.7
--------- --------- --------- --------- --------- ---------
Gross profit ............................... 50,883 36.7 54,781 37.1 44,979 37.3
Selling, general and administrative expenses 9,873 7.1 7,540 5.1 6,299 5.2
Research and development ................... 1,246 0.9 1,168 0.8 594 0.5
Advance funding program income, net ........ (3,673) (2.6) (7,793) (5.3) (6,567) (5.5)
Depreciation and amortization expense ...... 5,170 3.7 3,999 2.7 2,292 1.9
Special and other charges .................. 4,443 3.3 -- -- --
--------- --------- --------- --------- --------- ---------
Income from operations ................... $ 33,824 24.3% $ 49,867 33.8% $ 42,361 35.2%
========= ========= ========= ========= ========= =========
</TABLE>
20
<PAGE>
OPERATING REVENUES
LEC billing fees charged by Billing 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 Billing to local
telephone companies for billing and collection. Processing fees also include any
charges assessed to Billing 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 Billing or as a fee charged for each billing inquiry made by end
users.
Including a bad debt write-off of $3.2 million in 1999, LEC billing
services revenues decreased $12.1 million, or 8.2%, in 1999 from 1998, and
increased $27.1 million, or 22.5%, in 1998 from 1997. The decrease in revenue
from 1998 was attributable to an overall decrease in the number of call records
processed, as well as the $3.2 million charge. The revenue increase from 1997
was primarily attributable to an increase in the number of telephone call
records processed and billed on behalf of direct dial long distance customers.
Despite the overall increase in revenue from 1997, the number of call records
processed for billing during 1998 and 1999 was negatively impacted by "slamming"
and "cramming" issues that have occurred in the long distance industry. 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 the consumer did not
knowingly authorize. These "slamming and cramming" issues have caused some of
the larger Local Exchange Carriers ("LECs") to affect the ability of certain of
Billing's customers to market certain services. Also, as a proactive measure,
Billing has taken action against certain customers that includes, but is not
limited to, the cessation of billing for certain new or existing products.
Management continues to take actions in order to mitigate the effects of
"slamming and cramming" issues on the call record volumes of its current
customer base. These actions have resulted in lower revenues for 1999 and 1998.
Telephone call record volumes were as follows:
YEAR ENDED
SEPTEMBER 30,
------------------
1999 1998 1997
----- ----- -----
(IN MILLIONS)
Direct dial long distance services .............. 599.0 612.6 510.3
Operator services ............................... 97.2 134.6 133.4
Enhanced billing services........................ 4.7 11.4 9.6
Billing management services...................... 230.4 329.1 342.1
Although billing management records decreased significantly from 1997 to
1999, 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
Billing's other customers.
COST OF REVENUES
Cost of revenues includes billing and collection fees charged to Billing
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. Billing achieves discounted billing costs due to its aggregated
volumes and can pass these discounted costs on to its customers.
Including the $3.2 million charge to revenue discussed above, the gross
profit margin for 1999 was 35.2% compared to 37.1% achieved in 1998 and 37.3%
achieved in 1997. The decrease in margin in 1999 from 1998 is primarily
attributable to the $3.2 million charge in 1999. Excluding this charge, gross
profit margin was 36.7% for 1999. The decrease in margin from 1998 was also
attributable to the loss of certain higher margin enhanced billing services
revenues. The decrease in these revenues is the result of actions to reduce the
incidence of slamming and cramming.
21
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Including the $3.2 million charge to revenue discussed above and a charge
of $1.2 million to SG&A in 1999 for a legal judgment, SG&A expenses for 1999
were $11.1 million or 8.2% of revenues, compared to $7.5 million, or 5.1% of
revenues in 1998, and $6.3 million in 1997, representing 5.2% of revenues. The
increase in SG&A as a percentage of revenue in 1999 was primarily due to the
overall decrease in revenue as well as the $1.2 million charge. Excluding this
charge and the $3.2 million charge to revenue discussed above, SG&A as a
percentage of revenue in 1999 was 7.1%.
Expenses related to certain corporate functions, such as treasury,
financial reporting, investor relations, legal, payroll, human resources and
management information systems, have not been fully charged to Billing, but are
included in the consolidated results of operations as general corporate
expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
Billing internally funds research and development activities with respect to
efforts associated with creating new and enhanced billing services products.
Research and development expenses in both 1999 and 1998 were $1.2 million
compared to $0.6 million in 1997. Billing intends to continue its research and
development efforts in the future and anticipates spending approximately $1.0
million during 2000 for such expenses.
ADVANCE FUNDING PROGRAM INCOME AND EXPENSE
Advance funding program income was $3.8 million in 1999 compared with $7.9
million in 1998 and $7.3 million in 1997. The year-to-year fluctuations were
primarily the result of the level of customer receivables financed under the
Company's advance funding program (see "Advance Funding Program and Receivable
Financing Facility" below). The quarterly average balance of purchased
receivables was $48.2 million, $83.0 million and $73.6 million in 1999, 1998 and
1997, respectively.
The decrease in advance funding program expense to $0.1 million in both
1999 and 1998 from $0.7 million in 1997 was attributable to the Company
financing all customer receivables during 1999 and 1998 with internally
generated funds rather than with funds borrowed through the Company's revolving
credit facility. The expense recognized during 1999 and 1998 represents unused
credit facility fees and is the minimum expense that the Company could have
incurred during these years.
INCOME FROM OPERATIONS
Including special and other charges, income from operations in 1999 was
$33.8 million, or 25.0% of revenues, compared to income from operations of $49.9
million, or 33.8% of revenues, in 1998 and $42.4 million, or 35.2% of revenues,
in 1997. The decrease in income from operations as a percentage of revenues from
year to year is attributable to lower net advance funding income and higher
operating expenses as a percentage of revenues, as well as a lower gross profit
margin. Excluding the $1.2 million charge to SG&A and the $3.2 million charge to
revenue discussed above, income from operations in 1999 was $38.3 million, or
27.6% of revenues.
22
<PAGE>
RESULTS OF OPERATIONS - SOFTWARE
The following table presents the operating results of the Company's
software division and as a percentage of related revenues for each year:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------
1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Software revenues .......................... $ 19,712 42.9% $ 10,067 35.3% $ 3,327 28.2%
Services revenues .......................... 19,011 41.4 9,589 33.7 4,661 39.6
Hardware revenues .......................... 7,198 15.7 8,825 31.0 3,798 32.2
-------- -------- -------- -------- -------- --------
Total operating revenues ................. 45,921 100.0 28,481 100.0 11,786 100.0
Cost of revenues ........................... 21,756 47.4 15,417 54.1 6,963 59.1
-------- -------- -------- -------- -------- --------
Gross profit ............................... 24,165 52.6 13,064 45.9 4,823 40.9
Selling, general and administrative expenses 10,932 23.8 5,495 19.3 2,015 17.1
Research and development ................... 4,479 9.8 2,109 7.4 1,067 9.1
Depreciation and amortization expense ...... 2,168 4.7 1,380 4.8 494 4.2
Special and other charges .................. 780 1.7 -- -- 21,252 180.3
-------- -------- -------- -------- -------- --------
Income (loss) from operations ............ $ 5,806 12.6% $ 4,080 14.3% $(20,005) (169.7)%
======== ======== ======== ======== ======== ========
</TABLE>
In addition to license and maintenance fees charged by Aptis for the use
of its billing software applications, fees are charged on a time and materials
basis for software customization and professional services. Processing fees for
direct billing services provided through Aptis' service bureau are assessed to
customers based on volume. Aptis' revenues also include retail sales of
third-party computer hardware and software.
Aptis revenues increased $17.4 million, or 61.2%, in 1999 from 1998, and
increased $16.7 million, or 141.7%, in 1998 from 1997. The increase in revenues
from the prior years was primarily attributable to the increase in license and
maintenance fees.
COST OF REVENUES
Cost of revenues includes the cost of third-party computer hardware and
software sold, and the salaries and benefits of software development, technical,
service bureau and professional service personnel who generate revenue from
contracted services.
Gross profit margin of 52.6% reported for 1999 compares to 45.9% achieved
in 1998 and 40.9% achieved in 1997. The improvement from year to year is
attributable to the growth of Aptis software license and maintenance fees as a
percentage of total revenues in 1999 and 1998. This growth served to improve
gross margin due to the higher margins associated with such revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Including a bad debt write-off of $0.8 million in 1999, SG&A expenses for
1999 were $11.7 million, or 25.5% of revenues, compared to $5.5 million, or
19.3% of revenues, in 1998, and $2.0 million in 1997, representing 17.1% of
revenues. SG&A expenses as a percentage of revenues increased from the prior
years primarily due to increased expenditures to provide the infrastructure
necessary to support the projected growth of the software business and increased
marketing expenses. The Company expects that marketing expenditures will
continue to significantly increase in light of Aptis' aggressive marketing
campaign.
Expenses related to certain corporate functions, such as treasury,
financial reporting, investor relations, legal, payroll, human resources and
management information systems, have not been fully charged to the Aptis
division, but are included in the consolidated results of operations as general
corporate expenses.
23
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in software development and related
expenses. Aptis is actively involved in ongoing research and development efforts
associated with creating new and enhanced products related to its convergent
billing software platform for both telecommunication and Internet service
providers. Research and development expenses in 1999 were $4.5 million compared
to $2.1 million in 1998 and $1.1 million in 1997. The Company intends to
significantly increase its research and development efforts in the future and
anticipates spending approximately $9 to $10 million during 2000 for such
expenses.
INCOME FROM OPERATIONS
Exclusive of special and other charges, income from operations in 1999 was
$6.6 million, or 14.3% of revenues, compared to income of $4.1 million, or 14.3%
of revenues, in 1998 and income of $1.2 million, or 10.6% of revenues, in 1997.
Income from operations as a percentage of revenues in 1999 reflected higher SG&A
and research and development expenses as a percentage of revenues, which were
offset by a higher gross profit margin. The increase in income from operations
as a percentage of revenues in 1998 from 1997 is attributable to a higher gross
profit margin, offset partly by higher operating expenses as a percentage of
revenues.
RESULTS OF OPERATIONS - INTERNET
The Company began its Internet operations with its initial investment in
PTC in September 1998. During 1999, in addition to recording its equity in the
net loss of PTC of $1.8 million, which is included in "Other Income," the
Company recorded $0.5 million of SG&A and R&D expenses related to its initial
investment in an Internet company located in Austin, Texas.
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 filed a Year 2000 Certification Request with ITAA (Information
Technology Association of America) in January 1999. The Company has installed
its Year 2000 compliant Billing Systems in its Service Bureau operation and made
a general release of such Billing Systems available in the second fiscal quarter
of 1999. The Company believes that all significant modifications and
replacements required to make its systems that perform LEC billing Year 2000
compliant were completed during April 1999.
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.
24
<PAGE>
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 approximately $3
million. As of September 30, 1999, the Company has spent approximately $1.5
million on capital expenditures for related hardware and software and incurred
and expensed approximately $1.0 million in personnel and other costs related to
the Year 2000 readiness process. Any additional personnel or other costs related
to this process will be expensed as incurred. The cost of Year 2000 readiness is
the best estimate of Company management and is believed to be reasonably
accurate.
In the event the Company's plan to address the Year 2000 problem was not
successfully 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 also will 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.
The Company has developed a contingency plan for implementation in the
event its Programs and Systems are not Year 2000 ready prior to December 31,
1999. Such contingency plans are modeled upon the Company's Disaster Recovery
Plan. The Disaster Recovery Plan outlines a strategy for reduced continued
operations following a natural disaster that 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $134.0 million at September 30,
1999, from $121.0 million at September 30, 1998. Large fluctuations in daily
cash balances are normal due to the large amount of customer receivables that
the Company collects on behalf of its LEC billing customers. The Company's
working capital position increased to $73.6 million at September 30, 1999, from
$60.2 million at September 30, 1998, and its current ratio was 1.5:1 and 1.4:1
at September 30, 1999 and 1998, respectively. Net cash provided by operating
activities was $22.1 million, $40.6 million and $30.7 million in 1999, 1998 and
1997, respectively, and primarily reflected net income from 1997 to 1999,
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 March 20, 2000. Borrowings under
the credit facility are limited to a portion of the Company's eligible
receivables. Management is currently in negotiations with its lenders to renew
the line of credit and expects that the credit facility will be further renewed
with similar or more favorable terms. No amounts were borrowed by the Company
under its credit facility at either September 30, 1999 or 1998. At September 30,
1999, the amount available under the Company's credit facility was $42.0
million.
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, 1999 and 1998.
25
<PAGE>
Capital expenditures amounted to approximately $9.5 million in 1999 and
related primarily to the purchase of computer equipment and software. The
Company anticipates capital expenditures before acquisitions, if any, of
approximately $8 million in fiscal 2000 largely related to expenditures for
furniture, fixtures, leasehold improvements, computer software and hardware
upgrades. 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 Computer Resources
Management, Inc. ("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 a 22% ownership position in PTC,
which is a privately held company headquartered in Princeton, New Jersey
specializing in comprehensive electronic bill presentment and payment services
via the Internet to financial institutions and large businesses. Through
September 30, 1999, the Company acquired additional shares of PTC common stock,
increasing the Company's ownership position to approximately 24% at September
30, 1999. The Company accounts for its investment in PTC under the equity
method. In November 1999, the Company announced that it recently signed an
agreement to increase its ownership interest in PTC to 27% with an additional
equity investment of $2.6 million. The Company also anticipates additional
equity investments in PTC as PTC positions itself for further growth.
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 was
issued in connection with this transaction.
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 business combination has been accounted for as a pooling of
interests. The consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of CommSoft.
In July 1999, the Company acquired a 60% equity interest in an Internet
company located in Austin, Texas that is developing an Internet-based financial
services website focused on the credit union industry and its members. In
November 1999, the Company acquired the remaining 40% of this company through
the related acquisition of FIData, Inc., a company located in San Antonio, Texas
that provides Internet-based automated loan approval products to the financial
services industries. The total consideration for these acquisitions is
approximately $4.0 million in cash, 1,100,000 shares of the Company's common
stock and debt assumption of $0.9 million.
As of the date of this report, the Company has invested $21.7 million, and
committed an additional $2.6 million of capital resources in the Internet arena
and plans to make further significant investments of capital in Internet-related
operations over the foreseeable future. The Company will continue to review
additional strategic Internet acquisition opportunities that will complement or
enhance its existing operations.
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.
26
<PAGE>
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, 1999 and
1998.
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 call record volumes of most customers
using the LEC billing services 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, direct dial long distance billing revenues for the
Company's first and second fiscal quarters ending December 31 and March 31,
respectively, historically have been higher than other quarters after adjusting
for new business. The seasonal effect caused by the Company's direct dial long
distance customers has been mitigated to some extent, however, as a result of
the Company's business from operator services customers. Typically, the
Company's operator services customers experience decreased call record volumes
in the fall and winter months as pay telephone usage declines due to inclement
weather. Consequently, the Company has historically reported lower operator
services billing revenues in the first and second fiscal quarters. The Company's
software and Internet operations are not significantly affected by seasonality.
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.
27
<PAGE>
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 is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of September 30, 1999 because the Company's
intention is to maintain a liquid portfolio to take advantage of investment
opportunities. The Company does not use derivative financial instruments in its
operations.
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.
PAGE
----
Report of Independent Public Accountants................................. 29
Consolidated Balance Sheets at September 30, 1999 and 1998............... 30
Consolidated Statements of Income for the Years Ended September 30,
1999, 1998 and 1997.................................................... 31
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997...................................... 32
Consolidated Statements of Cash Flows for the Years Ended September 30,
1999, 1998 and 1997.................................................... 33
Notes to Consolidated Financial Statements............................... 34
28
<PAGE>
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,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
November 17, 1999
29
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................................................................... $ 134,007 $ 120,972
Accounts receivable, net of allowance for doubtful accounts of $1,662
(1999) and $374 (1998) ........................................................................ 44,053 36,163
Purchased receivables ........................................................................... 31,375 64,477
Prepaids and other .............................................................................. 3,776 4,055
--------- ---------
Total current assets ..................................................................... 213,211 225,667
Property and equipment ............................................................................ 45,969 34,681
Less accumulated depreciation and amortization .................................................. (20,101) (11,235)
--------- ---------
Net property and equipment ............................................................... 25,868 23,446
Equipment held under capital leases, net of accumulated amortization of $963 (1998) ............... 0 441
Other assets, net of accumulated amortization of $4,013 (1999) and $2,796 (1998) .................. 8,470 9,059
Investment in equity affiliate .................................................................... 7,530 8,000
--------- ---------
Total assets ............................................................................. $ 255,079 $ 266,613
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................................................... $ 21,397 $ 19,053
Accounts payable - billing customers ............................................................. 90,089 118,599
Accrued liabilities ............................................................................. 28,172 26,757
Current portion of long-term debt and obligations under capital leases .......................... 0 1,011
--------- ---------
Total current liabilities ................................................................ 139,658 165,420
Long-term debt and obligations under capital leases, less current portion ......................... 0 2,468
Deferred income taxes ............................................................................. 1,971 2,949
Other liabilities ................................................................................. 1,315 1,635
--------- ---------
Total liabilities ........................................................................ 142,944 172,472
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, 1999 or 1998 ......................................... 0 0
Common stock, $0.01 par value, 75,000,000 shares authorized, 37,378,216 shares
issued and outstanding at September 30, 1999; 36,642,890 shares issued and
outstanding at September 30, 1998 ........................................................... 374 366
Additional paid-in capital ........................................................................ 63,771 60,028
Retained earnings ................................................................................. 48,213 34,141
Deferred compensation ............................................................................. (223) (394)
--------- ---------
Total stockholders' equity ............................................................... 112,135 94,141
--------- ---------
Total liabilities and stockholders' equity ............................................... $ 255,079 $ 266,613
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
30
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues .................................................... $ 181,324 $ 176,023 $ 132,237
Cost of revenues ...................................................... 109,519 108,178 82,435
--------- --------- ---------
Gross profit .......................................................... 71,805 67,845 49,802
Selling, general and administrative expenses .......................... 35,311 22,997 15,104
Research and development .............................................. 5,788 3,277 1,661
Advance funding program income ........................................ (3,798) (7,919) (7,255)
Advance funding program expense ....................................... 125 126 688
Depreciation and amortization expense ................................. 9,329 7,098 4,067
Special charges (see Note 6) .......................................... 1,529 2,000 21,252
--------- --------- ---------
Income from operations ................................................ 23,521 40,266 14,285
Other income (expense):
Interest income ..................................................... 5,805 4,460 998
Interest expense .................................................... (16) (269) (537)
Equity in net loss of investee ...................................... (1,809) 0 0
Other, net .......................................................... (100) 241 132
--------- --------- ---------
Total other income, net .......................................... 3,880 4,432 593
--------- --------- ---------
Income before provision for income taxes .............................. 27,401 44,698 14,878
Provision for income taxes ............................................ (11,579) (17,995) (10,640)
--------- --------- ---------
Net income ............................................................ $ 15,822 $ 26,703 $ 4,238
========= ========= =========
Basic:
Net income per common share ........................................... $ 0.43 $ 0.74 $ 0.13
========= ========= =========
Weighted average common shares outstanding ............................ 37,116 35,844 33,525
========= ========= =========
Diluted:
Net income per common share and common share equivalents .............. $ 0.42 $ 0.71 $ 0.12
========= ========= =========
Weighted average common shares and common share equivalents outstanding 37,685 37,488 35,092
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED DEFERRED
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1996 ......... 32,585 $ 326 $ 19,628 $ 3,200 $ 0 $ 23,154
Issuance of common stock ............. 686 6 9,831 0 0 9,837
Exercise of stock options and warrants 1,618 16 11,956 0 0 11,972
Issuance of stock options ............ 0 0 1,490 0 (1,490) 0
Compensation expense ................. 0 0 0 0 540 540
Net income ........................... 0 0 0 4,238 0 4,238
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1997 ......... 34,889 348 42,905 7,438 (950) 49,741
Issuance of common stock ............. 47 1 716 0 (170) 547
Exercise of stock options and warrants 1,707 17 16,407 0 0 16,424
Compensation expense ................. 0 0 0 0 726 726
Net income ........................... 0 0 0 26,703 0 26,703
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1998 ......... 36,643 366 60,028 34,141 (394) 94,141
Issuance of common stock ............. 268 3 694 (1,750) 0 (1,053)
Issuance of stock options ........... 0 0 84 0 (84) 0
Exercise of stock options and warrants 467 5 2,965 0 0 2,970
Compensation expense ................. 0 0 0 0 255 255
Net income ........................... 0 0 0 15,822 0 15,822
--------- --------- --------- --------- --------- ---------
Balances at September 30, 1999 ......... 37,378 $ 374 $ 63,771 $ 48,213 $ (223) $ 112,135
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................................................... $ 15,822 $ 26,703 $ 4,238
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................. 9,329 7,098 4,067
Deferred compensation ......................................................... 255 726 540
(Gain) loss on disposition of equipment ....................................... 6 (114) 141
Equity in net loss of investee ................................................ 1,809 0 0
Noncash special charges ....................................................... 0 2,000 21,252
Changes in operating assets and liabilities:
Increase in accounts receivable ........................................... (7,810) (8,567) (8,232)
(Increase) decrease in prepaids and other ................................. 284 (532) (1,811)
Increase (decrease) in trade accounts payable ............................. 1,994 (903) 6,923
Increase in accrued liabilities ........................................... 1,355 11,890 3,002
Increase (decrease) in deferred income taxes .............................. (650) 1,140 88
Increase (decrease) in other liabilities .................................. (320) 1,136 499
--------- --------- ---------
Net cash provided by operating activities .......................................... 22,074 40,577 30,707
Cash flows from investing activities:
Purchases of property and equipment .............................................. (9,548) (12,472) (18,073)
Purchase of software development company, net of cash acquired ................... 0 0 (8,403)
Investments in net assets of equity affiliate .................................... (1,339) (10,000) 0
Collections of purchased receivables, net ........................................ 33,102 5,698 745
Collections of proceeds due (payments made) to billing customers, net ............ (28,510) 43,433 15,541
Collections of (payments for) sales taxes due on behalf of billing customers, net (914) 3,692 4,249
Proceeds from sale of equipment .................................................. 0 538 127
Other investing activities ....................................................... (1,005) (1,159) (1,065)
--------- --------- ---------
Net cash provided by (used in) investing activities ................................ (8,214) 29,730 (6,879)
Cash flows from financing activities:
Payments on revolving line of credit for purchased receivables, net .............. 0 0 (19,010)
Proceeds from issuance of long-term debt ......................................... 0 600 4,404
Payments on long-term debt ....................................................... (3,199) (795) (4,278)
Payments on capital leases ....................................................... (280) (451) (2,831)
Proceeds from issuance of common stock ........................................... 2,654 8,485 6,578
--------- --------- ---------
Net cash provided by (used in) financing activities ................................ (825) 7,839 (15,137)
Net increase in cash and cash equivalents .......................................... 13,035 78,146 8,691
Cash and cash equivalents, beginning of year ....................................... 120,972 42,826 34,135
--------- --------- ---------
Cash and cash equivalents, end of year ............................................. $ 134,007 $ 120,972 $ 42,826
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
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") provide billing clearinghouse
and information management services (Local Exchange Carrier "LEC" billing
services) in the United States to the telecommunications industry. Through its
subsidiary, Aptis, Inc. ("Aptis"), the Company develops, licenses and supports
convergent billing systems for telecommunications and Internet service providers
and provides direct billing outsourcing services. The Company also provides
Internet-based automated loan approval products to the financial services
industries and is developing an Internet-based financial services website
focused on the credit union industry and its members.
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 and majority owned subsidiaries. The Company's 24% investment
in the capital stock of Princeton eCom 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.
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.
REVENUE RECOGNITION POLICIES
The Company recognizes revenue from its LEC billing services when records
that are to be billed and collected by the Company are processed. Revenue from
the sale of convergent 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 software operations is recognized in the period that the
services are provided. The Company recorded bad debt expense of $1,774,000,
$292,000, and $166,000 and recorded bad debt write-offs of $486,000, $56,000,
and $28,000 to its allowance for doubtful accounts for 1999, 1998 and 1997,
respectively.
LEC BILLING SERVICES
The Company provides LEC billing services to telecommunications services
providers through billing agreements with the local telephone carriers, which
maintain the critical database of end-user names and addresses of the billed
parties. Bills are generated by the local telephone carriers 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
carriers, 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.
34
<PAGE>
SOFTWARE SERVICES
Through its subsidiary, Aptis, the Company develops, licenses and supports
convergent billing systems for telecommunications and Internet 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. Aptis 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.
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 $17,952,000 and $18,866,000 at September 30, 1999 and 1998,
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 $1.0
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 1999
and 1998, the Company recognized approximately $1.0 million and $420,000,
respectively, 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.
35
<PAGE>
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.
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 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, 1999
------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ---------------- --------
<S> <C> <C> <C>
BASIC EPS
Net income available to common stockholders $ 15,822,000 37,116,000 $ 0.43
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Stock options 569,000
----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 15,822,000 37,685,000 $ 0.42
================ ================ ========
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
------------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ---------------- --------
BASIC EPS
Net income available to common stockholders $ 26,703,000 35,844,000 $ 0.74
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 65,000
Stock options 1,579,000
----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $ 26,703,000 37,488,000 $ 0.71
================ ================ ========
</TABLE>
36
<PAGE>
<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 $4,238,000 33,525,000 $ 0.13
========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 190,000
Stock options 1,377,000
-----------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions $4,238,000 35,092,000 $ 0.12
========== ================ ========
</TABLE>
Certain options to purchase 5,534,834 shares of common stock at prices
ranging from $5.71 to $29.00 per share were outstanding for a portion of 1999.
Certain options to purchase 2,591,500 shares of common stock at prices ranging
from $13.00 to $29.00 per share were outstanding for a portion of 1998. These
options were not included in the computation of the diluted EPS for 1999 and
1998, respectively, because the options' exercise price was greater than the
average market price of the common shares.
NEW ACCOUNTING STANDARDS
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 (see Note 14 for related disclosures).
STATEMENTS OF CASH FLOWS
Cash payments and non-cash activities during the periods indicated were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash payments for interest ....................................... $ 306 $ 370 $ 1,405
Cash payments for income taxes ................................... 11,694 9,587 9,128
Noncash investing and financing activities:
Tax benefit recognized in connection with stock option exercises 1,089 8,484 5,765
Assets acquired in connection with acquisition ................. 0 0 20,512
Liabilities assumed in connection with acquisition ............. 0 0 2,596
Common stock issued in connection with acquisition ............. 0 0 9,466
</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.
37
<PAGE>
NOTE 3. DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations is comprised of the
following:
SEPTEMBER 30,
-------------
1999 1998
----- ------
(IN THOUSANDS)
Fixed interest rate term notes...................... $ 0 $3,479
Less - Current portion.............................. 0 (1,011)
----- ------
Long-term debt, less current portion $ 0 $2,468
===== ======
The Company had various fixed rate term notes with rates ranging from 5.5%
to 8.0% due in varying amounts through August 2003. The loans were repaid in
full during the year ended September 30, 1999.
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 was originally scheduled to terminate on
December 20, 1999, but has been extended until March 20, 2000 (see Note 15).
Borrowings under the credit facility are limited to a portion of the Company's
eligible receivables. No amounts were borrowed by the Company under its credit
facility at either September 30, 1999 or 1998. At September 30, 1999, the amount
available under the Company's credit facility was $42.0 million.
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, 1999.
NOTE 4. LEASES AND CHARTERS
The Company leases certain 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, 1999, 1998 and 1997, was $3,918,000,
$2,948,000 and $1,880,000, respectively. Future minimum lease payments under
non-cancelable operating leases and this charter as of September 30, 1999 are as
follows:
(IN THOUSANDS)
--------------
Year Ending September 30,
2000......................................................... $ 4,505
2001......................................................... 4,183
2002......................................................... 4,037
2003......................................................... 3,415
2004......................................................... 3,178
Thereafter................................................... 9,127
-------
Total minimum lease payments............................... $28,445
=======
38
<PAGE>
NOTE 5. ACQUISITIONS
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 period
presented. The unaudited pro forma information is based on the historical
information for the period 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 the period presented.
YEAR ENDED SEPTEMBER 30, 1997
-----------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Operating revenues........................ $136,980
Net income................................ $4,734
Net income per common share - basic....... $0.14
Net income per common share - diluted..... $0.13
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 period 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 period 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 connection with the acquisition of CRM, the Company acquired certain
intangible assets including developed technology, customer relationships and
goodwill. In connection with this allocation, $13.0 million was expensed as a
charge for the purchase of in-process research and development. In performing
this allocation, the Company considered, among other factors, CRM's technology
research and development projects in-process at the date of acquisition. With
regard to the in-process research and development projects, the Company
considered factors such as the stage of development of the technology at the
time of acquisition, the importance of each project to the overall development
plan, alternative future use of the technology and the projected incremental
cash flows from the projects when completed and any associated risks.
39
<PAGE>
The purchased in-process research and development focused on next
generation products. The fair value assigned to these projects was $13.0
million. The research and development projects included: (i) java and internet
technologies, (ii) advanced provisioning systems; and (iii) local & convergent
billing systems. Due to its specialized nature, the in-process research and
development projects had no alternative future use, either for re-deployment
elsewhere in the business or in liquidation, in the event the project failed.
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisal was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisal also considered the
fact that the existing know-how diminishes in value over time as new
technologies are developed and changes in market conditions render current
products and methodologies obsolete. The assumptions underlying the cash flow
projections used were derived primarily from investment banking reports,
historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
are expected to be in line with historical results. The Capital Asset Pricing
Model was used to determine the cost of capital (discount rate) for CRM's
in-process projects. Due to the technological and economic risks associated with
the developmental projects, discount rates of 20% to 27.5% were used to discount
cash flows from the in-process products. The Company believes that the foregoing
assumptions used in the forecasts were reasonable at the time of the
acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these reasons,
actual results may vary from projected results. The most significant and
uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.
In September 1998, the Company acquired 22% of the capital stock of PTC
for $10 million. PTC is a privately held company located in Princeton, New
Jersey specializing in electronic bill publishing over the Internet and advanced
payment solutions. Through September 1999, the Company has acquired additional
shares of PTC stock, increasing the Company's ownership position to
approximately 24% at September 30, 1999. The Company accounts for this
investment under the equity method of accounting.
In connection with the acquisition of the 22% ownership position in PTC,
the Company acquired certain intangible assets, including developed technology,
customer relationships and goodwill. In connection with this allocation, $2.0
million was expensed as a charge for the purchase of in-process research and
development. In performing this allocation, the Company considered, among other
factors, PTC's research and development projects in-process at the date of
acquisition. With regard to the in-process research and development projects,
the Company considered factors such as the stage of development of the
technology at the time of acquisition, the importance of each project to the
overall development plan, alternative future use of the technology and the
projected incremental cash flows from the projects when completed and any
associated risks.
The purchased in-process research and development focused on next
generation Internet-based bill publishing and payment systems and solutions. The
fair value assigned to these projects was approximately $2.0 million. Due to its
specialized nature, the in-process research and development projects had no
alternative future use, either for re-deployment elsewhere in the business or in
liquidation, in the event the project failed.
40
<PAGE>
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisal was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisal also considered the
fact that the existing know-how diminishes in value over time as new
technologies are developed and changes in market conditions render current
products and methodologies obsolete. The assumptions underlying the cash flow
projections used were derived primarily from investment banking reports,
historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
are expected to be in line with historical results. The Capital Asset Pricing
Model was used to determine the cost of capital (discount rate) for PTC's
in-process projects. Due to the technological and economic risks associated with
the developmental projects, a discount rate of 20% was used to discount cash
flows from the in-process projects. The Company believes that the foregoing
assumptions used in the forecasts were reasonable at the time of the
acquisition. No assurance can be given, however, that the underlying assumptions
used to estimate sales, development costs or profitability, or the events
associated with such projects, will transpire as estimated. For these reasons,
actual results may vary from projected results. The most significant and
uncertain assumptions relating to the in-process projects relate to the
projected timing of completion and revenues attributable to each project.
In October 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 was issued in
connection with this transaction, which has been accounted for as a pooling of
interests combination. The consolidated financial statements for periods prior
to the combination have not been restated to include the accounts and results of
operations of ESC due to the transaction not having a significant impact on the
Company's prior period financial position or results of operations as none of
ESC's assets, liabilities, revenues, expenses or income (loss) exceeded 2% of
the Company's consolidated respective amounts as of or for any of the three
years in the period ended September 30, 1998.
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 business combination has been accounted for as a pooling of
interests. The consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of CommSoft. The revenues and net income from CommSoft from October 1, 1998 to
the date of the merger were approximately $3.8 million and $0.4 million,
respectively.
In July 1999, the Company acquired a 60% equity interest in an Internet
company located in Austin, Texas that is developing an Internet-based financial
services website focused on the credit union industry and its members. The
accounts of this company have been included in the Company's consolidated
financial statements since the date of acquisition. Subsequent to September 30,
1999, the Company acquired the remaining 40% of this company through a related
acquisition (see Note 15).
NOTE 6. SPECIAL CHARGES
During the third and fourth quarter of fiscal 1999, the Company recognized
special charges in the amount of $1.5 million. These charges relate to
professional services expenses incurred in contemplation of a proposed
separation of the Company's LEC Billing and Software businesses into two
separate public companies. The proposed separation was discontinued in the
fourth quarter of fiscal 1999.
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). 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.
41
<PAGE>
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.
No cash dividends were paid on the Company's common stock during fiscal
1999, 1998 or 1997.
NOTE 8. STOCK OPTIONS AND STOCK PURCHASE WARRANTS
The Company has 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 14,500,000
and 1,300,000 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.
Option activity for the years ended September 30, 1999, 1998 and 1997 is
summarized as follows:
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------
Outstanding, September 30, 1996 .............. 4,715,759 $ 5.19
Granted .................................... 2,597,934 $ 15.72
Canceled ................................... (180,314) $ 6.99
Exercised .................................. (1,443,192) $ 3.98
----------
Outstanding, September 30, 1997 .............. 5,690,187 $ 10.27
Granted .................................... 2,049,821 $ 10.65
Canceled ................................... (234,051) $ 17.01
Exercised .................................. (1,506,283) $ 4.96
----------
Outstanding, September 30, 1998 .............. 5,999,674 $ 11.46
Granted ................................... 3,069,139 $ 6.18
Canceled .................................. (620,001) $ 15.72
Exercised ................................. (467,643) $ 10.33
----------
Outstanding, September 30, 1999 .............. 7,981,169 $ 9.53
==========
At September 30, 1999, 1998 and 1997, stock options to purchase an
aggregate of 3,273,766, 2,068,374 and 2,050,366 shares were exercisable and had
weighted average exercise prices of $10.89, $10.29 and $5.99 per share,
respectively.
42
<PAGE>
Stock options outstanding and exercisable at September 30, 1999, 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>
$1.98 - $6.95 2,466,374 6.5 $ 4.44 409,624 $ 4.10
$8.06 - $9.97 2,875,629 4.5 $ 8.40 1,616,638 $ 8.16
$10.19 - $16.84 2,599,166 4.2 $ 15.35 1,215,836 $ 16.53
$17.44 - $29.00 40,000 4.3 $ 26.11 31,668 $ 21.56
------------- -------------
7,981,169 5.0 $ 9.53 3,273,766 $ 10.89
============= =============
</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 1999, 1998 and
1997, the Company recognized $255,000, $726,000 and $540,000, 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").
Had compensation expense for the Company's stock options granted and ESPP
purchases in 1999, 1998 and 1997 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):
YEAR ENDED SEPTEMBER 30,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Pro forma net income ................... $ 12,146 $ 23,533 $ 2,699
Pro forma net income per common share:
Basic .......................... $ 0.33 $ 0.66 $ 0.08
Diluted ........................ $ 0.32 $ 0.63 $ 0.08
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:
YEAR ENDED SEPTEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- ----------
Expected volatility ............... 66% 25% 24%
Expected dividend yield ........... 0% 0% 0%
Expected life ..................... 2.5 years 2.5 years 2.4 years
Risk-free interest rate ........... 5.35% 5.21% 6.05%
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 $3.56 and $6.18 for
the year ended September 30, 1999, $2.29 and $10.65 for the year ended September
30, 1998, and $3.55 and $16.21 for the year ended September 30, 1997. 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 pro forma compensation expense over the
options' vesting periods.
43
<PAGE>
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 1999 and no warrants outstanding at September 30, 1999.
NOTE 9. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1999 1998 1997
------------ ----------- ----------
(IN THOUSANDS)
Federal:
Current.................... $ 12,346 $ 15,625 $ 9,696
Deferred................... (1,777) 907 (146)
------------ ----------- ----------
$ 10,569 $ 16,532 $ 9,550
=========== =========== ==========
State:
Current.................... $ 1,010 $ 1,463 $ 1,090
=========== =========== ==========
Total:
Current.................... $ 13,356 $ 17,088 $ 10,786
Deferred................... (1,777) 907 (146)
------------ ----------- ----------
$ 11,579 $ 17,995 $ 10,640
=========== =========== ==========
The provision for income taxes for fiscal 1999, 1998 and 1997 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,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax provision at statutory rate....... $ 9,590 $ 15,644 $ 5,207
Increases in taxes resulting from:
Nondeductible research and development expenses..... 0 700 4,536
Nondeductible losses in equity investees............ 819 0 0
State income taxes, net of federal benefit.......... 657 951 709
Other, net.......................................... 513 700 188
----------- ---------- ----------
Provision for income taxes............................ $ 11,579 $ 17,995 $ 10,640
=========== ========== ==========
</TABLE>
44
<PAGE>
The tax effect of significant temporary differences, which comprise the
deferred tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1999 1998
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Expense provisions......................................... $ 267 $ 123
Deferred tax liabilities:
Acquisition of nondeductible intangibles.................... (1,351) (1,680)
Revenue recognition differences............................. (460) (374)
Bad debt tax write-off provisions........................... 0 (1,018)
Tax depreciation and amortization in excess of book........ (427) 0
------------ ----------
Total deferred tax liabilities................................ (2,238) (3,072)
------------ ----------
Net deferred tax liability....................................$ (1,971) $ (2,949)
============ ==========
</TABLE>
NOTE 10. BENEFIT 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 1999, 1998 or 1997. During fiscal 1999, 1998 and 1997, the Company's
matching contributions totaled approximately $635,000, $392,000 and $186,000,
respectively.
The Billing Concepts Corp. Employee Stock Purchase Plan ("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 41,326 and
56,360 shares of its common stock in January and July 1999 pursuant to the ESPP
at purchase prices of $8.55 and $6.06, respectively. 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
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
45
<PAGE>
The Company had a $1.0 million default judgment entered against it in
September 1999 as a result of a garnishment action in Wisconsin state court. The
Company was not alleged to have done anything wrong, and its liability is based
solely on a failure by former in-house counsel to timely answer the garnishment
lawsuit. The underlying judgment was against a former customer of the Company.
The class plaintiff's attempt to collect that judgment through moneys held by
the Company on behalf of its former customer gave rise to the garnishment action
against the Company. The Company entered into a Stipulation of Settlement in
this matter which will require a minimum final settlement amount of $0.8
million. During 1999, the Company recorded a charge that it believes is adequate
for the final settlement.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. Billing Concepts has and will continue to cooperate and engage the BCP
staff in good faith negotiations. The Company is unable to predict what action,
if any, the FTC will take regarding the BCP staff's proposed complaint or what,
if any, financial impact would result.
The Company is involved in various other 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, litigation
or proceedings to which the Company is a party, including those described above,
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 occurs.
The Company is obligated to pay certain local telephone companies a total
of approximately $5.2 million, $3.4 million and $0.9 million during fiscal 2000,
2001 and 2002, respectively, for future minimum usage charges under billing and
collection agreements that, unless automatically renewed, expire at varying
dates through the end of fiscal 2002. 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 future 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:
YEAR ENDED
SEPTEMBER 30,
-------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Sales to USLD ................................... $0 $0 $3,166
Purchases from USLD.............................. 0 0 1,705
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, 1999 and 1998 was
$250,000. The Company had a $69,000 note receivable bearing interest at 7.0%
from an officer of the Company at September 30, 1999. The Company had a $250,000
note receivable bearing interest at 7.50% from an officer of the Company at
September 30, 1998.
46
<PAGE>
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
years ended September 30, 1999 and 1998, the Company paid approximately $727,000
and $278,000, respectively, in fees related to this agreement.
During 1999, the Company entered into an agreement to guarantee the terms
of a lease of PTC (see Note 5) for office space in Princeton, New Jersey. The
terms of the lease require aggregate payments of approximately $11.8 million
through December 2009. The Company does not believe it is probable that the
lease guarantee will be exercised.
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
In thousands, except per share amounts
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 JUNE 30, 1999 MARCH 31, 1999 DECEMBER 31, 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Operating revenues ..................... $ 44,185 $ 43,392 $ 45,818 $ 47,929
Income from operations ................. 2,214 2,851 8,577 9,877
Net income ............................. 680 2,287 5,851 7,004
Net income per common share - basic .... $ 0.02 $ 0.06 $ 0.16 $ 0.19
Net income per common share - diluted .. $ 0.02 $ 0.06 $ 0.16 $ 0.19
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- -------------------- --------------------
Operating revenues ..................... $ 47,457 $ 43,538 $ 44,167 $ 40,861
Income from operations ................. 8,704 9,468 11,369 10,725
Net income ............................. 5,567 6,700 7,431 7,005
Net income per common share - basic .... $ 0.15 $ 0.19 $ 0.21 $ 0.20
Net income per common share - diluted .. $ 0.15 $ 0.18 $ 0.20 $ 0.19
</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).
NOTE 14. BUSINESS SEGMENTS
The Company conducts operations in three principal segments - LEC Billing
("Billing"), Software and Internet.
The Company's LEC Billing segment provides billing clearinghouse and
information management in the United States to the telecommunications industry.
In general, Billing offers four types of LEC billing services under different
billing and collection agreements with the local telephone companies. First, the
Company performs the billing of "1+" long distance telephone calls to individual
residential customers and small commercial accounts. Second, the Company offers
LEC billing services to customers providing operator services largely to the
hospitality, penal and private pay telephone industries. Third, the Company
performs enhanced LEC billing services whereby it bills nonregulated
telecommunications products and services. Finally, in addition to its
full-service LEC billing product, Billing also offers billing management
services to customers who have their own billing and collection agreements with
the local telephone companies.
Through its Aptis Software segment, the Company develops, licenses and
supports convergent billing and customer care systems for telecommunications and
Internet service providers and provides direct billing outsourcing services.
Aptis' 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. In addition to its software
products, a full range of professional services are also available through the
Company. The services that are offered include consulting,
47
<PAGE>
development and systems operations services centered on the Internet and
communications industry and its software products. Aptis also provides ongoing
support, maintenance and training related to customers' billing and customer
care systems. Aptis is also a reseller of IBM AS/400 hardware that is used as
the hardware platform to host certain Aptis software applications.
The Company's Internet segment provides Internet-based automated loan
approval products to the financial services industries. The Company's Internet
operations are also currently developing an Internet-based financial services
website focused on the credit union industry and its members. The Company also
has an approximately 24% equity interest in PTC, a privately held company
specializing in comprehensive electronic bill presentment and payment services
via the Internet to financial institutions and large businesses.
Included in Corporate Overhead are general corporate expenses that have
not been charged to the operating segments as well as unallocated fixed assets.
Information as to the operations of the Company in different business
segments is set forth below based on the nature of the products and services
offered. The Company evaluates performance based on several factors, of which
the primary financial measures are segment revenues and operating income. The
accounting policies of the business segments are the same as those described in
the summary of significant accounting policies (see note 2).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
SEPTEMBER 30,
-----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating revenues
LEC Billing.............................................. $135,403 $147,542 $120,451
Software................................................. 45,921 28,481 11,786
-------- -------- --------
Total operating revenues.............................. $181,324 $176,023 $132,237
Income (loss) from operations
LEC Billing.............................................. $ 33,824 $ 49,867 $ 42,361
Software................................................. 5,806 4,080 (20,005)
Internet................................................. (532) (2,000) 0
Corporate Overhead....................................... (15,577) (11,681) (8,071)
-------- -------- --------
Total income from operations.......................... $ 23,521 $ 40,266 $ 14,285
Income before provision for income taxes
Income from operations................................... $ 23,521 $ 40,266 $ 14,285
Interest income (expense), net........................... 5,789 4,191 461
Equity in net loss of investee........................... (1,809) 0 0
Other.................................................... (100) 241 132
-------- -------- --------
Income before provision for income taxes.............. $ 27,401 $ 44,698 $ 14,878
Interest income (expense), net
LEC Billing.............................................. $ 5,779 $ 4,361 $ 554
Software................................................. 26 (66) 40
Corporate Overhead....................................... (16) (104) (133)
-------- -------- --------
Total interest income (expense), net.................. $ 5,789 $ 4,191 $ 461
Depreciation and amortization
LEC Billing.............................................. $ 5,170 $ 3,999 $ 2,292
Software................................................. 2,168 1,380 494
Corporate Overhead....................................... 1,991 1,719 1,281
-------- -------- --------
Total depreciation and amortization................... $ 9,329 $ 7,098 $ 4,067
Total assets
LEC Billing.............................................. $204,462 $226,941 $146,896
Software................................................. 30,511 18,228 12,657
Internet................................................. 7,791 8,000 0
Corporate Overhead ...................................... 12,315 13,444 11,734
-------- -------- --------
Total assets.............................................. $255,079 $266,613 $171,287
</TABLE>
48
<PAGE>
NOTE 15. SUBSEQUENT EVENTS (UNAUDITED)
In November 1999, the Company completed the acquisition of FIData, Inc., a
company located in San Antonio, Texas that provides Internet-based automated
loan approval products to the financial services industries. In conjunction with
the FIData transaction, the Company also completed the acquisition of the
remaining 40% of an Internet company located in Austin, Texas that is developing
an Internet-based financial services website focused on the credit union
industry and its members (see Note 5). The total consideration for these
acquisitions is approximately $4.0 million in cash, 1,100,000 shares of the
Company's common stock and debt assumption of $0.9 million.
During the first quarter of fiscal 2000, the Company signed an agreement
to increase its ownership in PTC to 27% with an additional $2.6 million equity
investment (see Note 5).
In November 1999, the Company signed an agreement to lease approximately
75,000 square feet of office space in Austin, Texas that will eventually serve
as the headquarters for the Company's Software operations. This lease expires in
2010 and has certain renewal options. Under the terms of the lease agreement,
the Company is obligated to pay an aggregate minimum rent of $13.5 million over
the original term of the lease.
In December 1999, the Company's current credit facility that was
originally scheduled to terminate on December 20, 1999 was extended until March
20, 2000 (see Note 3). Management is currently in negotiations with its lenders
to renew the line of credit and expects that the credit facility will be further
renewed with similar or more favorable terms.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The information required by this item is not applicable.
49
<PAGE>
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 Compliance" 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
March 22, 2000 (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 "Related Transactions" of the Company's
Definitive Proxy Statement.
50
<PAGE>
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.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
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 (incorporated by
reference from Exhibit 2.2 to September 30, 1998, Form 10-K)
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 (incorporated by reference from
Exhibit 3.3 to September 30, 1998, Form 10-K)
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)
51
<PAGE>
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)
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 August
31, 1999 (filed herewith)
10.9 - Form of Option Agreement between Billing Concepts Corp. and its
employees under the 1996 Employee Comprehensive Stock Plan
(incorporated by reference from Exhibit 10.9 to September 30, 1998,
Form 10-K)
10.10 - Amended and Restated 1996 Non-Employee Director Plan of BCC, amended
as of August 31, 1999 (filed herewith)
10.11 - Form of Option Agreement between Billing Concepts Corp. and
non-employee directors (incorporated by reference from Exhibit 10.11
to September 30, 1998, Form 10-K)
10.12 - BCC's 1996 Employee Stock Purchase Plan, amended as of January 30,
1998 (incorporated by reference from Exhibit 10.12 to September 30,
1998, Form 10-K)
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.
(incorporated by reference from Exhibit 10.17 to September 30, 1998,
Form 10-K)
10.19 - Employment Agreement dated January 15, 1998 between Billing Concepts
Corp. and Kelly E. Simmons (incorporated by reference from Exhibit
10.19 to September 30, 1998, Form 10-K)
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)
10.23 - 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),
52
<PAGE>
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 (incorporated by reference from Exhibit 10.25 to
September 30, 1998, Form 10-K), and Second Amendment to Credit
Agreement dated September 29, 1998 (incorporated by reference from
Exhibit 10.25 to September 30, 1998, Form 10-K), and Third Amendment
to Credit Agreement dated April 30, 1999 (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), as
amended by First Amendment to Stock Pledge Agreement dated June 1,
1997 (filed herewith) and Second Amendment to Stock Pledge Agreement
dated December 1, 1998 (filed herewith)
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)
10.33 - Office Building Lease Agreement dated November 11, 1999 between
Prentiss Properties Acquisition Partners, L.P. and Aptis, Inc.
(filed herewith)
21.1 - Amended List of Subsidiaries (filed herewith)
23.1 - Consent of Arthur Andersen LLP (filed herewith)
27.1 - Financial Data Schedule (filed herewith)
(b) REPORTS ON FORM 8-K
None.
53
<PAGE>
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 15, 1999
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 15th day of December,
1999.
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE TITLE
/S/ PARRIS H. HOLMES, JR. Chairman of the Board and Chief Executive
Parris H. Holmes, Jr. Officer (Principal Executive Officer)
/S/ DAVID P. TUSA Senior Vice President and Chief Financial Officer
David P. Tusa (Principal Financial Officer)
/S/ LEE COOKE
Lee Cooke Director
/S/ JAMES E. SOWELL
James E. Sowell Director
/S/ THOMAS G. LOEFFLER
Thomas G. Loeffler Director
/S/ LARRY A.DAVIS
Larry A. Davis Director
</TABLE>
54
EXHIBIT-10.08
BILLING CONCEPTS CORP.
1996 EMPLOYEE COMPREHENSIVE STOCK PLAN
(AMENDED AS OF AUGUST 31, 1999)
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
<PAGE>
"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
7directors prior to such transaction or who subsequently became directors and
whose election, or nomination for election by the Company's stockholders, was
approved by a vote of at least two thirds of the directors then still in office
who were directors prior to such transaction), or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 70% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement of sale or disposition by the Company of all or
substantially all of the Company's assets.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Committee administering the Plan described
in Section 3 hereof.
(h) "Common Stock" means the Company's common stock, par value $.01
per share.
(i) "Continuous Status as an Employee" means that the employment
relationship with any one or more of (i) the Company, (ii) any Parent, (iii) any
Subsidiary or (iv) USLD has not been terminated or interrupted.
(j) "Date of Grant" means the date on which an Award is granted
under an Award Agreement executed by the Company and a Participant pursuant to
the Plan.
(k) "Disinterested Person" means a "disinterested person" as such
term is defined in Rule 16b-3 promulgated under the Exchange Act or any
successor provision.
(l) "Effective Date" means the effective date of this Plan specified
in Section 14 hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as it
may be amended from time to time.
(n) "Good Reason" shall mean the occurrence of any of the following
events: (a) removal from the principal office held by the Participant on the
date of the most recent Award, or a material reduction in the Participant's
authority or responsibility, including, without limitation, involuntary removal
from the Board, but not including termination of the Participant for Cause; or
(b) the Company otherwise commits a material breach of this Plan, or the
-2-
<PAGE>
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.
(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-
<PAGE>
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 Fourteen Million Five Hundred Thousand
(14,500,000). If any part of an Award under this Plan shall be forfeited, the
shares of Common Stock subject to the forfeited portion of such Award shall
again be available for grant under the Plan.
5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to
any Participant as the Committee shall determine from time to time. In
determining the Participants to whom Awards shall be granted and the number of
shares to be covered by each such Award, the Committee may take into account the
nature of the services rendered by the respective Participants, their present
and potential contributions to the Company's success and such other factors as
the Committee in its sole discretion shall deem relevant. A Participant who has
been granted an Award under the Plan may be granted an additional Award or
Awards under the Plan, in the Committee's sole discretion.
6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may make
Awards of stock options (including Incentive Stock Options and stock options
that do not qualify as Incentive Stock Options) as described in Sections 7 and 8
hereof, and of Restrictive Stock, as described in Section 10 hereof.
-4-
<PAGE>
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 five hundred thousand
(500,000) shares of Common Stock during any one fiscal year of the Company and
(2) the aggregate fair market value (determined in accordance with Paragraph
8(a) of the Plan as of the time the option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by a
Participant in any calendar year (under all plans of the Company and of any
Parent or Subsidiary) shall not exceed $100,000.
8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan
shall be evidenced by an Award Agreement executed by the Company and the
applicable Participant and shall contain such terms and be in such form as the
Committee may from time to time approve, subject to the following limitations
and conditions:
(a) OPTION PRICE. The option exercise price per share with respect
to each option shall be determined by the Committee, but shall in no instance be
less than the par value of the shares subject to the option. In addition, the
option exercise price per share with respect to Incentive Stock Options granted
hereunder shall in no instance be less than the fair market value of the shares
subject to the option as determined by the Committee. For the purposes of this
Paragraph 8(a), fair market value shall be, where applicable, the closing price
of the Common Stock on the Date of Grant of such option as reported on any
national securities exchange on which the Common Stock may be listed. If the
Common Stock is not listed on a national securities exchange but is publicly
traded on the NASDAQ Stock Market's National Market or on another automated
quotation system, the fair market value shall be the closing price of the Common
Stock on the Date of Grant, or if traded on the NASDAQ Small Cap or NASDAQ
Over-The-Counter market, the fair market value shall be the mean between the
closing bid and ask prices on any such system or market. If the Common Stock was
not traded on the Date of Grant of such option, the nearest preceding date on
which there was a trade shall be substituted. Notwithstanding the foregoing,
however, fair market value shall be determined consistent with Code Section
422(b)(4) or any successor provisions. The Committee may permit the option
exercise price to be payable by transfer to the Company of Common Stock owned by
the option holder with a fair market value at the time of the exercise equal to
the option exercise price.
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<PAGE>
(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 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.
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<PAGE>
(h) CONSISTENCY WITH CODE. Notwithstanding any other provision in
this Plan to the contrary, the provisions of all Award Agreements relating to
Incentive Stock Options pursuant to the Plan shall not violate the requirements
of the Code applicable to the Incentive Stock Options authorized hereunder.
9. EXERCISE OF OPTION.
(a) Any option granted hereunder shall be exercisable according to
the terms of the Plan and at such times and under such conditions as determined
by the Committee and set forth in the Award Agreement. An option shall be deemed
exercised when (i) the Company has received written notice of such exercise in
accordance with the terms of the Award Agreement, (ii) full payment of the
aggregate option exercise price of the shares as to which the option is
exercised has been made and (iii) arrangements that are satisfactory to the
Committee in its sole discretion have been made for the Participant's payment to
the Company of the amount, if any, that the Committee determines to be necessary
for the Company to withhold in accordance with applicable federal or state
income tax withholding requirements.
(b) Upon Retirement or other termination of the Participant's
Continuous Status as an Employee, other than (a) a termination that is either
(i) for Cause or (ii) voluntary on the part of a Participant and without the
written consent of the Company, a Parent, any Subsidiary or USLD or (b) a
termination by reason of death, the Participant may (unless otherwise provided
in his Award Agreement) exercise his option at any time within three (3) months
after such termination of the Participant's Continuous Status as an Employee (or
within one (1) year after termination of the Participant's Continuous Status as
an Employee due to permanent and total disability within the meaning of Code
Section 22(e)(3)), or within such other time as the Committee shall authorize,
but in no event may the Participant exercise his Option after ten (10) years
from the Date of Grant thereof (or such lesser period as may be specified in the
Award Agreement), and only to the extent of the number of shares for which his
options were exercisable by him at the date of the termination of the
Participant's Continuous Status as an Employee. In the event of the termination
of the Continuous Status as an Employee of a Participant to whom an option has
been granted under the Plan that is either (i) for Cause or (ii) voluntary on
the part of the Participant and without written consent, any option held by him
under the Plan, to the extent not previously exercised, shall forthwith
terminate on the date of such termination of the Participant's Continuous Status
as an Employee. Options granted under the Plan shall not be affected by any
change of employment so long as the holder continues to be an employee of the
Company, a Subsidiary or a Parent, or with respect to a USLD Participant, USLD.
The Award Agreement may contain such provisions as the Committee shall approve
with respect to the effect of approved leaves of absence.
(c) In the event a Participant to whom an option has been granted
under the Plan dies during, or within three (3) months after the Retirement or
other termination of, the Participant's Continuous Status as an Employee, such
option (unless it shall have been previously terminated pursuant to the
provisions of the Plan or unless otherwise provided in his Award Agreement) may
be exercised (to the extent of the entire number of shares covered by the option
whether or not purchasable by the Participant at the date of his death) by the
executor or administrator of the optionee's estate or by the person or persons
to whom the optionee shall
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<PAGE>
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 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.
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<PAGE>
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.
(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
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<PAGE>
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.
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
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<PAGE>
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>
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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(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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EXHIBIT-10.10
AMENDED AND RESTATED
1996 NON-EMPLOYEE DIRECTOR PLAN
BILLING CONCEPTS CORP.
(AMENDED AS OF AUGUST 31, 1999)
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>
(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 ONE MILLION THREE HUNDRED THOUSAND
(1,300,000) 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;
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(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>
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 seventh (7th) 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>
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>
(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
EXHIBIT-10.25
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "THIRD AMENDMENT") is made
and entered into as of the 30th day of April, 1999, 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"); CONCEPTS ACQUISITION CORP., a Delaware corporation
("CAC") (Parent Company, ESBI, BCSI, and CAC 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 further amend the
Credit Agreement to redefine the term "Change in Executive Management."
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 Third Amendment shall refer to this Third
Amendment as a whole and not to any particular provision of this Third
Amendment.
<PAGE>
2. AMENDMENTS. The definition of "Change in Executive Management" in
ANNEX B of the Credit Agreement is hereby amended to read in its
entirety as follows:
"CHANGE IN EXECUTIVE MANAGEMENT" means that any
of Parris H. Holmes, Jr., Kelly E. Simmons or Alan W.
Saltzman shall cease to be an executive officer of
Parent Company.
3. In order to induce the Agent, the Issuing Bank and the Banks to enter
into this Third 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 Third 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. CAC covenants and agrees that, as to the Affiliate Guaranty executed
and delivered by CAC 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).
8. 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).
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<PAGE>
9. 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.
10. Each Loan Document is hereby amended and modified to the extent
necessary to give full force and effect to the terms of this Third Amendment,
and each such Loan Document shall hereafter be construed and interpreted after
giving full force and effect to the terms of this Third Amendment. As amended,
modified and supplemented pursuant to this Third Amendment, Borrower, Parent
Company, ESBI, BCSI and CAC 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.
11. In the event that any one or more of the provisions contained in this
Third 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 Third Amendment shall not be impaired in any way.
12. When required or implied by the context used, defined terms used
herein shall include the plural as well as the singular, and vice versa.
13. This Third 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 Third 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 Third 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.
14. This Third 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 CAC 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.
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<PAGE>
15. This Third 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.
16. This Third Amendment constitutes a Loan Document.
17. Upon execution of this Third Amendment by the Banks, Borrower, Parent
Company, ESBI, BCSI and CAC shall deliver to the Agent, in form and substance
satisfactory to the Agent, the certificates and documents described on ANNEX A.
IN WITNESS WHEREOF, the parties hereto have caused this Third 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 VP & CFO
PARENT COMPANY:
BILLING CONCEPTS CORP.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
GUARANTORS:
ENHANCED SERVICES BILLING, INC.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-4-
<PAGE>
BILLING CONCEPTS CORP.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
BILLING CONCEPTS SYSTEMS, INC.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
CONCEPTS ACQUISITION CORP.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
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, Vice President
-5-
<PAGE>
ANNEX A
1. Borrower, Parent Company, ESBI, BCSI and CAC shall have provided to the
Agent a certificate signed by the secretary of such corporation, which
secretary's office and signature shall be confirmed by another officer of such
corporation, dated as of the effective date of this Third Amendment attaching
thereto or containing therein, and certifying as to the following: (i) corporate
resolutions, as in effect and neither revoked nor rescinded, duly adopted by the
board of directors of such corporation authorizing the execution, delivery and
performance of this Third Amendment; and (ii) names, incumbency and specimen
signatures of the officers of such corporation authorized to execute and deliver
this Third Amendment on behalf of such corporation.
2. All other documents requested by the Agent in connection with this
Third Amendment.
-6-
EXHIBIT-10.30
FIRST AMENDMENT TO
STOCK PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PLEDGE AGREEMENT ("AMENDMENT") is made and
entered into as of the 1st day of June 1997, between BILLING INFORMATION
CONCEPTS CORP., a Delaware corporation ("PLEDGOR") and THE FROST NATIONAL BANK,
a national banking association ("FROST"), as agent (the "AGENT"), for the equal
and ratable benefit of the financial institutions which are now or hereafter
parties to the hereinafter described Credit Agreement (collectively, the
"BANKS").
RECITALS
A. Frost Bank, individually, as the Issuing Bank and the Agent, and the
other Banks have heretofore entered into a Credit Agreement dated as of December
20, 1996 (as it may hereafter be amended or otherwise modified from time to
time, the "CREDIT AGREEMENT"), with BILLING CONCEPTS, INC., a company organized
under the laws of the State of Delaware, formerly known as BILLING INFORMATION
CONCEPTS, INC., ("BORROWER") and Pledgor.
B. Pledgor and CRM ACQUISITION CORP., a corporation organized under the
laws of the State of Delaware and a Subsidiary of Pledgor, ("PURCHASER") desire
to consummate the merger (the "MERGER") contemplated in the Plan of Merger and
Acquisition Agreement (the "MERGER AGREEMENT") dated as of June 1, 1997, among
COMPUTER RESOURCES MANAGEMENT, INC., a corporation organized under the laws of
the State of Texas, ("SELLER"), Purchaser, Pledgor and Michael A. Harrelson.
Pursuant to the terms of the Merger Agreement, (i) Purchaser shall be the
surviving corporation and (ii) the name of Purchaser after the Merger shall be
"Computer Resources Management, Inc."
C. Pursuant to the terms and provisions of the Credit Agreement, Pledgor
and Borrower must obtain the consent of the Banks to the Merger.
D. It was a condition precedent to the making of the Loans and issuing of
Letters of Credit by the Banks pursuant to the terms and conditions set forth in
the Credit Agreement that the Obligations be secured by a perfected and
first-priority Lien in and to the all the outstanding shares of capital stock of
each existing and future Subsidiary of Pledgor.
E. It is a condition precedent to the consent of the Banks to the Merger
that the Grantor shall execute and deliver this Amendment which amends the Stock
Pledge Agreement to include all the outstanding shares of capital stock of
Purchaser.
<PAGE>
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 Stock Pledge 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. SCHEDULE I attached to the Stock Pledge Agreement is
hereby amended to read in its entirety as set forth in SCHEDULE I
attached hereto.
3. 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.
4. When required or implied by the context used, defined terms used herein
shall include the plural as well as the singular, and vice versa.
5. 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.
6. This Amendment shall be binding upon and inure to the benefit of all
parties hereto and their respective successors and assigns; provided, however,
that Pledgor may not, without the prior written consent of all of the Banks,
assign any rights, powers, duties or obligations hereunder.
7. 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.
8. This Amendment constitutes a Loan Document.
-2-
<PAGE>
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:
ENHANCED 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]
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<PAGE>
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
-4-
<PAGE>
SCHEDULE I
TO
STOCK PLEDGE AGREEMENT
STOCK
NAME OF ISSUER CLASS CERTIFICATE PAR VALUE NUMBER
OF STOCK NUMBER OF SHARES PERCENTAGES
- -------------------- -------- ----------- --------- --------- -----------
Billing Information Common C7 No Par 100,000 100%
Concepts, Inc. Value
Enhanced Services Common 2 $.01 1,000 100%
Billing, Inc.
Inter-Lata Aviation, Common 2 $.01 1,000 100%
Inc.
Computer Resources ______ _______ _______ _______ 100%
Management, Inc.
-5-
<PAGE>
SECOND AMENDMENT TO
STOCK PLEDGE AGREEMENT
THIS SECOND AMENDMENT TO STOCK PLEDGE AGREEMENT (this "AMENDMENT") is made
and entered into as of the 1st day of December, 1998, between BILLING CONCEPTS
CORP., a Delaware corporation formerly known as Billing Information Concepts
Corp. ("PLEDGOR"), and THE FROST NATIONAL BANK, a national banking association
("FROST"), as agent (the "AGENT"), for the equal and ratable benefit of the
financial institutions which are now or hereafter parties to the hereinafter
described Credit Agreement (collectively, the "BANKS").
RECITALS
A. Frost, individually, as the Issuing Bank and the Agent, and the other
Banks have heretofore entered into a Credit Agreement dated as of December 20,
1996 (as it may hereafter be amended or otherwise modified from time to time,
the "CREDIT AGREEMENT"), with BILLING CONCEPTS, INC., a company organized under
the laws of the State of Delaware, formerly known as Billing Information
Concepts, Inc. ("BORROWER"), and Pledgor.
B. Pledgor and CONCEPTS ACQUISITION CORP., a corporation organized under
the laws of the State of Delaware and a Subsidiary of Pledgor, ("PURCHASER")
desire to consummate the merger (the "MERGER") contemplated in the Plan of
Merger and Acquisition Agreement (the "MERGER AGREEMENT") executed on December
14, 1998, to be effective as of December 1, 1998, among COMMUNICATIONS SOFTWARE
CONSULTANTS, INC., a corporation organized under the laws of the State of New
York ("SELLER"), Purchaser, Pledgor and Larry A. Davis. Pursuant to the terms of
the Merger Agreement, (i) Purchaser shall be the surviving corporation and (ii)
the name of Purchaser after the Merger shall be "Concepts Acquisition Corp."
C. Pursuant to the terms and provisions of the Credit Agreement, Pledgor
and Borrower must obtain the consent of the Banks to the Merger.
D. It was a condition precedent to the making of the Loans and issuing of
Letters of Credit by the Banks pursuant to the terms and conditions set forth in
the Credit Agreement that the Obligations be secured by a perfected and
first-priority Lien in and to the all the outstanding shares of capital stock of
each existing and future Subsidiary of Pledgor.
E. It is a condition precedent to the consent of the Banks to the Merger
that the Grantor shall execute and deliver this Amendment which amends the Stock
Pledge Agreement dated December 20, 1996 (as amended or otherwise modified from
time to time, the "STOCK PLEDGE AGREEMENT"), executed by Pledgor in favor of the
Agent for the equal and ratable benefit of the Banks, to include all the
outstanding shares of capital stock of Purchaser.
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
<PAGE>
which are hereby acknowledged, the parties hereto agree that the terms and
provisions of the Stock Pledge 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 Stock Pledge 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. SCHEDULE I attached to the Stock Pledge Agreement is
hereby amended to read in its entirety as set forth in SCHEDULE I
attached hereto.
3. 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.
4. When required or implied by the context used, defined terms used herein
shall include the plural as well as the singular, and vice versa.
5. 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.
6. This Amendment shall be binding upon and inure to the benefit of all
parties hereto and their respective successors and assigns; provided, however,
that Pledgor may not, without the prior written consent of all of the Banks,
assign any rights, powers, duties or obligations hereunder.
7. 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.
8. This Amendment constitutes a Loan Document.
[SIGNATURES ON FOLLOWING PAGES]
-2-
<PAGE>
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.
PLEDGOR:
BILLING CONCEPTS CORP., formerly known as Billing
Information Concepts Corp.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
BORROWER:
BILLING CONCEPTS, INC., formerly known as Billing
Information Concepts, Inc.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
GUARANTORS:
ENHANCED SERVICES BILLING, INC.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
BILLING CONCEPTS SYSTEMS, INC., formerly known as
Computer Resources Management, Inc.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
-3-
<PAGE>
CONCEPTS ACQUISITION CORP.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
BILLING CONCEPTS CORP., formerly known as Billing
Information Concepts Corp.
By: /S/ KELLY E. SIMMONS
Name: KELLY E. SIMMONS
Title: EXECUTIVE VP & CFO
BANKS:
THE FROST NATIONAL BANK
Individually, as the Issuing Bank and as the Agent
By: /S/ GREGG M. CHINN
Name: GREGG M. CHINN
Title: SENIOR VICE PRESIDENT
NATIONSBANK, N.A., successor to The Boatmen's
National Bank of St. Louis
By: /S/ STEVEN A. LINTON
Name: STEVEN A. LINTON
Title: VICE PRESIDENT
-4-
<PAGE>
SCHEDULE I
TO
STOCK PLEDGE AGREEMENT
STOCK
NAME OF ISSUER CLASS CERTIFICATE PAR VALUE NUMBER
OF STOCK NUMBER OF SHARES PERCENTAGES
- ------------------- -------- ----------- --------- --------- -----------
Billing Information Common C7 No Par 100,000 100%
Concepts, Inc. Value
Enhanced Services Common 2 $.01 1,000 100%
Billing, Inc.
Inter-Lata Common 2 $.01 1,000 100%
Aviation, Inc.
Computer Resources Common C-1 $.01 1,000 100%
Management, Inc.
Concepts Common 1 $.01 1,000 100%1
Acquisition Corp.
-5-
EXHIBIT 10.33
" " " " " " " " " " " " " " " " " " " " " " " " "
LEASE AGREEMENT
BETWEEN
PRENTISS PROPERTIES ACQUISITION PARTNERS, L. P.,
A DELAWARE LIMITED PARTNERSHIP,
(Landlord)
AND
APTIS, INC., dba APTIS SOFTWARE
A DELAWARECORPORATION
(Tenant)
1601 S. MoPac Expressway
Austin, Texas
Dated: ______, 1999
" " " " " " " " " " " " " " " " " " " " " " " " "
i
<PAGE>
TABLE OF CONTENTS - LEASE AGREEMENT
ARTICLE 1 BASIC LEASE INFORMATION AND CERTAIN DEFINITIONS.............1
ARTICLE 2 PREMISES AND QUIET ENJOYMENT................................4
ARTICLE 3 TERM; COMMENCEMENT DATE; DELIVERY AND ACCEPTANCE OF
PREMISES....................................................3
ARTICLE 4 RENT........................................................4
ARTICLE 5 OPERATING COSTS.............................................6
ARTICLE 6 PARKING.....................................................9
ARTICLE 7 SERVICES OF LANDLORD........................................7
ARTICLE 8 ASSIGNMENT AND SUBLETTING...................................8
ARTICLE 9 REPAIRS....................................................12
ARTICLE 10 ALTERATIONS................................................13
ARTICLE 11 LIENS......................................................10
ARTICLE 12 USE AND COMPLIANCE WITH LAWS...............................14
ARTICLE 13 DEFAULT AND REMEDIES.......................................11
ARTICLE 14 INSURANCE..................................................16
ARTICLE 15 DAMAGE BY FIRE OR OTHER CAUSE..............................17
ARTICLE 16 CONDEMNATION...............................................13
ARTICLE 17 INDEMNIFICATION............................................18
ARTICLE 18 SUBORDINATION AND ESTOPPEL CERTIFICATES....................19
ARTICLE 19 SURRENDER OF THE PREMISES..................................20
ARTICLE 20 LANDLORD'S RIGHT TO INSPECT................................15
ARTICLE 21 SECURITY DEPOSIT...........................................21
ARTICLE 22 BROKERAGE..................................................21
ARTICLE 23 OBSERVANCE OF RULES AND REGULATIONS........................21
ARTICLE 24 NOTICES....................................................16
ARTICLE 25 MISCELLANEOUS..............................................17
ARTICLE 26 SUBSTITUTION SPACE.........................................24
ARTICLE 27 OTHER DEFINITIONS..........................................24
ARTICLE 28 OPTION RENEWALS............................................25
ii
<PAGE>
EXHIBITS AND RIDERS
The following Exhibits and Riders are attached hereto and by this
reference made a part of this Lease:
EXHIBIT A - FLOOR PLAN OF THE PREMISES
EXHIBIT B - THE LAND
EXHIBIT C - LEASEHOLD IMPROVEMENTS
ATTACHMENT 1 BASE PREMISES CONDITION
ATTACHMENT 2 TENANT FINISH READY CONDITION
ATTACHMENT 3 HVAC DESIGN CRITERIA
EXHIBIT D - FORM OF COMMENCEMENT NOTICE
RIDER NO. 1 - RULES AND REGULATIONS
RIDER NO. 2 SCHEDULE OF JANITORIAL SERVICES
RIDER NO.3 PARKING SCHEDULE
iii
<PAGE>
INDEX OF DEFINED TERMS
Definitions of certain terms used in this Lease are found in the following
sections:
TERM LOCATION OF DEFINITION
Additional Rent Section 1.01N
Bankruptcy Code Section 8.06
Base Building Condition Exhibit C
Base Rent Section 1.01M
Base Year Operating Costs Section 1.01O
Basic Lease Information and Certain Definitions Article 1
Branch Exhibit C
Broker Section 1.01W
Building Section 1.01B
Building Standard Exhibit C
Business Days Article 27
Business Hours Section 1.01,Article 27
Central Exhibit C
Commencement Date Section 1.01F
Common Areas Article 27
days Article 27
Events of Default Section 13.01
Expiration Date Section 1.01G
herein, hereof, hereby, hereunder and words
of similar import Article 27
include and including Article 27
Interest Rate Section 4.02
Land Section 1.01C
Landlord Preamble
Landlord's Address for Notice Section 1.01T
Landlord's Address for Payment Section 1.01U
Landlord's Operating Costs Estimate Section 5.01
Landlord's Work Exhibit C
Leasehold Improvements Exhibit C
Net Rentable Area Article 27
Net Rentable Area of the Building Section 1.01J
Net Rentable Area of the Premises Section 1.01I
Non-Building Standard Exhibit C
Parking Facilities Section 1.01D
Parking Permits Section 1.01P
Permit Fees Section 1.01P
Project Section 1.01E
Premises Section 1.01A
Reference to Landlord as having "no liability
to Tenant" or being "without liability to
Tenant" or words of like import Article 27
Rent Section 1.01L
repair Article 27
Security Deposit Section 1.01R
Successor Landlord Section 18.02
Taxes Section 5.02
Tenant Preamble & Article 27
Tenant Delay Exhibit C
Tenant's Address for Notice Section 1.01V
Tenant's Allowance Exhibit C
Tenant's Permitted Uses Section 1.01Q
Tenant's Property Section 14.01A(a)
Tenant's Share Section 1.01K
Tenant's Work Exhibit C
Term Section 1.01H
termination of this Lease and words of like import Article 27
terms of this Lease Article 27
this Lease Preamble
Usable Area of Premises Exhibit C
year Article 27
iv
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT ("this Lease") is made and entered into by and
between PRENTISS PROPERTIES ACQUISITION PARTNERS, L. P., a Delaware limited
partnership ("Landlord") and APTIS, INC., dba APTIS SOFTWARE, a Delaware
corporation ("Tenant"), upon all the terms set forth in this Lease and in all
Exhibits and Riders hereto, to each and all of which terms Landlord and Tenant
hereby mutually agree, and in consideration of One Dollar ($1.00) and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and of the rents, agreements and benefits flowing between the
parties hereto, as follows:
ARTICLE 1
BASIC LEASE INFORMATION AND CERTAIN DEFINITIONS
Section 1.01. Each reference in this Lease to information and definitions
contained in the Basic Lease Information and Certain Definitions and each use of
the terms capitalized and defined in this Section 1.01 shall be deemed to refer
to, and shall have the respective meaning set forth in, this Section 1.01.
A. Premises: The entire Fourth Floor, "C" and "D"
Wings consisting of 50,738 square feet of
Net Rentable Area, and the entire "D"
wing portion of the 2nd Floor, consisting
of 24,711 square feet of Net Rentable
Area, of the Building, for a total of
75,449 square feet of net Rentable Area,
as such Premises are identified by
diagonal lines on the floor plans
attached as Exhibit A. Tenant shall be
allowed to substitute the "D" Wing
portion of the Third (3rd) Floor for the
"D" Wing portion of the Second (2nd)
Floor above, if Landlord has not leased
all of the Third Floor (both "C" and "D"
Wings) to a full floor user within six
(6) months from the date on the cover
page hereof.
If the Tenant shall elect to substitute the
"D" Wing portion of the Third (3rd) Floor,
the Landlord and Tenant shall execute a
document amending this provision of this
Lease.
B. Building: The four (4) story office building
containing two (2) contiguous wings,
owned by Landlord on that portion of the
Land generally located at 1601 S. MoPac
Expressway, Austin, Texas, and commonly
known as "Two Barton Skyway."
C. Land: That certain parcel of land described
under the caption "Land" in Exhibit B
hereof.
D. Parking Facilities: The parking garage which
is located immediately East of the Building,
together with all surface parking areas
located or to be located on the Land.
E. Project: The Land and all improvements thereon,
including the Building, the Parking
Facilities, and all Common Areas.
F. Commencement Date: That certain date on which the Term shall
commence, as determined pursuant to the
provisions of Article 3 hereof.
G. Expiration Date: Ten (10) years from the
Commencement Date.
H. Term: Ten (10) years, beginning on the
Commencement Date and ending at 11:59
p.m. on the Expiration Date, unless this
Lease is sooner terminated as provided
herein.
I. Net Rentable Area of the
Premises: The "Primary Premises" consist of
approximately 50,738 square feet and the
"Secondary Premises" consist of
approximately 24,711 square feet located on
the "D" Wing of the Second (2nd ) Floor, or
the Third (3rd) Floor if substituted as
provided above (collectively called the
"Premises").
J. Net Rentable Area of the
Building: 195,324 square feet.
K. Tenant's Share: 38.863%, representing a fraction, the
numerator of which is the Net
Rentable Area of the Premises and the
denominator of which is the Net Rentable
Area of the Building, subject to future
adjustment pursuant to the provisions of
Section 5.04 hereof.
L. Rent: The Base Rent and the Additional Rent.
<PAGE>
M. Building Commencement Date: The date that Landlord actually
commences construction of the Building,
but in no event earlier than the date
this Lease is signed by Landlord and
Tenant.
N. Tenant Finish Ready
Condition: The condition of the Building, the Project
and the Premises completed with the
improvements described on Attachment 2 to
Exhibit C.
O. Substantial Completion Date: Twelve months following the Building
Commencement Date.
P. Base Condition Default: Failure of Landlord to substantially
complete (defined in Section 3.02 below) the
Project and deliver the Premises in the Base
Premises Condition within 30 days following
the Substantial Completion Date.
Q. Base Rent: The Base Rent for the first year of the
Term shall be $925,968.50 ($18.25 per
square foot per annum of Net Rentable
Area of the Primary Premises). The Base
Rent for the second year through the
fifth year of the Term shall be
$1,376,944.25 per annum ($18.25 per
square foot per annum of Net Rentable
Area of the Premises). The Base Rent for
the final five (5) years of the Term
shall be $1,418,441.20 per annum ($18.80
per square foot per annum of Net Rentable
Area of the Premises). Tenant may elect
to occupy all or a portion of the
Secondary Premises between the
Commencement Date and the Secondary
Premises Commencement Date. If Tenant so
elects, Tenant shall not be required to
pay Base Rent or Additional Rent on the
Secondary Premises until the Secondary
Premises Commencement Date regardless of
whether Tenant occupies all or a portion
of the Secondary Premises, provided,
however, Tenant shall compensate Landlord
for a portion of the Operating Costs for
the Secondary Premises being utilized by
Tenant at the rate of $3.00 per square
foot of Net Rentable Area, per annum. If
the Tenant shall elect to substitute the
"D" Wing portion of the Third (3rd) Floor
for the Secondary Premises, the Landlord
and Tenant shall execute a document
amending this portion of this Lease for
the Secondary Premises.
R. Additional Rent: The Additional Rent shall be
Tenant's Operating Costs Payment and all
other sums due and payable by Tenant
under the Lease.
S. Landlord's Operating Costs
Estimate: The estimate for the calendar year 2000 of
the Term is $8.50 per square foot of Net
Rentable Area of the Premises, subject to
the abatement of Operating Costs applicable
to the Secondary Premises.
T. Parking Spaces: Tenant shall be entitled to take
226 unassigned Parking Spaces, and 75
reserved Parking Spaces in the garage, at
no charge. Until the Secondary Premises
are occupied, the unassigned spaces shall
be reduced to 152 unassigned Parking
Spaces and 50 reserved Parking Spaces,
and increased at the ratio of one
unassigned space per 250 square feet of
Net Rentable Area of the Secondary Space
occupied The Landlord shall provide a
reasonable number of free, unassigned
Parking Spaces for Tenant's visitors.
The location of the reserved Parking
Spaces is shown on Rider 3 attached
hereto.
U. Tenant's Permitted Uses: Tenant may use the
Premises for executive, administrative and
other office uses or other uses consistent
with first class office buildings in Austin,
Travis County, Texas, for the conduct of
Tenant's business.
V. Security Deposit: As set forth in Article 21.
W. Broker: The Pinnacle Group
Mark A. Vickery
Mark A. Vickery Interests, Inc.
120 Austin Highway, Suite 106
San Antonio, Texas 78209
X. Landlord's Address for
Notice: Prentiss Properties Acquisition Partners, L.P.
3890 West Northwest Highway, Suite 400
2
<PAGE>
Dallas, Texas 75220
Attention: Michael V. Prentiss
with copies to: Prentiss Properties Acquisition Partners, L.P.
3860 West Northwest Highway, Suite 400
Dallas, Texas 75220
Attention: Dennis J. DuBois
Y Landlord's Address for
Payment: Prentiss Properties Acquisition Partners, L.P.
3890 West Northwest Highway, Suite 400
Dallas, Texas 75220
Z. Tenant's Address for
Notice: 1601 S. MoPac Expressway
Suite 400
Austin, Texas 78746
Attention: President
With copies to Billing Concepts, Corporation
7411 John Smith, Suite 200
San Antonio, Texas 78229-4898
Attention: Manny Fernandez, Facility Manager
AA. Business Hours: 7 a.m. to 7 p.m.--Monday through Friday
9 a.m. to 3 p.m.--Saturday
ARTICLE 2
PREMISES AND QUIET ENJOYMENT
Section 2.01. Landlord hereby leases the Premises to Tenant, and Tenant
hereby rents and leases the Premises from Landlord, for the Term. During the
Term, Tenant shall have the right to use, in common with others and in
accordance with the Rules and Regulations, the Common Areas.
Section 2.02. Provided that Tenant fully and timely performs all the terms
of this Lease on Tenant's part to be performed, including payment by Tenant of
all Rent, Tenant shall have, hold and enjoy the Premises during the Term without
hindrance or disturbance from or by Landlord; subject, however, to all of the
terms, conditions and provisions of any and all ground leases, deeds to secure
debt, mortgages, governmental laws, easements, protective covenants, and other
encumbrances now or hereafter affecting the Premises, or the Project.
ARTICLE 3
TERM; COMMENCEMENT DATE;
DELIVERY AND ACCEPTANCE OF PREMISES
Section 3.01. The Commencement Date for the Primary Premises shall be one
hundred twenty (120) days following the delivery of the Premises in Tenant
Finish Ready Condition as set forth on Attachment 2 to Exhibit "C, provided that
the Commencement Date shall not occur until Landlord has substantially completed
the Project, and completed the Premises in Base Premises Condition (collectively
called "Landlord's Construction"). Landlord shall deliver the Premises to Tenant
in Tenant Finish Ready Condition for construction of the Leasehold Improvements
sixty (60) days prior to the estimated date Landlord will substantially complete
the Premises in Base Premises Condition (defined in Exhibit C). The Commencement
Date for the Secondary Premises shall be the first anniversary of the
Commencement Date (the "Secondary Premises Commencement Date").
Section 3.02. Landlord shall cause the Building Commencement Date to occur
as soon as possible in the exercise of Landlord's reasonable business judgement,
but not later than forty-five (45) days following the date this Lease is signed
by Landlord and Tenant. If Landlord shall fail to commence construction of the
Building within such 45 day period, Tenant shall so notify Landlord and Landlord
shall immediately commence construction. If following such notice, Landlord
shall fail to commence construction, Tenant may terminate this Lease. Landlord
shall substantially complete Landlord's Construction no later than the
Substantial Completion Date. Landlord's Construction shall be deemed
"substantially complete" when all of the following conditions have been met: (i)
the Premises have been completed in Base Premises Condition (defined in Exhibit
C), and (ii) Landlord has substantially completed the Project in substantial
accordance with the Building Plans (defined in Exhibit C) and has received final
or temporary certificates of occupancy so that Tenant has the right to use the
Common Areas of the Building, the Parking Facilities, and the Common Areas of
the Project. In the event Landlord fails to substantially complete Landlord's
Construction on or before the Substantial Completion Date, the Tenant shall so
notify the Landlord and the Landlord shall substantially complete Landlord's
Construction same as soon as possible. The failure to substantially complete
Landlord's
2
<PAGE>
Construction within thirty (30) days following the Substantial Completion Date
shall be a Base Condition Default and shall entitle the Tenant to the following
rights:
(a) If such Base Condition Default is not cured on or before thirty days
following the Substantial Completion Date, but is cured no later than ninety
(90) days following the Substantial Completion Date, then the Commencement Date
shall be delayed until the date Landlord substantially completes Landlord's
Construction, and the commencement of the payment of Base Rent and Additional
Rent shall be delayed until such date, and for each day of delay after such 30
day period following the Substantial Completion Date until the date the Base
Condition Default is cured, the Tenant shall be entitled to a credit of one
additional day of Base Rent and Additional Rent.
(b) If such Base Condition Default is not cured on or before ninety (90)
days following the Substantial Completion Date the Tenant may, at its option,
elect to either (i) if Landlord reasonably determines that Landlord's
Construction will be substantially complete within 30 days following the end of
such 90 day period, continue the remedy set forth in 3.02 (a) above where the
Commencement Date and the commencement of the payment of Base Rent and
Additional Rent shall be delayed, and for each day of delay after such 30 day
period following the Substantial Completion Date until the date the Base
Condition Default is cured, the Tenant shall be entitled to a credit of one
additional day of Base Rent and Additional Rent; or (ii) cancel this Lease upon
written notice to the Landlord within 30 days following the end of such 90 day
period.
Section 3.03. The Net Rentable Area of the Premises and the Building are
approximately as stated in Sections 1.01, I and J, respectively. By written
instrument substantially in the form of Exhibit D attached hereto, Landlord
shall notify Tenant of the Substantial Completion Date, Commencement Date, the
Net Rentable Area of the Premises and all other matters stated therein. The
Commencement Notice shall be conclusive and binding on Tenant as to all matters
set forth therein, unless within five (5) days following delivery of such
Commencement Notice, Tenant contests any of the matters contained therein by
notifying Landlord in writing of Tenant's objections. The foregoing
notwithstanding, Landlord's failure to deliver any Commencement Notice to Tenant
shall not affect Landlord's determination of the Commencement Date.
Section 3.04. Tenant may not enter or occupy the Premises prior to the
date Landlord delivers the Premises in Tenant Finish Ready Condition without
Landlord's express written consent and any entry by Tenant shall be subject to
all of the terms of this Lease; provided however, that no such early entry shall
change the Commencement Date or the Expiration Date. It is the intent of the
parties that Tenant shall have reasonable access to the Premises prior to the
date Landlord delivers the Premises in Tenant Finish Ready Condition, so long as
such access does not interfere with the actions of Landlord.
Section 3.05. Except as set forth in a "punch list" or other document
identifying exceptions presented to Landlord within thirty (30) days of
occupancy, occupancy of the Premises or any portion thereof by Tenant or anyone
claiming through or under Tenant for the conduct of Tenant's, or such other
person's business therein shall be conclusive evidence that Tenant and all
parties claiming through or under Tenant (a) have accepted the Premises as
suitable for the purposes for which the Premises are leased hereunder, (b) have
accepted the Common Areas as being in a good and satisfactory condition and (c)
have waived any defects in the Premises and the Project. Landlord shall have no
liability, except for gross negligence or willful misconduct, to Tenant or any
of Tenant's agents, employees, licensees, servants or invitees for any injury or
damage to any person or property due to the condition or design of, or any
defect in, the Premises or the Project, including any electrical, plumbing or
mechanical systems and equipment of the Premises or the Project and the
condition of or any defect in the Land; and Tenant, for itself and its agents,
employees, licensees, servants and invitees, expressly assumes all risks of
injury or damage to person or property, either proximate or remote, resulting
from the condition of the Premises or the Project.
ARTICLE 4
RENT
Section 4.01. Tenant shall pay to Landlord, without notice, demand, offset
or deduction, in lawful money of the United States of America, at Landlord's
Address for Payment, or at such other place as Landlord shall designate in
writing from time to time: (a) the Base Rent in equal monthly installments, in
advance, on the first day of each calendar month during the Term, and (b) the
Additional Rent, at the respective times required hereunder. The first monthly
installment of Base Rent and Tenant's Operating Costs Payment payable under
Article 5 hereof shall be paid in advance on the date of Tenant's execution of
this Lease and applied to the first installments of Base Rent and Tenant's
Operating Costs Payment coming due under this Lease. Landlord shall place such
first monthly installment in a federally insured, interest bearing account to be
held until the Commencement Date whereupon the accrued interest on such first
monthly installment shall be paid to Tenant and the first monthly installment
shall be applied to Base Rent and Tenant's Operating Costs Payment as set forth
above. Payment of Rent shall begin on the Commencement Date; provided, however,
that, if either the Commencement Date or the Expiration Date falls on a date
other than the first day of a calendar month, the Rent due for such fractional
month shall be prorated on a per diem basis between Landlord and Tenant so as to
charge Tenant only for the portion of such fractional month falling within the
Term.
Section 4.02. All past due installments of Rent shall bear interest until
paid at a rate per annum (the "Interest Rate") equal to the greater of fifteen
percent (15%) or four percent (4%) above the prime rate of interest from time to
time publicly announced by Bank One, Texas, N.A., or any successor thereof; not
to exceed the maximum rate permitted under federal law or under the laws of the
State of Texas, the rate of interest on such past due installments of Rent shall
be the maximum rate of interest then permitted by applicable law.
4
<PAGE>
ARTICLE 5
OPERATING COSTS
Section 5.01. Tenant shall pay to Landlord, as Additional Rent, for each
year or fractional year during the Term an amount ("Tenant's Operating Costs
Payment") of money equal to Tenant's Share of Operating Costs, as hereinafter
defined, for such year, such amount to be calculated and paid as follows:
(a) On the first day of January of each year during the Term (or,
with respect to the year in which the Commencement Date occurs, the amount shown
in Section 1.01 S. above), or as soon thereafter as is practicable, Landlord
shall furnish Tenant with a statement ("Landlord's Operating Costs Estimate")
setting forth Landlord's reasonable estimate of Operating Costs for the
forthcoming year (or the fractional year in which the Commencement Date occurs,
as the case may be). On the first day of each calendar month during such year,
Tenant shall pay to Landlord one-twelfth of Tenant's Operating Costs Payment as
estimated on Landlord's Operating Costs Estimate. If for any reason Landlord has
not provided Tenant with Landlord's Operating Costs Estimate on the first day of
January of any year during the Term (or by the Commencement Date, as the case
may be), then, (i) until the first day of the calendar month following the month
in which Tenant is given Landlord's Estimate of Operating Costs, Tenant shall
continue to pay to Landlord on the first day of each calendar month the monthly
sum, if any, payable by Tenant under this Section 5.01 for the month of December
of the preceding year, and (ii) promptly after Landlord's Operating Costs
Estimate is furnished to Tenant or together therewith, Landlord shall give
notice to Tenant stating whether the installments of Tenant's Operating Costs
Payments previously made for such year were greater or less than the
installments of Tenant's Operating Costs Payments to be made for such year in
accordance with Landlord's Operating Costs Estimate, and (A) if there shall be a
deficiency, Tenant shall pay the amount thereof to Landlord within seven (7)
days after the giving of Landlord's Operating Costs Estimate, or (B) if there
shall have been an overpayment, Landlord shall apply such overpayment as a
credit against the next accruing installment(s) of Additional Rent due from
Tenant under this Section 5.01 until fully credited to Tenant, and (C) on the
first day of the first calendar month following the month in which Tenant is
given Landlord's Estimate of Operating Costs and on the first day of each
calendar month thereafter during the Term throughout the remainder of such year,
Tenant shall pay to Landlord an amount equal to one-twelfth (1/12th) of Tenant's
Operating Costs Payment. The foregoing notwithstanding, Landlord shall have the
right from time to time during any year to notify Tenant in writing of any
change in Landlord's Operating Costs Estimate, in which event such Tenant's
Operating Costs Payment, as previously estimated, shall be adjusted to reflect
the amount shown in such notice and shall be effective, and due from Tenant, on
the first day of each month during the year for which notice is given commencing
the second month following Landlord's giving of such notice.
(b) On the first day of March of each year during the Term
(beginning on the first day of March of the year following the year in which the
Commencement Date occurs), or as soon thereafter as is practicable, Landlord
shall furnish Tenant with a statement of the actual Operating Costs for the
preceding year. Within thirty (30) days after Landlord's delivery of such
statement, Tenant shall make a lump sum payment to Landlord in the amount, if
any, by which Tenants' Operating Costs Payment for such preceding year as shown
on such Landlord's statement, exceeds the aggregate of the monthly installments
of Tenant's Operating Costs Payments paid during such preceding year. If
Tenant's Operating Costs Payment, as shown on such Landlord's statement, is less
than the aggregate of the monthly installments of Tenant's Operating Costs
Payment actually paid by Tenant during such preceding year, then Landlord shall
apply such amount to the next accruing installment(s) of Additional Rent due
from Tenant under this Section 5.01 until fully credited to Tenant.
(c) If the Commencement Date occurs on a date other than the first
day of January, or if the Term ends on a date other than the last day of
December, the actual Operating Costs for the year in which the Commencement Date
or the Expiration Date occurs, as the case may be, shall be prorated so that
Tenant shall pay that portion of Tenant's Share of Operating Costs for such year
represented by a fraction, the numerator of which shall be the number of days
during such fractional year falling within the Term, and the denominator of
which is 365 (or 366, in the case of a leap year). The provisions of this
Section 5.01 shall survive the Expiration Date or any sooner termination
provided for in this Lease.
Section 5.02. For purposes of this Lease, the term "Operating Costs" shall
mean any and all expenses, costs and disbursements of every kind which Landlord
pays, incurs or becomes obligated to pay in connection with the operation,
management, repair and maintenance of all portions of the Project. All Operating
Costs shall be determined according to generally accepted accounting principles
which shall be consistently applied. Operating Costs include, but are not
limited to, the following:
(a) The portion of wages, salaries, and fees (including, but not limited
to, all reasonable educational, travel and professional fees) of all personnel
or entities (exclusive of Landlord's executive personnel) allocable to the
Project for any personnel engaged in the operation, repair, maintenance, or
security of the Project, including taxes, insurance, and benefits relating
thereto and the costs of all supplies and materials (including work clothes and
uniforms) used in the operation, repair, and maintenance or security of the
Project.
(b) Cost of performance by Landlord's personnel of, or of all service
agreements for, maintenance, janitorial services, access control, alarm service,
window cleaning, elevator maintenance and landscaping for the Project. The
foregoing project shall include rental of personal property used by Landlord's
personnel in the maintenance and repair of the Project.
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(c) All utilities for the Project, including water, sewer, power,
electricity, gas, fuel, lighting and all other utilities; and all
air-conditioning, heating and ventilating costs for the Project.
(d) Cost of all insurance, including casualty and liability insurance
applicable to the Project and to Landlord's equipment, fixtures and personal
property used in connection therewith, business interruption or rent insurance
against such perils as are commonly insured against by prudent landlords, such
other insurance as may be required by any lessor or mortgagee of Landlord and
such other insurance which Landlord considers reasonably necessary in the
operation of the Project, together with all appraisal and consultants' fees in
connection with such insurance.
(e) All Taxes. For purposes hereof, the term "Taxes" shall mean (i) all
taxes, assessments, and other governmental charges, applicable to or assessed
against the Project or any portion thereof, or applicable to or assessed against
Landlord's personal property used in connection therewith, whether federal,
state, county, or municipal and whether assessed by taxing districts or
authorities presently taxing the Project or the operation thereof or by other
taxing authorities subsequently created, or otherwise, and any other taxes and
assessments attributable to or assessed against all or any part of the Project
or its operation, and (ii) any reasonable expenses, including fees and
disbursements of attorneys, tax consultants, arbitrators, appraisers, experts
and other witnesses, incurred by Landlord in contesting any taxes or the
assessed valuation of all or any part of the Project. If at any time during the
Term there shall be levied, assessed, or imposed on Landlord or all or any part
of the Project by any governmental entity any general or special ad valorem or
other charge or tax directly upon rents received under leases, or if any fee,
tax, assessment, or other charge is imposed which is measured by or based, in
whole or in part, upon such rents, or if any charge or tax is made based
directly or indirectly upon the transactions represented by leases or the
occupancy or use of the Project or any portion thereof, such taxes, fees,
assessments or other charges shall be deemed to be Taxes; provided, however,
that any (i) franchise, corporation, income or net profits tax, unless
substituted for real estate taxes or imposed as additional charges in connection
with the ownership of the Project, which may be assessed against Landlord or the
Project or both, (ii) transfer taxes assessed against Landlord or the Project or
both, (iii) penalties or interest on any late payments of Landlord, and (iv)
personal property taxes of Tenant or other tenants in the Project shall be
excluded from Taxes. If any or all of the Taxes paid hereunder are by law
permitted to be paid in installments, notwithstanding how Landlord pays the
same, then, for purposes of calculating Operating Costs, such Taxes shall be
deemed to have been divided and paid in the maximum number of installments
permitted by law, and there shall be included in Operating Costs for each year
only such installments as are required by law to be paid within such year,
together with interest thereon and on future such installments as provided by
law.
(f) Legal and accounting costs incurred by Landlord or paid by Landlord to
third parties (exclusive of legal fees with respect to disputes with individual
tenants, negotiations of tenant leases, or with respect to the ownership rather
than the operation of the Project), appraisal fees, consulting fees, all other
professional fees and disbursements and all association dues.
(g) Cost of non-capitalized repairs and general maintenance of the Project
(excluding repairs and general maintenance paid by proceeds of insurance or by
Tenant, other tenants of the Project or other third parties).
(h) Amortization of the cost of improvements or equipment which are
capital in nature and which (i) are for the purpose of reducing Operating Costs
of the Project, up to the amount saved as a result of the installation thereof,
as reasonably estimated by Landlord, or (ii) enhance the Project for the general
benefit of tenants or occupants thereof, or (iii) are required by any
governmental authority, other than year 2000 compliance, and requirements
necessary to comply with applicable law in effect at the execution date of this
Lease, including without limitation the Americans with Disabilities Act of 1990,
or (iv) replace any building equipment needed to operate the Project at the same
quality levels as prior to the replacement. All such costs, including interest,
shall be amortized on a straight-line basis over the useful life of the capital
investment items, as reasonably determined by Landlord, but in no event beyond
the reasonable useful life of the Project as a first class office project.
(i) The portion of Project management office rent or rental value
allocable to the Project.
(j) A management fee (whether or not Landlord engages a manager for the
Project) and all items reimbursable to the Project manager, if any, pursuant to
any management contract for the Project. Landlord currently pays a management
fee equal to three percent (3%) of the gross receipts from the Project and all
items reimbursable to the Project manager pursuant to its management contract
Landlord agrees that any future increase in the management fee payable by
Landlord shall not exceed management fees customarily paid at the time by other
landlords of first class office buildings in the Austin suburban area.
(k) Amounts payable pursuant to the protective covenants, if any, as
amended from time to time.
"Operating Costs" shall not include (i) specific costs for any
capital repairs, replacements or improvements, except as provided above; (ii)
expenses for which Landlord is reimbursed or indemnified (either by an insurer,
condemnor, tenant, warrantor or otherwise); (iii) expenses incurred in leasing
or procuring tenants (including lease commissions, advertising expenses and
expenses of renovating space for tenants); (iv) payments for rented equipment,
the cost of which would constitute a capital expenditure not permitted pursuant
to the foregoing if the equipment were purchased; (v) interest or amortization
payments on any mortgages; (vi) net basic rents under ground leases; (vii) costs
representing an amount paid to an affiliate of Landlord which is in excess of
the amount which would have been paid in the absence of such relationship;
(viii) wages, salaries or other compensation paid for clerks or attendants in
concessions or news stands operated in the Project; (ix) the cost of installing,
maintaining and operating any specialty service such as an observatory,
broadcasting facility, luncheon club or an athletic or recreational club (except
for
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showers and locker areas); or (x) costs specially billed to or billable to any
specific tenants. There shall be no duplication of costs or reimbursement.
Landlord agrees to use commercially reasonable efforts to maintain
the Operating Costs, the Taxes and the Landlord's insurance at the lowest
possible level, using commercially reasonable efforts to reduce or eliminate
Operating Costs, reduce Taxes and reduce insurance costs, and under all
circumstances to maintain the Operating Costs, the Taxes and the insurance at no
more than the substantially equivalent costs for other first class buildings in
suburban Austin, Travis County, Texas. Notwithstanding anything contained in
this Section 5.02 to the contrary or elsewhere in the Lease, for purposes of
calculating Tenant's Operating Costs Payment for the period beginning on January
1, 2001, and for each year thereafter during the Term of this Lease, the
components of Operating Costs set forth in Sections 5.02 (a), (b) (excluding
janitorial services), (f), (g), (h), (i), and (j) (collectively the
"Controllable Operating Costs") shall not be annually increased by more than six
percent (6%) per annum over the actual 2000 "grossed up" Controllable Operating
Costs. For purposes of this paragraph, the cap on the Controllable Operating
Costs for years 2002 and thereafter shall be determined on a compounded and
cumulative basis from 2001.
Section 5.03. If the Building is not 95% occupied (meaning ninety-five
percent (95%) of the Net Rentable Area of the Building) during any full or
fractional year of the Term, the actual Operating Costs shall be adjusted for
such year to an amount which Landlord estimates would have been incurred in
Landlord's reasonable judgment had the Building been 95% occupied.
Section 5.04. If during the Term any change occurs in either the number of
square feet of the Net Rentable Area of the Premises or of the Net Rentable Area
of the Building, Tenant's Share of Operating Costs shall be adjusted, effective
as of the date of any such change. On and after the date of any such change,
Tenant's Operating Costs Payment pursuant to Section 5.01 shall be adjusted
effective as of the date of such change.
Section 5.05. Tenant shall have the right to inspect Landlord's records
relating to Operating Costs for one year after Tenant's receipt of the statement
of actual Operating Costs (the "Operating Cost Audit"). Tenant may elect to
contract with a qualified lease audit firm or certified public accountant to
perform the Operating Cost Audit. If the Operating Cost Audit reveals an
overstatement of Tenant's pro-rata share of Operating Costs by more than ten
percent (10%) as substantiated, at Landlord's option and expense, by an
independent certified public accountant, then, in addition to a credit for the
amount of the Operating Cost overstatement, Tenant shall receive a credit for
Tenant's reasonable actual out-of-pocket costs of the Operating Cost Audit.
ARTICLE 6
PARKING
Section 6.01. Landlord hereby grants to Tenant a license to use in common
with other tenants and with the public, parking spaces in the Parking
Facilities. Each such Tenant shall be entitled to the number of parking spaces
in the Parking Facilities as set forth in Section 1.01. The number of Parking
Permits to be issued to Tenant and the initial monthly Permit Fee for each
Parking Permit is set forth in Section 1.01. Landlord shall not be obligated to
provide Tenant with any additional Parking Permits. If an employee, licensee or
invitee of Tenant fails to observe the Rules and Regulations with respect to the
Parking Facilities, then Landlord, at its option, shall have the right following
two (3) Business Days notice and opportunity to cure to terminate the Tenant
Parking Permit for such employee, without legal process, and following
reasonable prior written notice to remove the offending employee, licensee or
invitee from the Parking Facilities.
ARTICLE 7
SERVICES OF LANDLORD
Section 7.01. A. During the Term, Landlord shall furnish Tenant with the
following services: (a) hot and cold water in Building Standard bathrooms and
chilled water in Building Standard drinking fountains; (b) electrical power
sufficient for lighting the Premises and for the operation therein of
typewriters, voicewriters, calculating machines, word processing equipment,
photographic reproduction equipment, copying machines, personal computers,
facsimile machines, and similar items of business equipment which consume, in
the aggregate, less than six (6) watts per square foot of Net Rentable Area of
the Premises and require a voltage of 120 volts single phase or less, (c)
heating, ventilating or air-conditioning, as appropriate, during Business Hours.
Landlord shall cause the HVAC for the Premises to be built in substantial
accordance with the design criteria for HVAC set forth in Attachment 3 to
Exhibit C; (d) electric lighting for the Common Areas of the Project; (e)
passenger elevator service, in common with others, for access to and from the
Premises twenty-four (24) hours per day, seven (7) day per week; provided,
however, that Landlord shall have the right to limit the number of (but not
cease to operate all) elevators to be operated for repairs and after Business
Hours and on Saturdays, Sundays and Holidays; (f) janitorial cleaning services
in accordance with Rider No. 3 attached hereto; (g) facilities for Tenant's
loading, unloading, delivery and pick-up activities, including access thereto
during Business Hours, subject to the Rules and Regulations; (h) on site
security in accordance with other first class office buildings in surbuban
Travis County, Texas; and (i) replacement, as necessary, of all Building
Standard lamps and ballasts in Building Standard light fixtures within the
Premises. All services referred to in this Section 7.01A shall be provided by
Landlord and paid for by Tenant as part of Rent.
B. If Tenant requires air-conditioning, heating or other services,
including cleaning services, for hours or days in addition to the hours and days
specified in Section 7.01A, Landlord shall provide such additional service after
reasonable prior written request therefor from Tenant, and Tenant shall
reimburse Landlord for the cost of such
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additional service. Landlord shall have no obligation to provide any additional
service to Tenant at any time Tenant is in default under this Lease unless
Tenant pays to Landlord, in advance, the cost of such additional service. Tenant
shall have the right to provide security services for its employees.
C. Tenant shall not install any machinery or equipment, which generates
abnormal heat or otherwise creates unusual demands on the air-conditioning or
heating system serving the Premises. Tenant shall not install any electrical
equipment requiring special wiring unless approved in advance by Landlord. At no
time shall use of electricity in the Premises exceed the capacity of existing
feeders and risers to or wiring in the Premises. Nothing herein shall prevent
Tenant from installing a computer room and systems, which Landlord acknowledges
will generate additional heat. The Premises design by Tenant will address the
computer room requirements specifically.
D. If Tenant's requirements for or consumption of electricity exceed the
capacities specified in Section 7.01A(b) hereof; Landlord shall, at Tenant's
sole cost and expense, bill Tenant periodically for such additional service. The
degree of such additional consumption by Tenant shall be determined at
Landlord's election, by either or both (a) a survey of standard or average
tenant usage of electricity in the Building performed by a reputable consultant
selected by Landlord and paid for by Tenant, and (b) a separate meter in the
Premises to be installed, maintained, and read by Landlord, all at Tenant's sole
cost and expense.
Section 7.02. Landlord's obligation to furnish electrical and other
utility services shall be subject to the rules and regulations of the supplier
of such electricity of other utility services and the rules and regulations of
any municipal or other governmental authority regulating the business of
providing electricity and other utility services.
Section 7.03. No failure to furnish, or any stoppage of, the services
referred to in this Article 7 resulting from any cause other than the gross
negligence or willful misconduct of Landlord, shall make Landlord liable in any
respect for damages to any person, property or business, or be construed as an
eviction of Tenant, or entitle Tenant to any abatement of Rent or other relief
from any of Tenant's obligations under this Lease. Should any malfunction of any
systems or facilities occur within the Project or should maintenance or
alterations of such systems or facilities become necessary, Landlord shall
repair the same promptly and with reasonable diligence, and Tenant shall have no
claim for rebate, abatement of Rent, or damages because of malfunctions or any
such interruptions in service.
ARTICLE 8
ASSIGNMENT AND SUBLETTING
Section 8.01. Neither Tenant nor its legal representatives or successors
in interest shall, by operation of law or otherwise, assign, mortgage, pledge,
encumber or otherwise transfer this Lease or any part hereof, or the interest of
Tenant under this Lease, or in any sublease or the rent thereunder without first
obtaining Landlord's prior written consent, which consent shall not be
unreasonably withheld, conditioned or delayed. The Premises or any part thereof
shall not be sublet, occupied or used for any purpose by anyone other than
Tenant, without Tenant's obtaining in each instance the prior written consent of
Landlord in the manner hereinafter provided. Tenant shall not modify, extend, or
amend a sublease previously consented to by Landlord without obtaining
Landlord's prior written consent thereto.
Section 8.02. An assignment of this Lease shall be deemed to have occurred
(a) if in a single transaction or in a series of transactions more than 50% in
interest in Tenant, any guarantor of this Lease, or any subtenant (whether
stock, partnership, interest or otherwise) is transferred, diluted, reduced, or
otherwise affected with the result that the present holder or owners of Tenant,
such guarantor, or such subtenant have less than a 50% interest in Tenant, such
guarantor or such subtenant, or (b) if Tenant's obligations under this Lease are
taken over or assumed in consideration of Tenant leasing space in another office
building. The transfer of the outstanding capital stock of any corporate Tenant,
guarantor or subtenant through the "over-the-counter" market or any recognized
national securities exchange (other than by persons owning 5% or more of the
voting calculation of such 50% interest of clause 8.02(a) above) shall not be
included in the calculation of such 50% interest in clause (a) above.
Section 8.03. Notwithstanding anything to the contrary in Section 8.01,
Tenant shall have the right, upon ten (10) days' prior written notice to
Landlord, to (a) sublet all or part of the Premises to any corporation or other
entity which controls Tenant, is controlled by Tenant or is under common control
with Tenant; or (b) assign this Lease to a successor corporation into which or
with which Tenant is merged or consolidated or which acquired substantially all
of Tenant's assets and property; provided that (i) such successor corporation
assumes substantially all of the obligations and liabilities of Tenant and shall
have assets, capitalization and net worth at least equal to the assets,
capitalization and net worth of Tenant as of the date of this Lease as
determined by generally accepted accounting principles, and (ii) Tenant shall
provide in its notice to Landlord the information required in Section 8.04. For
the purpose hereof "control" shall mean ownership of not less than 50% of all
the voting stock or legal and equitable interest in such corporation or entity.
Section 8.04. If Tenant should desire to assign this Lease or sublet the
Premises (or any part thereof), which requires the consent of Landlord, Tenant
shall give Landlord written notice no later than twenty (20) days in advance of
the proposed effective date of any other proposed assignment or sublease,
specifying (a) the name, current address, and business of the proposed assignee
or sublessee, (b) the amount and location of the space within the Premises
proposed to be so subleased, (c) the proposed effective date and duration of the
assignment or subletting, (d) the proposed rent or consideration to be paid to
Tenant by such assignee or sublessee, and (e) financial statements and other
information as Landlord may reasonably request to evaluate the proposed
assignment or sublease. For assignments and sublettings other than those
permitted by Section 8.03, Landlord shall have twenty (20) days following
receipt of such notice and other information requested by Landlord within which
to notify Tenant in writing that
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Landlord elects to permit Tenant to assign or sublet such space or reject such
assignment or sublease and the reasonable grounds therefore. If the rent rate
agreed upon between Tenant and its proposed subtenant is greater than the rent
rate that Tenant must pay Landlord hereunder for that portion of the Premises,
or if any consideration shall be promised to or received by Tenant in connection
with such proposed assignment or sublease (in addition to rent), then fifty
percent (50%) of such excess rent and other consideration shall be considered
Additional Rent owed by Tenant to Landlord (less brokerage commissions,
attorneys' fees and other disbursements reasonably incurred by Tenant for such
assignment and subletting). Tenant agrees to reimburse Landlord for reasonable
legal fees and any other reasonable costs incurred by Landlord in connection
with any permitted assignment or subletting. Tenant shall deliver to Landlord
copies of all documents executed in connection with any permitted assignment or
subletting, which documents shall be in form and substance reasonably
satisfactory to Landlord and which shall require any assignee to assume
performance of all terms of this Lease to be performed by Tenant or any
subtenant to comply with all the terms of this Lease to be performed by Tenant.
No acceptance by Landlord of any Rent or any other sum of money from any
assignee, sublessee or other category of transferee shall be deemed to
constitute Landlord's consent to any assignment, sublease, or transfer.
Section 8.05. Any attempted assignment or sublease by Tenant in violation
of the terms and provisions of this Article 8 shall be void and shall constitute
a material breach of this Lease. In no event, shall any assignment, subletting
or transfer, whether or not with Landlord's consent, relieve Tenant of its
primary liability under this Lease for the entire Term, and Tenant shall in no
way be released from the full and complete performance of all the terms hereof.
If Landlord takes possession of the Premises before the expiration of the Term
of this Lease, Landlord shall have the right, at its option, to terminate all
subleases, or to take over any sublease of the Premises or any portion thereof
and such subtenant shall attorn to Landlord, as its landlord, under all the
terms and obligations of such sublease occurring from and after such date, but
excluding previous acts, omissions, negligence or defaults of Tenant and any
repair or obligation in excess of available net insurance proceeds or
condemnation award.
Section 8.06. The term "Landlord," as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean and include only the owner or owners, at the time in question, of the
fee title to, or a lessee's interest in a ground lease of, the Land or the
Building. In the event of any transfer, assignment or other conveyance or
transfers of any such title or interest, Landlord herein named, and in case of
any subsequent transfers, the then grantor shall be automatically freed and
relieved from and after the date of such transfer, assignment or conveyance of
all liability as respects the performance of any covenants or obligations on the
part of Landlord contained in this Lease thereafter to be performed and, without
further agreement, the transferee of such title or interest shall be deemed to
have assumed and agreed to observe and perform any and all obligations of
Landlord hereunder, during its ownership of the Project. Landlord may transfer
its interest in the Project without the consent of Tenant and such transfer or
subsequent transfer shall not be deemed a violation on Landlord's part of any of
the terms of this Lease.
ARTICLE 9
REPAIRS
Section 9.01. Except for ordinary wear and tear and except as otherwise
provided in Section 9.02, Landlord shall perform all maintenance and make all
repairs and replacements to the Premises (including the Leasehold Improvements).
Tenant shall pay to Landlord the actual cost (including a fee equal to fifteen
percent (15%) of actual costs to cover a fee for Landlord's agent or manager)
for (a) all maintenance, repairs and replacements within the Premises (including
the Leasehold Improvements), other than maintenance, repairs and replacements to
any Building system or component within the Building core serving the tenants in
the Building ("Central Systems") located within the Premises; or (b) all repairs
and replacements necessitated by damage to the Project (including the Building
structure and the Central Systems) caused by the negligence or willful
misconduct of Tenant or its agents, contractors, invitees and licensees. Amounts
payable by Tenant pursuant to this Section 9.01 shall be payable on demand after
receipt of an invoice therefor from Landlord. Landlord has no obligation and has
made no promise to maintain, alter, remodel, improve, repair, decorate, or paint
the Premises or any part thereof, except as specifically set forth in this
Lease. In no event shall Landlord have any obligation to maintain, repair or
replace any furniture, furnishings, fixtures or personal property of Tenant.
Section 9.02. Tenant shall keep the Premises in good order and in a safe,
neat and clean condition. No representations respecting the condition of the
Premises or the Building or the other portions of the Project have been made by
Landlord to Tenant except as specifically set forth in this Lease. Except as
provided in Section 10.01 or specifically consented to by Landlord, Tenant shall
not perform any maintenance or repair work or make any replacement in or to the
Premises (including the Leasehold Improvements), and any branch of a Central
System serving the Premises ("Branch System"), but rather shall promptly notify
Landlord of the need for such maintenance, repair or replacement so that
Landlord may proceed to perform the same. In the event Landlord specifically
consents to the performance of any maintenance or the making of any repairs or
replacements by Tenant and Tenant fails to promptly commence and diligently
pursue the performance of such maintenance or the making of such repairs or
replacements, then Landlord, at its option, may perform such maintenance or make
such repairs and Tenant shall reimburse Landlord, on demand after Tenant
receives an invoice therefor, the cost thereof plus fifteen percent (15%) of the
actual costs to cover a fee for Landlord's agent or manager.
Section 9.03. All repairs made by Tenant pursuant to Section 9.02 shall be
performed in a good and workmanlike manner by contractors or other repair
personnel selected by Tenant and approved by Landlord; provided, however, that
neither Tenant nor its contractors or repair personnel shall be permitted to do
any work affecting the Central Systems of the Building.
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Section 9.04. Subject to the other provisions of this Lease imposing
obligations regarding repair upon Tenant, Landlord shall repair all machinery
and equipment necessary to provide the services of Landlord described in Article
7 and for repair of all portions of the Project which do not comprise a part of
the Premises and are not leased to others.
ARTICLE 10
ALTERATIONS
Section 10.01. Tenant shall have the right to install an uninterrupted
power source, satellite and dish antennae and other such improvements, provided
that such satellite and dish antennae do not affect the appearance of the
Building and, if mounted on the roof, do not extend above the parapet wall.
Tenant shall prepare the plans and specifications for such alterations and each
shall be subject to the approval of Landlord, which shall not be unreasonably
withheld or delayed. Tenant shall have the right to make non-structural
improvements and alterations as long as such alterations do not impact any
branch of a Central System or affect the appearance of the Building. A completed
set of plans and specifications of any such alterations shall be provided to
Landlord upon completion and Tenant shall remove any such improvements upon the
end of the Term, if so requested by Landlord. Tenant shall not at any time
during the Term make any other alterations to the Premises without first
obtaining Landlord's written consent thereto, which consent Landlord shall not
unreasonably withhold or delay but which consent may be conditioned upon
Tenant's agreement to remove the alterations at the end of the Term. Should
Tenant desire to make any alterations to the Premises, Tenant shall submit all
plans and specifications for such proposed alterations to Landlord for
Landlord's review and approval before Tenant allows any such work to commence.
Tenant shall select and use only contractors approved by Landlord, which
approval shall not be unreasonably withheld or delayed. Upon Tenant's receipt of
written approval from Landlord and upon Tenant's payment of any third party
review costs reasonably incurred by Landlord, Tenant shall have the right to
proceed with the construction of all approved alterations, in compliance with
the approved plans and specifications. All alterations shall be made at Tenant's
sole cost and expense, by Tenant's contractors. Tenant shall pay a fee equal to
10% of the cost of such alterations to Landlord for Landlord's agent or manager
supervising and coordinating such work. Provided, however, such 10% fee shall
not be applied to the cost of Tenant's trade fixtures installed as part of such
alterations, or for alterations performed by Tenant or its contractors with a
value of less than $25,000.00. In no event, however, shall anyone other than
Landlord or Landlord's employees or representatives perform work to be done
which affects the Central Systems of the Building.
Section 10.02. All construction, alterations and repair work done by or
for Tenant shall (a) be performed in such a manner as to maintain harmonious
labor relations; (b) not adversely affect the safety of the Project, the
Building or the Premises or the systems thereof and not affect the Central
Systems of the Building; (c) comply with all building, safety, fire, plumbing,
electrical, and other codes and governmental and insurance requirements; (d) not
result in any usage in excess of Building Standard of water, electricity, gas,
or other utilities or of heating, ventilating or air-conditioning (either during
or after such work); (e) be completed promptly and in a good and workmanlike
manner and in compliance with, and subject to, all of the provisions of the
Lease; and (f) not disturb Landlord or other tenants in the Building. After
completion of any alterations to the Premises, Tenant will deliver to Landlord a
copy of reproducible "as built" plans and specifications depicting and
describing such alterations.
Section 10.03. All leasehold improvements, alterations and other physical
additions made to or installed by or for Tenant in the Premises shall be and
remain Landlord's property (except for Tenant's furniture, personal property and
movable trade fixtures). Tenant agrees to remove, at its sole cost and expense,
all of Tenant's furniture, personal property and movable trade fixtures from the
Premises, on or before the Expiration Date or any earlier date of termination of
this Lease. Tenant shall repair, or promptly reimburse Landlord for the cost of
repairing, all damage done to the Premises or the Building by such removal. If
Tenant fails to remove any of Tenant's furniture, personal property or movable
trade fixtures by the Expiration Date or any sooner date of termination of the
Lease or, if Tenant fails to remove any leasehold improvements, alterations and
other physical additions made by Tenant to the Premises which Landlord advised
Tenant at the time of installation were to be removed at the end of the Term,
Landlord shall have the right, on the fifth (5th) day after Landlord's delivery
of written notice to Tenant, to deem such property abandoned by Tenant and to
remove and store such items and on the thirtieth (30th) day following such
notice, to sell, discard or otherwise deal with or dispose of such abandoned
property in a commercially reasonable manner. Tenant shall be liable for all
costs of such disposition of Tenant's abandoned property, and Landlord shall
have no liability to Tenant in any respect regarding such property of Tenant.
The provisions of this Section 10.03 shall survive the expiration or any earlier
termination of this Lease.
ARTICLE 11
LIENS
Section 11.01. Tenant shall keep the Project, the Building and the
Premises and Landlord's interest therein from any liens arising from any work
performed, materials furnished, or obligations incurred by, or on behalf of
Tenant. Notice is hereby given that neither Landlord nor any mortgagee or lessor
of Landlord shall be liable for any labor or materials furnished to Tenant,
except as furnished to Tenant by Landlord pursuant to Exhibit C. If any lien is
filed for such work or materials, such lien shall encumber only Tenant's
interest in leasehold improvements on the Premises. Within thirty (30) days
after Tenant learns of the filing of any such lien, Tenant shall either
discharge and cancel such lien of record, or if Tenant disputes such lien, post
a bond, or provide other security or evidence of ability to pay satisfactory to
Landlord or sufficient under the laws of the State of Texas to cover the amount
of the lien claim plus
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any penalties, interest, attorneys' fees, court costs, and other legal expenses
in connection with such lien. If Tenant fails to so discharge or bond such lien
within thirty (30) calendar days after written demand from Landlord, Landlord
shall have the right, at Landlord's option, to pay the full amount of such lien
without inquiry into the validity thereof, and Landlord shall be promptly
reimbursed by Tenant, as Additional Rent, for all amounts so paid by Landlord,
including expenses, interest, and attorneys' fees.
ARTICLE 12
USE AND COMPLIANCE WITH LAWS
Section 12.01. The Premises shall be used only for executive and
administrative offices for the conduct of Tenant's business limited to the uses
specifically set forth in Section 1.01U and for no other purposes whatsoever.
Tenant shall use and maintain the Premises in a clean and lawful manner and
shall not allow within the Premises, any offensive noise, odor, conduct or
private or public nuisance or permit Tenant's employees, agents, licensees or
invitees to create a public or private nuisance or act in a disorderly manner
within the Building or in the Project. Landlord represents that any certificate
of occupancy issued with respect to the Premises shall allow use for executive
and administrative offices.
Section 12.02. Tenant shall, at Tenant's sole expense, (a) comply with all
laws, orders, ordinances, and regulations of federal, state, county, and
municipal authorities having jurisdiction over the Premises, (b) comply with any
directive, order or citation made pursuant to law by any public officer
requiring abatement of any nuisance or which imposes upon Landlord or Tenant any
duty or obligation arising from Tenant's occupancy or use of the Premises or
from conditions which have been created by or at the request or insistence of
Tenant, or required by reason of a breach of any of Tenant's obligations
hereunder or by or through other fault of Tenant, (c) comply with all insurance
requirements applicable to the Premises and (d) indemnify and hold Landlord
harmless from any loss, cost, claim or expense which Landlord incurs or suffers
by reason of Tenant's failure to comply with its obligations under clauses (a),
(b) or (c) above. If Tenant receives notice of any such directive, order
citation or of any violation of any law, order, ordinance, regulation or any
insurance requirement, Tenant shall promptly notify Landlord in writing of such
alleged violation and furnish Landlord with a copy of such notice.
ARTICLE 13
DEFAULT AND REMEDIES
Section 13.01. The occurrence of any one or more of the following events
shall constitute an Event of Default (herein so called) of Tenant under this
Lease: (a) if Tenant fails to pay any Rent hereunder as and when such Rent
becomes due and such failure shall continue for more than ten (10) days after
Landlord gives Tenant written notice of past due Rent; (b) if Tenant fails to
pay Rent on time more than twice in any period of twelve (12) months; (c) if
Tenant dissolves its business, other than in connection with a merger or
consolidation where a survivor entity assumes the obligations of Tenant; (d) if
any petition is filed by or against Tenant or any guarantor of this Lease under
any present or future section or chapter of the Bankruptcy Code, or under any
similar law or statute of the United States or any state thereof (which, in the
case of an involuntary proceeding, is not permanently discharged, dismissed,
stayed, or vacated, as the case may be, within ninety (90) days of
commencement), or if any order for relief shall be entered against Tenant or any
guarantor of this Lease in any such proceedings; (e) if Tenant or any guarantor
of this Lease becomes insolvent or makes a transfer in fraud of creditors or
makes an assignment for the benefit of creditors; (f) if a receiver, custodian,
or trustee is appointed for the Premises or for all or substantially all of the
assets of Tenant or of any guarantor of this Lease, which appointment is not
vacated within ninety (90) days following the date of such appointment; or (g)
if Tenant fails to perform or observe any other terms of this Lease and such
failure shall continue for more than thirty (30) days after Landlord gives
Tenant notice of such failure, or, if such failure cannot be corrected within
such thirty (30) day period, if Tenant does not commence to correct such default
within said thirty (30) day period and thereafter diligently prosecute the
correction of same to completion within a reasonable time.
Section 13.02. Upon the occurrence of any Event of Default, Landlord shall
have the right, at Landlord's option, to elect to do any one or more of the
following without further notice or demand to Tenant:
(a) terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and, if Tenant fails to so surrender,
Landlord shall have the right to enter upon and take possession of the
Premises and to expel or remove Tenant and its effects without being
liable for prosecution or any claim for damages therefor; and Tenant
shall, and hereby agrees to, indemnify Landlord for all loss and damage
which Landlord suffers by reason of such termination, including damages in
an amount equal to the total of (1) the costs of recovering the Premises
and all other expenses incurred by Landlord in connection with Tenant's
default; (2) the unpaid Rent earned as of the date of termination, plus
interest at the Interest Rate; (3) the total Rent which Landlord would
have received under this Lease for the remainder of the Term, but
discounted to the then present value at a rate of eight percent (8%) per
annum, minus the fair market rental value for the balance of the Term,
determined as of the time of such default, discounted to the then present
value at a rate of eight percent (8%) per annum; and (4) all other sums of
money and damages owing by Tenant to Landlord; or
(b) enter upon and take possession of the Premises without
terminating this Lease and without being liable to prosecution or any
claim for damages therefor, and, if Landlord elects, relet the Premises on
such terms as Landlord deems advisable, in which event Tenant shall pay to
Landlord on demand the cost of repossession renovating ,repairing and
altering the Premises for a new tenant or tenants and any deficiency
between the Rent payable hereunder and the rent paid under such reletting;
provided, however, that Tenant
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shall not be entitled to any excess payments received by Landlord from
such reletting. Landlord's failure to relet the Premises shall not release
or affect Tenant's liability for Rent or for damages; or
(c) enter the Premises without terminating this Lease and without
being liable for prosecution or any claim for damages therefor and
maintain the Premises and repair or replace any damage thereto or do
anything for which Tenant is responsible hereunder. Tenant shall reimburse
Landlord immediately upon demand for any expenses, which Landlord incurs
in thus effecting Tenant's compliance under this Lease, and Landlord shall
not be liable to Tenant for any damages with respect thereto.
Section 13.03. No agreement to accept a surrender of the Premises and no
act or omission by Landlord or Landlord's agents during the Term shall
constitute an acceptance or surrender of the Premises unless made in writing and
signed by Landlord. No re-entry or taking possession of the Premises by Landlord
shall constitute an election by Landlord to terminate this Lease unless a
written notice of such intention is given to Tenant. No provision of this Lease
shall be construed as an obligation upon Landlord to mitigate Landlord's damages
under the Lease.
Section 13.04. No provision of this Lease shall be deemed to have been
waived by Landlord unless such waiver is in writing and signed by Landlord.
Landlord's acceptance of Rent following an Event of Default hereunder shall not
be construed as a waiver of such Event of Default. No custom or practice which
may grow up between the parties in connection with the terms of this Lease shall
be construed to waive or lessen Landlord's right to insist upon strict
performance of the terms of this Lease, without a written notice thereof to
Tenant from Landlord.
Section 13.05. The rights granted to Landlord in this Article 13 shall be
cumulative of every other right or remedy provided in this Lease or which
Landlord may otherwise have at law or in equity or by statute, and the exercise
of one or more rights or remedies shall not prejudice or impair the concurrent
or subsequent exercise of other rights or remedies or constitute a forfeiture or
waiver of Rent or damages accruing to Landlord by reason of any Event of Default
under this Lease.
ARTICLE 14
INSURANCE
Section 14.01. A. Tenant, at its sole expense, shall obtain and keep in
force during the Term the following insurance: (a) "All Risk" insurance insuring
all property located in the Premises, including furniture, equipment, fittings,
installations, fixtures, supplies and any other personal property ("Tenant's
Property"), in an amount equal to the full replacement value; (b) Comprehensive
general public liability insurance including personal injury, bodily injury,
broad form property damage, operations hazard, owner's protective coverage,
contractual liability, with a a severability of interests clause to cover
Tenant's indemnities set forth herein, and products and completed operations
liability, in limits not less than $1,000,000.00 inclusive per occurrence; (c)
Worker's Compensation and Employer's Liability insurance, with a waiver of
subrogation endorsement, in form and amount as required by applicable law; and
(d) In the event Tenant performs any repairs or alterations in the Premises,
Builder's Risk insurance on an "All Risk" basis (including collapse) on a
completed value (non-reporting) form for full replacement value covering all
work incorporated in the Building and all materials and equipment in or about
the Premises; and (e) Improvements and Betterments coverage.
B. Tenant shall have the right to include the insurance required by
Section 14.01A under Tenant's policies of "blanket insurance." All certificates
of insurance evidencing such coverage shall name Tenant as named insured
thereunder and shall name Landlord and all mortgagees and lessors of Landlord of
which Tenant has been notified, additional insureds, all as their respective
interest may appear. All such certificates shall be issued by insurers
acceptable to Landlord and in form satisfactory to Landlord. Tenant shall
deliver to Landlord certificates by the Commencement Date and, with respect to
renewals of such policies, not later than fifteen (15) days prior to the end of
the expiring term of coverage. All policies of insurance shall be primary and
non-contributing. All such policies and certificates shall contain an agreement
by the insurers to notify Landlord and any mortgagee or lessor of Landlord in
writing, by Registered U.S. mail, return receipt requested, not less than thirty
(30) days before any material change, reduction in coverage, cancellation,
including cancellation for nonpayment of premium.
Section 14.02. Landlord shall insure the Building against damage with
casualty and comprehensive general public liability insurance, all in such
amounts and with such deductible as Landlord reasonably deems appropriate.
Notwithstanding any contribution by Tenant to the cost of insurance premiums, as
provided hereinabove, Landlord shall not be required to carry insurance of any
kind on Tenant's Property, and Tenant hereby agrees that Tenant shall have no
right to receive any proceeds from any insurance policies carried by Landlord.
Section 14.03. Tenant shall not knowingly conduct or permit to be
conducted in the Premises any activity, or place any equipment in or about the
Premises or the Building, which will invalidate the insurance coverage in effect
or increase the rate of fire insurance or other insurance on the Premises or the
Building, and Tenant shall comply with all requirements and regulations of
Landlord's casualty and liability insurer. In no event shall Tenant introduce or
permit to be kept on the Premises or brought into the Building any dangerous,
noxious, radioactive or explosive substance.
Section 14.04. Landlord and Tenant each hereby waive any right of
subrogation and right of recovery or cause of action for injury or loss to the
extent that such injury or loss is covered by fire, extended coverage, "All
Risk" or similar policies covering real property or personal property (or which
would have been covered if Tenant
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or Landlord, as the case may be, was carrying the insurance required by this
Lease). Said waivers shall be in addition to, and not in limitation or
derogation of, any other waiver or release contained in this Lease.
ARTICLE 15
DAMAGE BY FIRE OR OTHER CAUSE
Section 15.01. If the Building or any portion thereof is damaged or
destroyed by any casualty to the extent that, in Landlord's reasonable judgment,
(a) repair of such damage or destruction would not be economically feasible, or
(b) the damage or destruction to the Building cannot be repaired within two
hundred seventy (270) days after the date of such damage or destruction, or if
proceeds from Landlord's insurance remaining after any required payment to any
mortgagee or lessor Landlord are insufficient to repair such damage or
destruction, Landlord shall have the right, at Landlord's option, to terminate
this Lease by giving notice of such termination, within sixty (60) days after
the date of such damage or destruction. If such damage or destruction shall
occur in the final year of this Lease, Landlord shall have the right to
terminate this Lease by giving written notice of such termination, within sixty
(60) days after the date of such damage or destruction.
Section 15.02. If the Premises or any portion thereof is damaged or
destroyed by any casualty and such damage materially impairs the operation of
the business of Tenant, or if the Premises are so impaired that it is materially
impairs the operation of the business of Tenant and if, in Landlord's reasonable
opinion, the Premises cannot be rebuilt or made fit for Tenant's purposes within
one hundred fifty (150) after the date of such damage or destruction, then
either Landlord or Tenant shall have the right, at the option of either party,
to terminate this Lease by giving the other written notice, within sixty (60)
days after such damage or destruction. If the Premises or any portion thereof is
damaged or destroyed by any casualty and, in Landlord's reasonable judgement,
the proceeds from Landlord's insurance remaining after any required payment to
any mortgagee or lessor of Landlord are insufficient to repair such damage or
destruction, Landlord shall have the right, at Landlord's option, to terminate
this Lease by giving Tenant written notice of termination, within sixty (60)
days after such damage or destruction.
Section 15.03. In the event of partial destruction or damage to the
Building or the Premises which is not subject to Section 15.01 or 15.02, but
which renders the Premises partially but not wholly untenantable, this Lease
shall not terminate and Rent shall be abated in proportion to the area of the
Premises which, in Landlord's reasonable opinion, cannot be used or occupied by
Tenant as a result of such casualty. Landlord shall in such event, within a
reasonable time after the date of such destruction or damage, subject to tenant
delay and to the extent and availability of insurance proceeds, restore the
Premises to as near the same condition as existed prior to such partial damage
or destruction. In no event shall Rent abate or shall any termination occur if
damage to or destruction of the Premises is the result of the negligence or
willful misconduct of Tenant, or Tenant's agents, employees, representatives,
contractors or successors.
Section 15.04. If the Building or the Premises or any portion greater than
20% thereof is destroyed by fire or other causes at any time during the last two
years of the Term, then either Landlord or Tenant shall have the right, at the
option of either party, to terminate this Lease by giving written notice to the
other within sixty (60) days after the date of such destruction.
Section 15.05. Landlord shall have no liability to Tenant for
inconvenience, loss of business, or annoyance arising from any repair of any
portion of the Premises or the Building. If Landlord is required by this Lease
or by any mortgagee or lessor of Landlord to repair, or if Landlord undertakes
to repair, Landlord shall use reasonable efforts to have such repairs made
promptly and in a manner which will not unnecessarily interfere with Tenant's
occupancy.
Section 15.06. In the event of termination of this Lease pursuant to
Sections 15.01, 15.02, or 15.04, then all Rent shall be apportioned and paid to
the date on which possession is relinquished or the date of such damage,
whichever last occurs, and Tenant shall immediately vacate the Premises
according to such notice of termination; provided, however, that those
provisions of this Lease which are designated to cover matters of termination
and the period thereafter shall survive the termination hereof.
ARTICLE 16
CONDEMNATION
Section 16.01. In the event any portion of the Building, the Premises or
the Project are taken or condemned by eminent domain or by any conveyance in
lieu thereof (such taking, condemnation or conveyance in lieu thereof being
hereinafter referred to as "condemnation"), which taking, in Landlord's
judgment, is such that the Building or the Premises cannot be restored in an
economically feasible manner for use substantially as originally designed, then
either Landlord or Tenant shall have the right to terminate this Lease, by
giving written notice of termination within sixty (60) days of notice of the
proposed taking and Rent shall be apportioned as of the date of such
termination.
Section 16.02. In the event any portion of the Parking Facilities shall be
taken by condemnation, which taking in Landlord's judgment is such that the
Parking Facilities cannot be restored in an economically feasible
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manner for use substantially as originally designed, including in such
consideration the possible use of additional parking facilities in the vicinity
of the Building, then Landlord shall have the right, at Landlord's option, to
terminate this Lease, effective as of the date specified by Landlord in a
written notice of termination from Landlord to Tenant.
Section 16.03. In the event that a portion of the Premises shall be taken
by condemnation, and this Lease is not terminated pursuant to Section 16.01,
then this Lease shall be terminated as of the date of such condemnation as to
the portion of the Premises so taken, and this Lease shall remain in full force
and effect as to the remainder of the Premises.
Section 16.04. All compensation awarded or paid upon a condemnation of any
portion of the Project shall belong to and be the property of Landlord without
participation by Tenant. Nothing herein shall be construed, however, to preclude
Tenant from prosecuting any claim directly against the condemning authority for
loss of business, loss of good will, moving expenses, damage to, and cost of
removal of, trade fixtures, furniture and other personal property belonging to
Tenant; provided, however, that Tenant shall make no claim which shall diminish
or adversely affect any award claimed or received by Landlord.
Section 16.05. If any portion of the Project other than the Building or
the Parking Facilities is taken by condemnation, or if the temporary use or
occupancy of all or any part of the Premises shall be taken by condemnation
during the Term, this Lease shall be and remain unaffected by such condemnation,
and Tenant shall continue to pay in full the Rent payable hereunder.
ARTICLE 17
INDEMNIFICATION
Section 17.01. Tenant shall and hereby agrees to, indemnify and hold
Landlord harmless from any damages in connection with loss of life, bodily or
personal injury, or property damages arising from an occurrence in the Premises,
when not solely the result of the gross negligence or willful misconduct of
Landlord, its agents, employees, representatives, contractors, licensees and
invitees. Tenant and its agents, employees, representatives, contractors,
licensees and invitees, hereby waive all claims against Landlord for damage to
any property or injury to, or death of, any person in, upon, or about the
Project, including the Premises, arising at any time and from any cause other
than solely by reason of the gross negligence or willful misconduct of Landlord,
its agents, employees, representatives, or contractors. Without limiting the
generality of the foregoing, Landlord shall not be liable for any injury or
damage to persons or property resulting from the condition or design of, or any
defect in the Building or its mechanical systems or equipment which may exist or
occur or from any fire, explosion, falling plaster, steam, gas, electricity,
water, rain, flood, snow, or leaks from any part of the Premises or from the
pipes, appliances, plumbing works, roof, or subsurface of any floor or ceiling,
or from the street or any other place, or by dampness or by any other similar
cause unless the same is caused solely by the gross negligence or willful
misconduct of Landlord, its agents, employees, representatives or contractors.
Landlord shall not be liable for any such damage caused by other tenants or
persons in the Building or by occupants of adjacent property thereto, or by the
public, or caused by construction (unless caused solely by the gross negligence
or willful misconduct of Landlord) or by any private, public or quasi-public
work. The provisions of this Article 17 shall survive the expiration or
termination of this Lease with respect to any damage, injury, or death occurring
before such expiration or termination.
Section 17.02. Landlord shall, and hereby agrees to, indemnify and hold
Tenant harmless from any damages in connection with loss of life, bodily or
personal injury or property damage arising from any occurrence in the Common
Areas of the Project when not solely the result of the gross negligence or
willful misconduct of Tenant, and its agents, employees, representatives,
contractors, licensees, and invitees.
ARTICLE 18
SUBORDINATION AND ESTOPPEL CERTIFICATES
Section 18.01. This Lease and all rights of Tenant hereunder are subject
and subordinate to all underlying leases now or hereafter in existence, and to
any supplements, amendments, modifications, and extensions of such leases
heretofore or hereafter made and to any deeds to secure debt, mortgages, or
other security instruments which now or hereafter cover all or any portion of
the Project or any interest of Landlord therein, and to any advances made on the
security thereof, and to any increases, renewals, modifications, consolidations,
replacements, and extensions of any of such mortgages. This provision is
declared by Landlord and Tenant to be self-operative and no further instrument
shall be required to effect such subordination of this Lease. Upon demand,
Tenant shall execute, acknowledge, and deliver to Landlord any further
instruments and certificates evidencing such subordination as Landlord, and any
mortgagee or lessor of Landlord shall reasonably require. Tenant shall not
unreasonably withhold, delay, or defer its written consent reasonable
modifications in this Lease which are a condition of any financing for the
Project or any reciprocal easement agreement with facilities in the vicinity of
the Building, provided that such modifications do not increase the obligations
of Tenant hereunder or materially and adversely affect Tenant's use and
enjoyment of the Premises.
Section 18.02. Notwithstanding the generality of the foregoing provisions
of Section 18.01, any mortgagee or lessor of Landlord shall have the right at
any time to subordinate any such mortgage or underlying lease to this Lease, or
to any of the provisions hereof, on such terms and subject to such conditions as
such mortgagee or lessor of Landlord may consider appropriate in its discretion.
At any time, before or after the institution of any proceedings for the
foreclosure of any such mortgage, or the sale of the Building under any such
mortgage, or the termination of any
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underlying lease, Tenant shall, upon request of such mortgagee or any person or
entities succeeding to the interest of such mortgagee or the purchaser at any
foreclosure sale ("Successor Landlord"), automatically become the Tenant (or if
the Premises has been validly subleased, the subtenant) of the Successor
Landlord, without change in the terms or other provisions of this Lease (or, in
the case of a permitted sublease, without change in this Lease or in the
instrument setting forth the terms of such sublease); provided, however, that
the Successor Landlord, if Tenant shall have had prior written notice of the
mortgage of the Project, shall not be (i) bound by any payment made by Tenant of
Rent or Additional Rent for more than one (1) month in advance, except for a
Security Deposit previously paid to Landlord, (ii) bound by any termination,
modification, amendment or surrender of the Lease done without the Successor
Landlord's consent after Tenant has been notified of the Successor Landlord's
interest in the Project, (iii) liable for any damages or subject to any offset
or defense by Tenant to the payment of Rent by reason of any act or omission of
any prior landlord (including Landlord), unless written notice thereof shall
have been provided to Successor Landlord, or (iv) personally or corporately
liable, in any event, beyond the limitations on landlord liability set forth in
Section 25.05 of this Lease. This agreement of Tenant to attorn to a Successor
Landlord shall survive any such foreclosure sale, trustee's sale conveyance in
lieu thereof or termination of any underlying lease. Tenant shall upon demand at
any time, before or after any such foreclosure or termination execute,
acknowledge, and deliver to the Successor Landlord any written instruments and
certificates evidencing such attornment as such Successor Landlord may
reasonably require.
Section 18.03. Tenant shall, from time to time, within ten (10) days after
request from Landlord, or from any mortgagee or lessor of Landlord, execute,
acknowledge and deliver in recordable form a certificate certifying, to the
extent true, that this Lease, as the Lease may have been amended, is in full
force and effect; that the Term has commenced and the full amount of the Rent
then accruing hereunder; the dates to which the Rent has been paid; that Tenant
has accepted possession of the Premises and that any improvements required by
the terms of this Lease to be made by Landlord have been completed to the
satisfaction of Tenant; the amount, if any, that Tenant has paid to Landlord as
a Security Deposit; that no Rent under this Lease has been paid more than thirty
(30) days in advance of its due date; that the address for notices to be sent to
Tenant is as set forth in this Lease, or has been changed as set forth in the
certificate; that Tenant has no charge, lien, or claim of offset under this
Lease or otherwise against Rent or other charges due or to become due hereunder;
that, to the knowledge of Tenant, Landlord is not then in default under this
Lease; and such other matters as may be reasonably requested by Landlord or any
mortgagee or lessor of Landlord. Any such certificate may be relied upon by
Landlord, any Successor Landlord, or any mortgagee or lessor of Landlord.
Landlord agrees periodically to furnish, when reasonably requested in writing by
Tenant, certificates signed by Landlord containing information similar to the
foregoing information.
Section 18.04. No act or failure to act on the part of Landlord which
would entitle Tenant under the terms of this Lease, or by law, to be relieved of
Tenant's obligations hereunder or to terminate this Lease, shall result in a
release of such obligations or a termination of this Lease unless (a) Tenant has
given notice by registered or certified mail to any mortgagee or lessor of
Landlord whose address shall have been furnished to Tenant, and (b) Tenant
offers such mortgagee or lessor of Landlord a reasonable opportunity to cure the
default, including time to obtain possession of the Premises by power of sale or
judicial foreclosure, if such should prove necessary to effect a cure.
ARTICLE 19
SURRENDER OF THE PREMISES
Section 19.01. By no later than 11:59 p.m. of the Expiration Date or the
date of earlier termination of this Lease, or upon any re-entry of the Premises
by Landlord without terminating this Lease pursuant to Section 13.02(b), Tenant,
at Tenant's sole cost and expense, shall peacefully vacate and surrender the
Premises to Landlord in good order, broom clean and in the same condition as at
the beginning of the Term or as the Premises may thereafter have been improved,
reasonable use and wear thereof and repairs which are Landlord's obligations
under Articles 9, 15 and 16 only excepted, and Tenant shall remove all of
Tenant's Property and turn over all keys for the Premises to Landlord.
Section 19.02. Should Tenant continue to hold the Premises after the
expiration or earlier termination of this Lease, such holding over, unless
otherwise agreed to by Landlord in writing, shall constitute and be construed as
a tenancy at sufferance at monthly installments of Rent equal to one hundred
fifty percent (150%) of the monthly portion of Base Rent in effect as of the
date of expiration or earlier termination, plus Tenant's Operating Costs
Payment, and subject to all of the other terms, charges and expenses set forth
herein except any right to renew this Lease or to expand the Premises or any
right to additional services. The provisions of this Article 19 shall survive
the expiration or earlier termination of this Lease. Notwithstanding anything to
the contrary, in the event Landlord and Tenant are involved in negotiations for
an extension at the expiration of the second renewal term set forth in Article
28 below, the holdover rent shall not go into effect until the earlier of (i)
the termination of such negotiations, other than upon execution of a lease or
renewal, or (ii) the expiration of thirty (30) days.
ARTICLE 20
LANDLORD'S RIGHT TO INSPECT
Section 20.01. Landlord shall retain duplicate keys to all doors of the
Premises. Tenant shall provide Landlord with new keys should Tenant receive
Landlord's consent to change the locks. Landlord shall have the right to enter
the Premises at reasonable hours upon reasonable notice (or, in the event of an
emergency, at any hour); provided, however, Landlord shall use reasonable
efforts to minimize interference with Tenant's business. Landlord shall not be
liable to Tenant for the exercise of Landlord's rights under this Article 20 and
Tenant hereby waives any
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claims for damages for any injury, inconvenience or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby.
ARTICLE 21
SECURITY DEPOSIT
Section 21.01 A. On the date Landlord delivers the Premises to Tenant in
Tenant Finish Ready Condition, Tenant shall deposit $1,850,000.00 in cash (the
"Security Deposit") to be held in escrow by Frost National Bank or other bank
selected by Tenant and satisfactory to Landlord, which shall not be unreasonably
withheld (the "Escrow Agent"). Prior to the occurrence of a monetary Event of
Default or, if applicable, the date Tenant has net working capital below the
Working Capital Minimum (as defined below) determined as provided below,
interest may be periodically distributed to Tenant. After the occurrence of a
monetary Event of Default or Tenant's falling below the Working Capital Minimum,
if applicable, all undistributed accrued interest shall become part of the
Security Deposit. Tenant shall not assign or in any way encumber the Security
Deposit.
B. Upon the occurrence of any monetary Event of Default by Tenant,
Landlord shall have the right, without prejudice to any other remedy, to submit
a sworn affidavit executed by Landlord stating that Tenant is in default under
the Lease and that the cure period for such default has expired (specifically
setting forth the Event of Default) and the monetary amount necessary to cure
such default. A copy of such notice shall be sent to Tenant. Unless within five
(5) Business Days from such notice, Tenant shall have filed suit to enjoin such
payment and served a copy thereof on Landlord and Escrow Agent, Escrow Agent
shall on the sixth (6th ) Business Day pay to Landlord out of the Security
Deposit the amount set forth in the notice from Landlord without any approval
needed from Tenant. If the entire Security Deposit is paid to Landlord as set
forth in this Section, Landlord shall be entitled to the undistributed accrued
interest on the Security Deposit to the extent necessary to cure monetary Events
of Default.
C. If there have been no monetary Events of Default by Tenant as of the
first anniversary of the Commencement Date, the Security Deposit shall be
reduced to $1,100,000.00 and the Escrow Agent shall return $750,000.00 to
Tenant. If there have been no monetary Events of Default by Tenant as of the
second (2nd) anniversary of the Commencement Date (the "Security Deposit
Termination Date"), the Security Deposit and all undistributed accrued interest
thereon shall be returned to Tenant. Provided, however, if during such two year
period there is a monetary Event of Default by Tenant, the Security Deposit
Termination Date shall be extended until Tenant has not had a monetary Event of
Default for at least two consecutive years and notwithstanding anything
contained in this paragraph to the contrary, Escrow Agent shall hold the
Security Deposit (in the amount then held by Escrow Agent) until the Security
Deposit Termination Date. Provided, further, in the event that Billing Concepts
Corp., a Delaware corporation has been released (the "Guaranty Release Date")
from its obligations to unconditionally guarantee Tenant's performance under
this Lease as set forth in that certain Guaranty executed by Billing Concepts
Corp. contemporaneously with this Lease, if at any time prior to the Security
Deposit Termination Date, Tenant has net working capital of less than
$30,000,000.00 ("Working Capital Minimum"), the Security Deposit shall be held
by Escrow Agent until Tenant has had net working capital in excess of the
Working Capital Minimum for two consecutive fiscal quarters of Tenant. For the
purposes hereof, "net working capital" shall be defined as current assets
(consisting of cash and accounts receivable) minus current liabilities
(including without limitation accounts payable and the current portion of long
term debt) all determined pursuant to generally accepted accounting principles,
consistently applied. Following the Guaranty Release Date, but prior to the
Security Deposit Termination Date, and thereafter if the same shall be extended,
Tenant shall quarterly submit to Landlord a statement of Net Working Capital
certified to be correct by Tenant's outside certified public accountants; such
statement to be delivered to Landlord within 60 days of the end of each of
Tenant's fiscal quarters. If Landlord receives from Tenant a statement
indicating that Tenant is below the Working Capital Minimum, Landlord will
promptly forward a copy of such financial report to Escrow Agent. On the
Security Deposit Termination Date, the Security Deposit shall be released and
delivered to Tenant upon submission by Tenant to Escrow Agent of a sworn
affidavit stating that all conditions to the release the Security Deposit have
been satisfied. A copy of such notice shall be sent to Landlord. Unless within
five (5) Business Days following such notice from Tenant, Landlord shall have
filed suit to enjoin the release of the Security Deposit and served a copy
thereof on Escrow Agent or Tenant, Escrow Agent shall on the sixth (6th)
Business Day following such notice from Tenant release the Security Deposit to
Tenant, without any approval needed from Landlord.
ARTICLE 22
BROKERAGE
Section 22.01. Landlord shall pay to Tenant's exclusive broker, Mark A.
Vickery, Mark A. Vickery Interests, Inc., a commission pursuant to a separate
written agreement. Tenant and Landlord each represent and warrant to the other
that it has not entered into any agreement with, or otherwise had any dealings
with, any broker or agent in connection with the negotiation or execution of
this Lease which could form the basis of any claim by any such broker or agent
for a brokerage fee or commission, finder's fee, or any other compensation of
any kind or nature in connection herewith, other than with Broker, and each
party shall, and hereby agrees to, indemnify and hold the other harmless from
all costs (including court costs, investigation costs, and attorneys' fees),
expenses, or liability for commissions or other compensation claimed by any
broker or agent with respect to this Lease which arise out of any agreement or
dealings, or alleged agreement or dealings, between the indemnifying party and
any such agent or broker, other than with Broker. This provision shall survive
the expiration or earlier termination of this Lease.
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ARTICLE 23
OBSERVANCE OF RULES AND REGULATIONS
Section 23.01. Tenant and Tenant's servants, employees, agents, visitors,
and licensees shall observe faithfully and comply strictly with all Rules and
Regulations (herein so called) attached to this Lease as such Rules and
Regulations may be changed from time to time. Landlord shall at all times have
the right to make reasonable changes in and additions to such Rules and
Regulations; provided Landlord gives Tenant prior notice of such changes and
provided that such new rules and regulations or changes in existing rules and
regulations do not conflict with this Lease, and do not materially interfere
with the lawful conduct of Tenant's business in the Premises. Landlord shall not
be liable to Tenant for the failure or refusal by any other tenant, guest,
invitee, visitor, or occupant of the Building to comply with any of the Rules
and Regulations.
ARTICLE 24
NOTICES
Section 24.01. All notices, consents, demands, requests, documents, or
other communications (other than payment of Rent) required or permitted
hereunder (collectively, "notices") shall be deemed given, whether actually
received or not, when dispatched for hand delivery or delivery by air express
courier (with signed receipts) to the other party, or on the second Business Day
after deposit in the United States mail, postage prepaid, certified, return
receipt requested, except for notice of change of address which shall be deemed
given only upon actual receipt, or on the same Business Day if sent by
telecopier prior to 5:00 p.m., local Austin, Texas time, and the sending
telecopier generates a written confirmation of sending and the providing party
follows up with a hard copy of such notice being sent the same Business Day via
another approved method for notice as provided in this Section 24.01. The
addresses of the parties for notices are set forth in Article 1, or any such
other addresses subsequently specified by each party in notices given pursuant
to this Section 24.01.
ARTICLE 25
MISCELLANEOUS
Section 25.01. PROFESSIONAL FEES. In any action or proceeding brought by
either party against the other under this Lease, the prevailing party shall be
entitled to recover from the other party its professional fees for attorneys,
appraisers and accountants, its investigation costs, and any other legal
expenses and court costs incurred by the prevailing party in such action or
proceeding.
Section 25.02. REIMBURSEMENTS. Wherever the Lease requires Tenant to
reimburse Landlord for the cost of any item, such costs will be the reasonable
and customary charge periodically established by Landlord for such item,
including a fee for Landlord's manager's supervision in connection with
providing such item.
Section 25.03. SEVERABILITY. Every agreement contained in this Lease is,
and shall be construed as, a separate and independent agreement. If any term of
this Lease or the application thereof to any person or circumstances shall be
invalid or unenforceable, the remaining agreements contained in this Lease shall
not be affected.
Section 25.04. NON-MERGER. There shall be no merger of this Lease with any
ground leasehold interest or the fee estate in the Project or any part thereof
by reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or any interest in this Lease as well as any ground
leasehold interest or fee estate in the Project or any interest in such fee
estate.
Section 25.05. LANDLORD'S LIABILITY. Anything contained in this Lease to
the contrary notwithstanding, Tenant agrees that Tenant shall look solely to the
estate and property of Landlord in the Project for the collection of any
judgment or other judicial process requiring the payment of money by Landlord
for any default or breach by Landlord under this Lease, subject, however, to the
prior rights of any mortgagee or lessor of the Project. No other assets of
Landlord or any partners, shareholders, or other principals of Landlord shall be
subject to levy, execution or other judicial process for the satisfaction of
Tenant's claim.
Section 25.06. FORCE MAJEURE. Whenever the period of time is herein
prescribed for action to be taken by Landlord or Tenant, Landlord or Tenant
shall not be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to force majeure, which
term shall include strikes, riots, acts of God, shortages of labor or materials,
war, governmental approvals, laws, regulations, or restrictions, or any other
cause of any kind whatsoever which is beyond the reasonable control of Landlord
or Tenant. Force Majeure shall not excuse or delay Tenant's obligation to Rent
or any other amount due under this Lease.
Section 25.07. HEADINGS. The article headings contained in this Lease are
for convenience only and shall not enlarge or limit the scope or meaning of the
various and several articles hereof. Words in the singular number shall be held
to include the plural, unless the context otherwise requires. All agreements and
covenants herein contained shall be binding upon the respective heirs, personal
representatives, and successors and assigns of the parties thereto.
Section 25.08. SUCCESSORS AND ASSIGNS. All agreements and covenants herein
contained shall be binding upon the respective heirs, personal representatives,
successors and assigns or the parties hereto. If there be more
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than one Tenant, the obligations hereunder imposed upon Tenant shall be joint
and several. If there is a guarantor of Tenant's obligations hereunder, Tenant's
obligations shall be joint and several obligations of Tenant and such guarantor,
and Landlord need not first proceed against Tenant hereunder before proceeding
against such guarantor, and any such guarantor shall not be released from its
guarantee for any reason, including any amendment of this Lease, any forbearance
by Landlord or waiver of any of Landlord's rights, the failure to give Tenant or
such guarantor any notices, or the release of any party liable for the payment
or performance of Tenant's obligations hereunder. Notwithstanding the foregoing,
nothing contained in this Section 25.08 shall be deemed to override Article 8.
Section 25.09. LANDLORD'S REPRESENTATIONS. Neither Landlord nor Landlord's
agents or brokers have made any representations or promises with respect to the
Premises, the Building, the Parking Facilities, the Land, or any other portions
of the Project except as herein expressly set forth and all reliance with
respect to any representations or promises is based solely on those contained
herein. No rights, easements, or licenses are acquired by Tenant under this
Lease by implication or otherwise except as, and unless, expressly set forth in
this Lease.
Section 25.10. ENTIRE AGREEMENT; AMENDMENTS. This Lease and the Exhibits
and Riders attached hereto set forth the entire agreement between the parties
and cancel all prior negotiations, arrangements, brochures, agreements, and
understandings, if any, between Landlord and Tenant regarding the subject matter
of this Lease. No amendment or modification of this Lease shall be binding or
valid unless expressed in writing executed by both parties hereto.
Section 25.11. TENANT'S AUTHORITY. If Tenant signs as a corporation,
execution hereof shall constitute a representation and warranty by Tenant that
Tenant is a duly organized and existing corporation, that Tenant has been and is
qualified to do business in the State of Texas and in good standing with the
State of Texas, that the corporation has full right and authority to enter into
this Lease, and that all persons signing on behalf of the corporation were
authorized to do so by appropriate corporate action. If Tenant signs as a
partnership, trust, or other legal entity, execution hereof shall constitute a
representation and warranty by Tenant that Tenant has complied with all
applicable laws, rules, and governmental regulations relative to Tenant's right
to do business in the State of Texas, that such entity has the full right and
authority to enter into this Lease, and that all persons signing on behalf of
Tenant were authorized to do so by any and all necessary or appropriate
partnership, trust, or other actions.
Section 25.12. GOVERNING LAW. This Lease shall be governed by and
construed under the laws of the State of Texas. Any action brought to enforce or
interpret this Lease shall be brought in the court of appropriate jurisdiction
in Travis County, Texas. Should any provision of this Lease require judicial
interpretation, Landlord and Tenant hereby agree and stipulate that the court
interpreting or considering same shall not apply the presumption that the terms
hereof shall be more strictly construed against a party by reason of any rule or
conclusion that a document should be construed more strictly against the party
who itself or through its agents prepared the same, it being agreed that all
parties hereto have participated in the preparation of this Lease and that each
party had full opportunity to consult legal counsel of its choice before the
execution of this Lease.
Section 25.13. TENANT'S USE OF NAME OF THE BUILDING. Tenant shall not,
without the prior written consent of Landlord, use the name of the Building for
any purpose other than as the address of the business to be conducted by Tenant
in the Premises, and Tenant shall not do or permit the doing of anything in
connection with Tenant's business or advertising (including brokers' flyers
promoting sublease space) which in the reasonable judgment of Landlord may
reflect unfavorably on Landlord or the Building or confuse or mislead the public
as to any apparent connection or relationship between Tenant and Landlord, the
Building, or the Land.
Section 25.14. ANCIENT LIGHTS. Any elimination or shutting off of light,
air, or view by any structure which may be erected on lands adjacent to the
Building shall in no way affect this Lease and Landlord shall have no liability
to Tenant with respect thereto. Provided, however, notwithstanding the
foregoing, Landlord shall not construct any improvements on its adjacent
project, One Barton Skyway, or on the Project (other than improvements built in
substantial accordance with the Building Plans defined in Exhibit C attached
hereto) that would block Tenant's view of the Austin Central Business District
that Tenant may have as of the Commencement Date.
Section 25.15. CHANGES TO PROJECT BY LANDLORD. Landlord shall have the
unrestricted right to make changes to all portions of the Project in Landlord's
reasonable discretion for the purpose of improving access or security to the
Project or the flow of pedestrian and vehicular traffic therein. Landlord shall
have the right at any time, without the same constituting an actual or
constructive eviction and without incurring any liability to Tenant therefor, to
change the arrangement or location of entrances or passageways, doors and
doorways, corridors, elevators, stairs, bathrooms, or any other Common Areas so
long as reasonable access to the Premises remains available. Landlord shall also
have the right to (a) rearrange, change, expand or contract portions of the
Project constituting Common Areas (b) to use Common Areas while engaged in
making improvements, repairs or alterations to the Project, or any portion
thereof, and (c) to do and perform such other acts and make such other changes
in to or with respect to the Project, or any portion thereof, as Landlord may,
in the exercise of sound business judgment, deem to be appropriate. Landlord
shall be entitled to change the name or address of the Building or the Project.
Landlord shall have the right to close, from time to time, the Common Areas and
other portions of the Project for such temporary periods as Landlord deems
legally sufficient to evidence Landlord's ownership and control thereof and to
prevent any claim of adverse possession by, or any implied or actual dedication
to, the public or any party other than Landlord.
Section 25.16. TIME OF ESSENCE. Time is of the essence of
this Lease.
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Section 25.17. LANDLORD'S ACCEPTANCE OF LEASE. The submission of this
Lease to Tenant shall not be construed as an offer and Tenant shall not have any
rights with respect thereto unless Landlord executes a copy of this Lease and
delivers the same to Tenant.
Section 25.18. FINANCIAL STATEMENTS. So long as Tenant is a privately held
company, upon written request, not more often than annually, Tenant shall
provide Landlord with a current financial statement and financial statements of
the two (2) years prior to the current financial statement year. If Tenant is a
publicly held company, Tenant shall provide Landlord with a copy of any publicly
available financial statement of Tenant. Such statement shall be prepared in
accordance with generally accepted accounting principles and, if such is the
normal practice of Tenant, shall be audited by an independent certified public
accountant.
Section 25.19. SIGNAGE. Tenant shall have the right to install and display
a monument sign and the right to install and display not more than one building
mounted sign or identity on the facade of the Building (including Tenant's name
and corporate logo). The costs of installation, operation, maintenance and
removal of such signage shall be borne by Tenant. Such signage may include
signage on the "D" Wing or the central area of the Building, Tenant having first
choice of location. The location, size, quality, material and lighting for such
signage shall be approved and selected jointly by Tenant and Landlord, which
approval shall not be unreasonably withheld or delayed. Such signage shall be
subject to approval of the City of Austin. Landlord shall not allow there to be
more than two tenant identification signs mounted on the Building. Landlord
shall provide Tenant with Building standard signage for the Building directory
and the exterior of Tenant's main entrance to the Premises. Notwithstanding
anything in this Lease to the contrary, in the event that Tenant vacates,
deserts or abandons more than 50% of the Premises, then Landlord may remove
Tenant's building mounted sign at Tenant's expense.
Section 25.20. FIBER OPTICS/CONNECTION RIGHTS. Prior to completion of Base
Building Condition, Landlord shall select a telecommunications provider for the
Building, which provider shall make its service available to all tenants,
including Tenant, in the Building. Landlord grants Tenant the right to use
existing, or construct new conduits entering into and through the Building and
the right to install cables, equipment and other related telecommunications
facilities required for Tenant's network into and through the Building, subject
to Landlord's prior approval of plans for such conduits, cables, equipment and
other related telecommunications facilities.
ARTICLE 26
SUBSTITUTION SPACE
This Article is intentionally omitted.
ARTICLE 27
OTHER DEFINITIONS
When used in this Lease, the terms set forth hereinbelow shall have the
following meanings: (a) "Business Days" shall mean Monday through Friday (except
for Holidays); "Business Hours" shall mean 7 a.m. to 7 p.m. on Monday through
Friday and 9 a.m. to 3 p.m. on Saturdays (except for Holidays); and "Holidays"
shall mean those holidays designated by Landlord, which holidays shall be
consistent with those holidays designated by landlords of other first-class
office buildings in the Austin, Texas suburban area. (b) "Common Areas" shall
mean those certain areas and facilities of the Building and the Parking
Facilities and those certain improvements to the Land which are from time to
time provided by Landlord for the use of tenants of the Building and their
employees, clients, customers, licensees and invitees or for use by the public,
which facilities and improvements include any and all corridors, elevator
foyers, vending areas, bathrooms, electrical and telephone rooms, mechanical
rooms, janitorial areas and other similar facilities of the Building and of the
Parking Facilities and any and all grounds, parks, landscaped areas, outside
sitting areas, sidewalks, walkways, and generally all other improvements located
on the Land, or which connect the Land to other buildings. (c) The words "day"
or "days" shall refer to calendar days, except where "Business Days" are
specified. (d) "Net Rentable Area" shall mean (1) in the case of a single
tenancy floor, all floor area measured from the inside surface of the outer
glass of the Building, excluding only the areas ("Service Areas") within the
outside wall used for the Building's stairs, fire towers, elevator shafts,
vertical penetrations of the Building's central atrium, flues, vents, stacks,
pipe shafts, and vertical ducts (which areas shall be measured from the
mid-point of walls enclosing such areas, but including any Service Areas which
are for the specific use of the particular tenant, such as special stairs or
elevators, plus an allocation of the square footage of the Building's central
areas for providing telephone, electrical, mechanical, janitorial, security and
mail services, as well as, the central entry lobby, ground level elevator lobby
and service elevator lobby, central fire exit corridors, service exit corridor
and central loading dock (the "Central Areas") consistent with current BOMA/
American National Standard Institute single tenant standards, governed by BOMA
Southwest-Dallas, Texas, and (2) in the case of a floor to be occupied by more
than one tenant, all floor areas within the inside surface (with respect to the
Premises) of the glass and to the midpoint of the walls separating areas leased
by or held for lease to other tenants or from the Common Areas, but including a
proportionate part of the Common Areas located on such floor based upon the
ratio which Tenant's Net Rentable Area (excluding Common Areas) on such floor
bears to the aggregate Net Rentable Area (excluding Common Areas) on such floor,
plus an allocation of the square footage of the Building's Central Areas
consistent with current BOMA/ American National Standard Institute multiple
tenant standards, governed by BOMA Southwest-Dallas, Texas. In the case of both
single and multiple tenant floors, telephone, electrical, mechanical,
maintenance, janitorial or security rooms not included in the Building's Central
Areas but which serve more than one floor shall be considered Common Areas and
shall be allocated among all tenants whose premises are served thereby,
regardless of whether such premises are located on the same floor as the rooms
in question. Such allocation
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shall be made in accordance with the proportion of the Net Rentable Area so
served. No deductions from Net Rentable Area shall be made for columns or
projections necessary to the Building. (e) The "terms of this Lease" shall be
deemed to include all terms, covenants, conditions, provisions, obligations,
limitations, restrictions, reservations and agreements contained in this Lease.
(f) A "year" shall mean a calendar year.
ARTICLE 28
RENEWAL OPTIONS
Section 28.01 Tenant shall have the right to extend the Term of this
Lease, with respect to the Premises then subject to this Lease, for the
respective Extension Term(s) (herein so called) upon and subject to the
following terms and conditions:
(a) Tenant may extend this Lease for up to two (2) successive Extension
Terms of five (5) years each by Tenant's giving written notice thereof to
Landlord not earlier than fifteen (15) months, nor later than twelve (12) months
prior to the expiration of the original Term or the then Extension Term, as
applicable. Landlord shall advise Tenant of Landlord's estimate of the Fair
Market Rental Rate (as hereinafter defined) within thirty (30) days of
Landlord's receipt of Tenant's notice of its exercise of an option to extend the
term of this Lease Agreement Landlord and Tenant shall endeavor to agree upon
the Fair Market Rental Rate. If, Landlord and Tenant are not able to agree upon
the then Fair Market Rental Rate within twenty (20) days following Landlord's
notice to Tenant of Landlord's estimate of the Fair Market Rental Rate and
Tenant does not withdraw its notice to extend the term of this Lease Agreement
prior to the end of such 20 day period, then the then Fair Market Rental Rate
will be determined as set out below. Landlord and Tenant will provide written
notice to one another of their respective estimate of the then Fair Market
Rental Rate. Landlord and Tenant will agree on an appraiser. Using his or her
professional expertise and experience, the appraiser, within 10 days, shall
determine which of the two parties' opinion of Fair Market Rental Rate is
correct or most closely reflects the appraiser's opinion of Fair Market Rental
Rate. The appraiser must choose one of the party's opinion of Fair Market Rental
Rate and can not substitute his or her opinion of the Fair Market Rental Rate
and such determination will be binding on Landlord and Tenant. If Landlord and
Tenant are not able to agree upon an appraiser, then Landlord will provide
Tenant with a list of three (3) appraisers. Tenant will select one (1) appraiser
from the list and the appraiser selected will determine the then Fair Market
Rental Rate as set forth above, and such determination will be binding on
Landlord and Tenant, and the rental will be adjusted as set out above.
(b). Any appraiser will be a state licensed commercial real estate
appraiser, have achieved the designation "MAI" and have been an appraiser of
commercial real property in Travis County, Texas for not less than five (5)
years. The cost of any appraiser will be borne by the party whose estimate of
the then Fair Market Rental Rate set forth in the notice to the other party is
the furthest from the then Fair Market Rental Rate determined by the appraiser.
If the estimates are equally wrong or right, then the cost will be shared.
(c). Each such Extension Terms shall commence immediately upon the
expiration of the original Term or immediately preceding the Extension Term, as
the case may be, and upon exercise of any such extension option the "Expiration
Date" of the Term shall automatically become the last day of the Extension Term
in question. If Tenant does not extend this Lease in a timely manner for any
particular Extension Term, then Tenant's rights with respect to all later
Extension Terms shall expire and be of no force or effect. Tenant's right to
extend the Term for an Extension Term shall be of no force or effect, at the
election of Landlord, if either at the time Tenant exercises its extension
option, or at the time of the commencement of the Extension Term, in question, a
monetary Event of Default then exists.
(d). The exercise by Tenant of any extension option set forth herein must
be made, if at all, by written notice executed by Tenant and delivered to
Landlord on or before the exercise dates set forth hereinabove. Once Tenant
shall exercise any extension option, Tenant may not thereafter revoke such
exercise, subject to subsection (a) above. Tenant shall not have the right to
exercise an extension option at a time when an Event of default is continuing
under this Lease. Tenant's failure to exercise timely an extension option for
any reason whatsoever shall conclusively be deemed a waiver of such option.
(e). For purposes hereof the "Fair Market Rental Rate" means the fair
market rental rate per square foot of the Net Rentable Area of the premises,
calculated as of the first day of the Extension Term in question (taking into
account all relevant factors, including, but not limited to the location,
quality and age of the Building, floor level, extent and status of the existing
Leasehold Improvements, rent concessions, inducements, refurbishment allowances,
treatment of operating costs, moving expenses, rental abatements and lease
takeovers, assumption and other concessions, term of lease, extent of service to
be provided, the cost of tenant parking in the Austin, Texas suburban area,
distinction between "gross" and "net" lease, base year or the amount allowed for
escalation purposes (expense stop, if any), and the time the particular rental
rate becomes or is to become effective) for a comparable lease term to
comparable tenants for space at a comparable floor location of comparable size
in comparable buildings in the market area surrounding the Building, as the case
may be.
(f). Tenant shall take the Premises "as is" for each Extension Term and
Landlord shall have no obligation to make any improvements or alterations to the
Premises. This provision is not intended to exclude consideration of a
refurbishment allowance as part of the calculation of Fair Market Rental Rate
described in subsection (e) above.
(g). Except as set forth in this Article, the leasing of the Premises for
each Extension Term shall be
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upon the same terms and conditions as are applicable for the original Term, and
shall be upon and subject to all of the provisions of the Lease.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, Landlord and Tenant have set their hands hereunto and
have caused this Lease to be executed by duly authorized officials thereof, as
of the day and year set forth on the cover page hereof.
LANDLORD:
Prentiss Properties Acquisition Partners, L.P.,
a Delaware limited partnership,
By: Prentiss Properties I, Inc.,
a Delaware corporation,
general partner
By:
Name:
Title:
By:
Name:
Title:
TENANT:
APTIS, INC., dba
APTIS SOFTWARE
a Delaware corporation
By:
Name:
Title:
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EXHIBIT A
FLOOR PLAN OF THE PREMISES
<PAGE>
EXHIBIT B
THE LAND
Lot 2B, Replat of Lot 2, WALLINGWOOD SECTION II, a subdivision in Travis County,
Texas, according to the map or plat recorded in Book 100, Pages 95-96 of the
Plat Records of Travis County, Texas.
<PAGE>
EXHIBIT C
LEASEHOLD IMPROVEMENTS
ARTICLE 1
DEFINITIONS
The terms defined in Article 1 of this Exhibit C, for all purposes of this
Exhibit C, shall have the meanings herein specified, and in addition to the
terms defined herein, the definitions in the Basic Lease Information and
otherwise in this Lease shall also apply to this Exhibit C.
1.01. "Base Premises Condition" shall mean completion of the Premises by
Landlord, at Landlord's sole cost as set forth in Attachment 1 to Exhibit "C."
1.02. "Building Standard" means the quality of materials, finishes, and
workmanship from time to time specified by Landlord for the Building.
1.03. "Non-Building Standard" means all materials, finishes, and
workmanship used in connection with the construction and installation of the
Leasehold Improvements which deviate from Building Standard in terms of quality.
1.04. "Tenant's Work" means the work which is supplied, installed, and
finished by Tenant's Contractor, at Tenant's cost, to complete any Leasehold
Improvements to the Premises.
1.05. "Leasehold Improvements" shall mean the leasehold
improvements to be completed in the Premises.
1.06. "Tenant's Contractor" means the person or firm from time to time
selected, and paid, by Tenant to construct and install the Leasehold
Improvements in the Premises.
1.07. "Landlord's Manager" shall be the manager of the Building.
1.08. "Tenant Expenditure Authorization" means an authorization by Tenant,
prior to the commencement of any Tenant's Work for Landlord's Manager to
contract to expend funds on behalf of Tenant.
ARTICLE 2
COMPLETION OF PREMISES
2.01. Landlord, at Landlord" expense, has provided to Tenant plans and
specifications for the Building, the Project and the Parking Facilities (the
"Building Plans"). Landlord agrees to construct the Building, the Project and
the Parking Facilities in substantial accordance with the Building Plans. The
current Building Plans allow for for access flooring of up to 12 inches in the
Premises and a space for back up electrical generation equipment for Tenant, in
a location approved by Landlord and Tenant, which approval will not be
unreasonably withheld. Notwithstanding the foregoing, Landlord shall not be
responsible for any changes to the structural design of the Building necessary
to accommodate Tenant's access flooring. As soon as practicable after the
execution of this Lease, but in any event not later than ninety (90) days prior
to the Substantial Completion Date, Tenant, at Tenant's expense, shall provide
to Landlord a complete space plan, the architectural construction plan to
include specifications and finish schedules specifications (collectively "Plans
and Specifications") for the Leasehold Improvements. Such Plans and
Specifications shall be prepared by a space planner selected by Tenant. Within
ten (10) Business Days after Tenant's delivery of such Plans and Specifications,
Landlord shall notify Tenant in writing as to whether Landlord approves or
disapproves such Plans and Specifications. Landlord's approval of the Plans and
Specifications, and any changes thereto, for Tenant's Work shall impose no
responsibility or liability on Landlord for their completeness, design
sufficiency, or compliance with all applicable laws, rules and regulations of
governmental agencies or authorities. If Landlord fails to expressly disapprove
such Plans and Specifications, within this ten (10) day period, then Tenant
shall be authorized to proceed thereon.
2.02. Unless otherwise agreed to in writing by Landlord and Tenant, all
Tenant's Work involved in the construction and installation of the Leasehold
Improvements shall be carried out by Tenant's Contractor under the sole
direction of Tenant. Landlord and Tenant shall cooperate to promote the
efficient and expeditious completion of such Tenant's Work. Landlord agrees to
allow Tenant and Tenant's Contractor access to the Premises as soon as
reasonably practicable. . Tenant agrees to pay the cost of all Tenant's Work and
submit to Landlord promptly upon being billed therefor, copies of all statements
evidencing charges for labor and materials for the construction of the Leasehold
Improvements, along with lien waivers from each contractor, subcontractor and
material supplier contingent only on receipt of payment and a written
confirmation from Tenant that the portion of Tenant's Work represented by the
statements and lien waivers has been installed to Tenant's satisfaction.
Landlord shall pay to Tenant monthly, within thirty (30) days after receipt of
such statements, the costs thereof, up to but not exceeding the amount of the
Tenant Allowance herein defined. Tenant shall be liable for and shall pay all
costs in excess of the Tenant Allowance. Tenant agrees that in the event of
default of payment thereof, Landlord (in addition to all other remedies) shall
have the same rights as in the event of default of payment of Rent under this
Lease.
2.03. If there are any changes in the Leasehold Improvements caused by
Tenant from the work as reflected in the final Plans and Specifications, each
such change must receive the prior written approval of the Landlord, and, in
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the event of any such approved change in the Plans and Specifications, drawings,
Tenant shall, upon completion of the Tenant's Work, furnish Landlord with an
accurate, reproducible "as-built" plan of the Tenant's Work as constructed,
which plans shall be incorporated in to this Exhibit C by this reference for all
intents and purposes when said plans are fully completed.
2.04. All design, construction and installation shall conform to the
requirements of applicable building, plumbing and electrical codes, requirements
of governmental laws, including the Americans with Disabilities Act, and the
requirements of any authority having jurisdiction over, or with respect to, such
work.
2.05. Tenant acknowledges that the Premises are being delivered to Tenant
in Tenant Finish Ready Condition, and Tenant accepts the Premises in Tenant
Finish Ready Condition, except to the extent that Tenant contracts with
Landlord's Manager to supervise the construction of additional Leasehold
Improvements to the Premises.
ARTICLE 3
TENANT'S ALLOWANCE
3.01. Landlord hereby grants Tenant an allowance equal to $25.00 per
square foot of Net Rentable Area of the Premises ("Tenant's Allowance") to be
used towards the cost of Tenant's Work for the Premises. In the event that the
full amount of Tenant's Allowance is not expended on Tenant's Work, Tenant may
apply any remaining monies against Base Rent to be due under the Lease.
ARTICLE 4
COMMENCEMENT OF RENT
4.01 Tenant's obligation for the payment of the Rent under this Lease for
the Premises shall commence in accordance with Section 3.02 of the Lease.
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EXHIBIT D
FORM OF COMMENCEMENT NOTICE
This Commencement Notice is delivered this day of ________ , 19___, by
Prentiss Properties Acquisition Partners, L.P., a Delaware limited partnership
("Landlord"), to ("Tenant"), pursuant to the provisions of Section 3.03 of that
certain Lease Agreement (the "Lease") dated ___ , 19 ____, by and between
Landlord and Tenant covering certain space in the Building known as
___________________ . All terms used herein with their initial letter
capitalized shall have the meaning assigned to such terms in the Lease.
W I T N E S S E T H:
1. The Building, the Premises, the Parking Facilities, and all other
improvements required to be constructed and furnished by Landlord in accordance
with the terms of the Lease have been satisfactorily completed by the Landlord
and accepted by the Tenant.
2. The Premises have been delivered to, and accepted by, the Tenant,
subject to the completion of "punch list" items.
3. The Commencement Date of the Lease is the 1st day of ______________ ,
19__, and the Expiration Date is the day of ______________ , 19__ .
4. The Premises consist of ___ square feet of Net Rentable Area on the
floor of the Building.
5. The Base Rent, including Base Year Operating Costs, is $ ___________
per annum and Tenant's Operating Costs Payment is $__________ per annum, payable
in monthly installments of $___________ , subject, however, to the provisions of
the Lease relating to adjustments of Tenant's Operating Costs Payment beginning
on January 1, 19 ____________ .
6. Remittance of the foregoing payments shall be made on the first day of
each month in accordance with the terms and conditions of the Lease at the
following address:
Prentiss Properties Acquisition Partners, L.P.
3890 W. Northwest Highway, Suite 400
Dallas, Texas 75220
IN WITNESS WHEREOF, this instrument has been duly executed by Landlord as
of the date first written above.
LANDLORD:
Prentiss Properties Acquisition Partners, L.P.,
a Delaware limited partnership,
By: Prentiss Properties I, Inc.,
an Delaware corporation,
general partner
By:
Name:
Title:
By:
Name:
Title:
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RIDER NO. 1
RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways and similar areas
shall not be obstructed by tenants or their officers, agents, servants, and
employees, or used for any purpose other than ingress and egress to and from the
Premises and for going from one part of the Building to another part of the
Building.
2. Plumbing fixtures and appliances shall be used only for the purpose for
which constructed, and no sweepings, rubbish, rags, or other unsuitable material
shall be thrown or placed therein. The cost of repairing any stoppage or damage
resulting to any such fixtures or appliances from misuse on the part of a tenant
or such tenant's officers, agents, servants, and employees shall be paid by such
tenant.
3. No signs, posters, advertisements, or notices shall be painted or
affixed on any of the windows or doors, or other part of the Building, except of
such color, size, and style, and in such places, as shall be first approved in
writing by the building manager. No nails, hooks, or screws shall be driven into
or inserted in any part of the Building, except by Building maintenance
personnel.
4. Directories will be placed by Landlord, at Landlord's own expense, in
the lobby of the Building. No other directories shall be permitted.
5. The Premises shall not be used for conducting any barter, trade, or
exchange of goods or sale through promotional give-away gimmicks or any business
involving the sale of second-hand goods, insurance salvage stock, or fire sale
stock, and shall not be used for any auction or pawnshop business, any fire
sale, bankruptcy sale, going-out-of- business sale, moving sale, bulk sale, or
any other business which, because of merchandising methods or otherwise, would
tend to lower the first-class character of the Building.
6. Tenants shall not do anything, or permit anything to be done, in or
about the Building, or bring or keep anything therein, that will in any way
increase the possibility of fire or other casualty or obstruct or interfere with
the rights of, or otherwise injure or annoy, other tenants, or do anything in
conflict with the valid pertinent laws, rules, or regulations of any
governmental authority.
7. Tenant shall not place a load upon any floor of the Premises, which
exceeds to floor load per square foot which such floor was designed to carry or
which is allowed by applicable building code. Landlord may prescribe the weight
and position of all safes and heavy installations which Tenant desires to place
in the premises so as properly to distribute the weight thereof. All damage done
to the Building by the improper placing of heavy items, which overstress the
floor, will be repaired at the sole expense of the Tenant.
8. A tenant shall notify the building manager when safes or other heavy
equipment are to be taken into or out of the Building. Moving of such items
shall be done under the supervision of the building manager, after receiving
written permission from him/her.
9. Corridor doors, when not in use, shall be kept closed.
10. All deliveries must be made via the service entrance and service
elevators during normal business hours or as otherwise directed or scheduled by
Landlord. Prior approval must be obtained from Landlord for any deliveries that
must be received after normal business hours.
11. Each tenant shall cooperate with building employees in keeping the
premises neat and clean.
12. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts, or stairways. No birds, animals, or reptiles, or any other creatures,
shall be brought into or kept in or about the building.
13. Should a tenant require telegraphic, telephonic, annunciator, or any
other communication service, Landlord will direct the electricians and
installers where and how the wires are to be introduced and placed, and none
shall be introduced or placed except, as Landlord shall direct.
14. Tenants shall not make or permit any improper noises in the Building,
or otherwise interfere in any way with other tenants or persons having business
with them.
15. No equipment of any kind shall be operated on the premises that could
in any way annoy any other tenant in the Building without written consent of
Landlord.
16. Business machines and mechanical equipment belonging to Tenant which
cause noise and/or vibration that may be transmitted to the structure of the
Building or to any leased space so as to be objectionable to Landlord or any
tenants in the Building shall be placed and maintained by Tenant, at Tenant's
expense, in setting of cork, rubber, or spring type noise and/or vibration
eliminators sufficient to eliminate vibration and/or noise.
17. Tenants shall not use or keep in the Building any inflammable or
explosive fluid or substance, or any illuminating material, unless it is battery
powered, UL approved.
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18. Tenants employees or agents, or anyone else who desires to enter the
Building after normal business hours, may be required to provide appropriate
identification and sign in upon entry, and sign out upon leaving, giving the
location during such person's stay and such person's time of arrival and
departure, and shall otherwise comply with any reasonable access control
procedures as Landlord may from time to time institute.
19. Landlord has the right to evacuate the Building in event of emergency
or catastrophe.
20. If any governmental license or permit shall be required for the proper
and lawful conduct of Tenant's business, Tenant, before occupying the Premises,
shall procure and maintain such license or permit and submit it for Landlord's
inspection. Tenant shall at all times comply with the terms of any such license
or permit.
21. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and street address of the Building.
22. Neither Tenant, nor any other person visiting the Building shall be
permitted to use tobacco products in the Building, Premises, or the Common
Areas.
23. Landlord reserves the right to rescind any of these Rules and
Regulations and make such other and further rules and regulations or
modifications to these rules and regulations.
<PAGE>
RIDER NO. 2
SCHEDULE OF JANITORIAL SERVICES
DESCRIPTION OF SERVICES AND CLEANING SPECIFICATIONS
DETAILED SPECIFICATIONS - NIGHTLY CLEANING
(a) It is the intent of these specifications that Contractor will
maintain the Premises at an optimum level of cleanliness at all
times. These specifications, therefore, shall be a guide for,
rather than a limitation to the Services required to effectively
maintain the Premises in accordance with this Agreement. If the
Property Manager considers the level of cleanliness at any time
to be unacceptable, then Contractor shall be required to effect
prompt action to overcome such unacceptable condition(s) and any
additional cost resulting from such action shall be borne solely
by Contractor.
(b) It is understood that the words "adequate," "necessary," "needed,"
or "required" as indicated herein shall be construed herein to mean
"as determined by Manager, Owner or Property Manager. "
ENTIRE COMPLEX - with regard to the entire Premises, Contractor, through
the Staff, shall nightly as required by Article II above:
(a) Secure all lighting as soon as possible and illuminate only the
immediate work area as required.
(b) Dust mop using a treated mop to remove all loose dirt or sweep
all hard surface floors, including tenant spaces, entrance foyers
and vestibules, and all public areas, including building
corridors; sweep all stone, ceramic tile, marble, terrazzo,
asphalt, tile, linoleum, rubber, vinyl and other types of
flooring, to ensure dust-free floors, with special attention
given to hard-to-reach areas such as edges, niches, and areas
behind doors. The floor when dry, will be even in appearance and
show no streaking from cleaning efforts. If rain mats are in use
because of inclement weather, they will be vacuumed and spot
cleaned as necessary.
(c) Wash all ceramic tile, marble, terrazzo, or all hard surface
flooring in the entrance foyers of the Building.
(d) Vacuum all carpeted areas and rugs, moving light furniture other
than desks and file cabinets. Spot-clean carpets and rugs as
necessary. Shampoo carpets as necessary to maintain spot-free
appearance. Particular attention shall be given to vacuuming under
desks.
(e) Sweep stairways and landings and wash as necessary; vacuum carpeted
stairways, and dust all handrails, balustrades, and stringers as
necessary.
(f) If carpeted, vacuum carpets of all public corridors nightly.
(g) If resilient tile, clean and spray buff wax floors of all public
corridors and tenant areas so as to maintain a highly polished
surface.
(h) Mop up and wash floors for spills, smears and foot tracks
throughout, including tenant space as needed, and wash floors in
general as required.
(i) Clean and sanitize, utilizing a non-abrasive cleaner, all water
fountains and water coolers, emptying waste water as needed.
(j) Remove from all wastebaskets, trash barrels, ashtrays or other trash
receptacles all trash from the Premises and deposit it in the
designated area for trash. Recycling containers will be removed to
the designated collection areas as required. Trash liners will be
replaced nightly.
(k) Clean all wastepaper baskets and disposal receptacles, and wash all
ashtrays, paper towel waste cans, and any other trash receptacles
(damp dusting as necessary).
(l) All doors, jambs, walls and window mullions and glass partitions
will be spot- cleaned using only clean water or mild cleansing
solution to remove streaks, smudges, finger-marks and spills. If a
cleaning solution is used, the wall will be rinsed with clear water.
No abrasive cleaners of any kind or cleaning solutions containing
bleach will be used without first obtaining written permission from
the Property Manager.
(m) Police all interior planters, remove debris and spot clean exterior
surfaces as necessary.
(n) Brush/vacuum all upholstered furniture as necessary.
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(o) Replace all furniture and/or accessories to their original positions
if moved to accommodate cleaning.
(p) Clean all cigarette urns and replace sand or water in ashtrays as
necessary.
(q) Dust and wipe clean all furniture, fixtures, shelving, desk
equipment, telephones, cabinets and map boards, and clean all glass
tables and desk tops with impregnated cloths as needed. Dust only
those areas which are clear of papers and files. Contractor will be
responsible to clean the underside of removable glass tops for
conference tables and other miscellaneous furniture.
(r) Clean and sanitize all telephone receivers.
(s) Wash and remove with a non-abrasive cleaner all finger marks,
smudges, scuff marks, ink stains, gum or foreign matter from
glass desk tops, glass table tops, glass entrances, areas around
light switches, private entrances to offices and elevator doors,
glass directory boards, metal partitions, and other marks on
walls, window sills, and other similar surfaces, and glass table
cabinets, as required. All items are to be left in a bright
condition free of streaks and dust.
(t) Wipe clean, polish, as needed, all brass, stainless steel, and
bright work, using a non-acid polish to a bright condition free of
dust and streaks.
(u) Clean all chalkboards/message boards and/or trays except where
written text has not been erased by tenants of the Building.
LAVATORIES AND REST ROOMS - with regard to the lavatories and restrooms,
Contractor, through the Staff, shall nightly as required by Article II
above:
(a) Sweep, rinse, scrub and/or wash and dry all flooring with approved
germicidal detergent solution, containing no deodorants, to remove
all spills, smears, scuff marks and foot tracks.
(b) Wash and polish all mirrors, powder shelves, bright work, and enamel
surfaces, including flushometers, piping, toilet seat hinges, and
all metal. Contractor shall use only non-abrasive and non-acidic
material to avoid damage and deterioration to metal fixtures.
(c) Scour, wash and disinfect all basins, bowls and urinals with
approved germicidal detergent solution free of any deodorants,
including tile walls near urinals. Remove stains as necessary and
clean underside of urinals and bowls. Special care must be taken to
inspect and clean areas of difficult access such as the underside of
toilet bowls and urinals to prevent build up of calcium and iron
oxide deposits.
(d) Wash both sides of all toilet seats with approved germicidal
detergent solutions and wipe dry.
(e) Disinfect, damp-wipe and wash all partitions, enamel surfaces, tile
walls, dispensers, doors and receptacles.
(f) Damp-wipe with germicidal solution free of any deodorants urinal
modesty screens. Surfaces are to dry with a uniform appearance free
of any streaks or smudges.
(g) All rest room doors will be damp-wiped to remove any hand marks from
door and door hardware.
(h) Scour, wash and disinfect all private basins in all tenant suites
throughout the Building.
(i) Empty and sanitize paper towel and sanitary napkin disposal
receptacles.
(j) Remove wastepaper and refuse, including soiled sanitary napkins, to
designated area in the building, and dispose of same. All wastepaper
receptacles to be thoroughly cleaned, sanitized and new liners
installed.
(k) If applicable, wash and wax all resilient tile floors in
toilet/powder rooms, or vacuum if carpeted.
(l) Fill and maintain mechanical operation of all toilet tissue holders,
and dispensers, towel dispensers, and sanitary napkin vending
dispensers. The filling of such receptacles to be in such quantity
as to last the entire business day wherever possible. Care should be
taken to inspect dispensing fixtures to insure they are working
properly. Any deficiencies shall be reported to the Property Manager
immediately.
(m) Keep lavatories thoroughly clean and do not use a disinfectant to
mask odors. If disinfectant is necessary, a odorless disinfectant
shall be used only upon prior approval by the Property Manager.
(n) Report to the night supervisor as designated by the Property Manager
any broken, damaged or improper functioning of any mechanical or
plumbing device, including burned-out bulbs and fluorescent tubes.
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(o) Use only non-abrasive cleaners to avoid removing the finish of
ceramic or metal fixtures.
OFFICE FLOORS, ENTRANCE LOBBIES, ELEVATOR LOBBIES, AND OUTDOOR Corridors -
with regard to office floors, entrance lobbies, elevator lobbies and
outdoor corridors Contractor, through the Staff, shall nightly as required
by Article II above:
(a) Keep entrance ways, lobbies, and outside corridors properly
maintained and clean and presentable at all times, in keeping with
the standards of a first-class office building.
(b) Sweep and wash flooring and vacuum carpeting, if applicable.
(c) Clean all cigarette urns and replace sand or water as necessary;
such materials to be furnished by Contractor.
(d) Wash flooring, including mats, where applicable.
(e) Pick up and put out rain mats when necessary, making sure that they
are clean at all times.
(f) Clean entrance door glass.
(g) Clean telephone booths and storage rooms.
(h) Clean mail depository and lobby directories, including glass, if
applicable.
(i) Dust and polish all surfaces, using methods that will retain and
protect original finishes.
ELEVATORS - With regard to the Elevators, Contractor, through the Staff,
shall nightly as required by Article II above:
(a) Remove all marks, streams and smudges from all interior and exterior
surfaces, including ceiling lenses, walls, handrails, doors, jambs
and call plates by wiping with a clean water-dampened cloth and
wiping with a clean dry cloth. Contractor will be held responsible
for any damage to existing metal sealant due to unauthorized
treatment.
(b) Dust and rub down elevator doors, walls, metal work and saddles in
elevator cabs; vacuum elevator saddles and door tracks using a
vacuum crevice attachment.
(c) Dust bulbs, fixtures and diffusers as required to meet the
requirements of this Agreement.
(d) Maintain metal work throughout, including elevator cabs, by cleaning
and polishing as necessary. It is also understood that Property
Manager, at Owner's expense, will schedule a program to maintain
metal.
(e) Thoroughly clean/polish all interior and exterior surfaces. Steel
wool clean all thresholds, including the area beyond the door edges
and thoroughly clean all step treads, combs and cover plates at
landings.
(f) At least monthly, wipe clean entire cab ceiling, including lamps and
fixtures. Shampoo cab carpeting, machine scrub and refinish as
appropriate, any hard surface flooring.
(g) Treat and polish all wood and synthetic paneling in the elevator
cabs as necessary.
(h) Maintain floors in elevator cabs as needed and clean thoroughly.
Special care is to be taken to clean corners, crevices and along
edges. If carpeted, remove soluble spots which safely respond to
standard spot removal procedure without risk of injury to color of
fabric. Cabs to be vacuumed nightly. Remove all chewing gum on
floors, walls and rails.
ENTRANCE LOBBIES AND PUBLIC AREAS - with regard to entrance lobbies and
public areas, Contractor, through the staff, shall nightly as required by
Article II above:
(a) Sweep and wash floors and vacuum carpeting, if applicable.
(b) Sweep, vacuum, and spot clean all rubber mats, shampooing as needed.
(c) Clean all cigarette urns and replace sand or water as necessary.
(d) Pick up and put out rain mats as necessary, making sure that they
are kept clean at all times during storage. Area for storage to be
designated by the Property Manager. Mats are to be stored
horizontally.
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(e) Clean all entrance door glass, including building directory glass,
inside and outside.
(f) Clean all public telephone areas thoroughly.
SIDEWALKS AND PLAZA - Contractor shall, through the Staff, police
(including minor sweeping as necessary) all sidewalks and plaza areas in
complex.
DETAILED SPECIFICATIONS - PERIODIC CLEANING
ENTIRE COMPLEX - with regard to the entire Premises, Contractor shall,
through the Staff, shall:
(a) Wash, wax and/or spray buff weekly all floors as required and apply
appropriate approved coating or sealant to maintain luster.
(b) Strip and wax floors as needed.
(c) Clean lights, globes, diffusers and fixtures as required.
(d) Dust down and damp wipe lobby and exit stairway walls as required,
but no less than once per month.
(e) Rub down metal and other high-level bright work as required.
(f) High dusting - See Article VI below.
(g) Floor maintenance - See Article VII below.
LAVATORIES AND REST ROOMS - with regard to the lavatories and restrooms,
Contractor, through the Staff, shall:
(a) Scrub, wash and polish all partitions, tile walls and enamel
surfaces from ceiling to floor as required, but not less than once
each week using the proper germicidal detergent solution.
(b) Wash all lighting fixtures as required. Do all high dusting weekly.
(c) Clean and disinfect all equipment drains as required. No acids shall
be permitted unless instructed by Owner.
(d) Machine scrub flooring as required with approved germicidal
detergent solution.
ENTRANCE LOBBIES AND PUBLIC AREAS - with regard to the entrance lobbies
and public areas, Contractor through the Staff shall:
(a) Wash all floors on a weekly basis and seal and wax, as needed.
(b) Clean light fixtures (including globes), diffusers and other
fixtures as required to maintain a first-class appearance.
(c) Remove hand marks from lobby and stairway walls as required.
(d) Daily sweep and mop entire building trash area with a germicidal
detergent solution as required.
(e) Machine scrub entire trash area and thoroughly rinse at least
weekly.
(f) Clean and polish metal and other miscellaneous high-level bright
work as required.
MISCELLANEOUS PERIODIC CLEANING
The following Miscellaneous periodic cleaning shall be performed by
Contractor, through Staff, as required unless otherwise specified, but not
less than once each week or as hereinafter provided:
OFFICE AREAS AND CORRIDORS
(a) Sweep all building stairways and dust rails and fire equipment. Mop
as required.
(b) Wipe clean and polish all aluminum, chrome, stainless steel, brass
and other metal work, including trim and hardware, as required,
using non-acid polish.
(c) Check elevators, stairways, office and utility doors on all floors
for general cleanliness as required, removing fingerprints, smudges,
and other marks. Clean exterior of all elevator doors of the
Building as required.
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(d) If carpeted, remove spots and thoroughly clean all carpets in public
corridors as required.
(e) Clean and sweep all vacant areas of the Premises at least once per
week.
(f) Clean all glass entrance doors as required.
(g) Once per week, dust and wash all door louvers and other ventilating
louvers within reach.
(h) Wash and remove all finger marks, ink stains, smudges, scuff marks
and other marks from metal partitions, sills, and all vertical
surfaces, as required.
(i) All granite and/or travertine walls, elevator, stairway, office and
utility doors to be washed as required, using water or approved
cleanser.
(j) Dust and clean all baseboards, and any other fixtures or fittings in
public corridors, as required, but not less than once each week.
HIGH DUSTING
Contractor shall perform, through the Staff, all high dusting weekly
unless otherwise specified, including without limitation the following:
OFFICE AREAS
(a) Vacuum and dust all pictures, frames, charts, graphs and similar
wall hangings not reached in nightly cleaning. Damp dust as
required.
(b) Vacuum and dust all vertical surfaces such as walls, partitions,
doors, bucks and ventilating louvers, grilles, high moldings, and
other surfaces not reached in nightly cleaning.
(c) Dust monthly all overhead pipes, sprinklers, ventilating and air
conditioning louvers, ducts, high moldings and other high areas not
reached in nightly cleaning.
(d) Dust all venetian blinds and window frames, including those behind
furniture.
(e) Dust exteriors of lighting fixtures.
(f) Vacuum and dust ceiling tiles around ventilators and clean air
conditioning diffusers weekly.
PUBLIC AREAS
(a) Thoroughly dust transoms and ledges high and low.
FLOOR MAINTENANCE - TENANT AREAS
(a) All tenant resilient tile flooring will be waxed as necessary, but
not less than monthly so as to maintain a highly polished surface,
and strip wax build-up and buff as needed. Spray-buff lobbies,
corridors and hallways in tenant areas nightly. If needed,
Contractor shall remove all ground-in heel marks and similar type
scuffs and stains using a low alkaline, non-injurious detergent for
floor waxing operations.
(b) All carpeted floor areas will be vacuumed as necessary with portable
vacuums in areas which are not accessible with standard floor
vacuums but are easily visible to occupants (e.g. desk well, areas
around planters and spaces between furniture).
(c) All carpeted floors will be vacuumed bi-monthly using a pile lifter
to remove embedded dirt and to restore pile to uniform upright
condition. Heavy traffic areas may require pile lifting more often,
to maintain a presentable carpet condition. All carpet edges will be
vacuumed with an edging attachment
(d) Complete floor maintenance and initial waxing shall be provided
prior to move-in of all new tenants.
(e) A non-staining polymer floor finish that provided a high degree of
slip prevention shall be used in all floor maintenance work.
(f) All wax spills and splashes will be removed from baseboards, door
jambs and walls.
<PAGE>
BUILDING METAL AND MASONRY
(a) Interior and exterior metal work, granite, masonry, store fronts (if
required to be maintained by Owner), and building foyer entrances
(including floor), if applicable, will be kept in clean condition.
Such poultice cleaning of masonry, as needed, will be performed by
Contractor.
(b) Clean all exterior metal required to be maintained by Owner, whether
store or otherwise.
(c) Inspect nightly the building's facade and other areas of the
exterior facade for graffiti, spills, smudges, and, if found, clean
with appropriate materials. Any spill, smudge or graffiti that
cannot be cleaned thoroughly should be reported to the Property
Manager.
(d) Inspections of sidewalks and related areas will be made daily and
any spills will be cleaned with a sponge and appropriate cleaning
material.
<PAGE>
ATTACHMENT I
TO EXHIBIT C
BASE PREMISES CONDITION
"Base Premises Condition" shall mean the condition of the Building, the
Project and the Premises competed with the following improvements, all of which
shall be completed by Landlord, at Landlord's sole cost and expense, in the
Premises prior to the Substantial Condition Date of the Lease:
1. Outside walls, core walls, and ground elevator lobby areas of Building on
each floor on which the Premises are located completed to Building
Standard condition for public areas.
2. Broom clean unfinished concrete floors throughout the Premises, completed
to a tolerance of 1/4 inch per 10 feet.
3. Building Standard ceiling grid system and 2 foot by 4 foot ceiling tile
stacked on the floor.
4. Building Standard 110 Volt 20 Amp power supplied to the Building core, at
panels in the electrical closet.
5. Men's and women's restroom facilities with Building Standard finishes
located on each floor on which the Premises are located, completed in
accordance with applicable code.
6. Exterior main heating, ventilating, and air-conditioning ducts
completed to the mixing boxes
7. Sprinkler risers and main loop on each floor with sprinkler heads turned
up at a ratio of 1 per 225 square feet.
8. Building Standard smoke detectors in accordance with applicable shell
codes.
9. Building Standard lights, stacked on the floor, at a ratio of 1 per 100
usable square feet.
10. Exit lights and fire alarms. All code required multi-tenant, public
corridor doors installed.
11. Sound insulation at core.
12. Full height door butts and jambs on all doors.
13. Building Standard stairwells between all floors completed.
14. Building Standard metal elevator doors painted and elevator frames and
jambs installed and painted.
15. Building Standard passenger elevators sufficient to provided passenger and
freight service to the Premises.
16. Access at core to domestic cold water, waste and vent systems.
17. Two (2) Building Standard drinking fountains per floor of Building on each
floor on which the Premises are located.
18. Building Standard telephone closets and telephone boards installed one (1)
per each floor and finished in sheetrock.
19. All core walls taped and bedded.
20. Building certified as occupiable by the City of Austin.
21. Parking Lot and all extension flat work complete and Parking Facility no
more than one hundred (100) days from completion.
<PAGE>
TO EXHIBIT C
TENANT FINISH READY CONDITION
"Tenant Finish Ready Condition" shall mean the condition of the Building,
the Project and the Premises completed with the following improvements, all of
which shall be completed by Landlord, at Landlord's sole cost and expense:
1. Premises shall be dried in and weather tight.
2. Outside walls, core walls, columns on each floor on which the Premises
are located completed to Building Standard condition for public areas.
3. Broom clean unfinished concrete floors throughout the Premises,
completed to a tolerance of 1/4 inch per 10 feet.
4. Building Standard ceiling grid system and 2 foot by 4 foot ceiling tile
stacked on the floor.
5. 110 Volt 20 Amp power supplied to the Building core, at panels in the
electrical closet.
6. Exterior main heating, ventilating, and air conditioning ducts completed to
the mixing boxes.
7. Sprinkler risers and main loop on each floor with sprinkler heads turned up
at a ratio of 1 per 225 square feet.
8. Building Standard smoke detectors in accordance with applicable shell
building codes.
9. Building Standard lights, stacked on the floor, at a ratio of 1 per 100
usable square feet.
10. Shell building, exit lights and fire alarms.
11. Sound insulation at core.
12. Access at core to domestic cold water, waste and vent systems.
13. Building Standard telephone closets and telephone boards installed one
(1) per each floor and finished in sheetrock.
14. All core walls taped and bedded.
<PAGE>
ATTACHMENT 3
TO EXHIBIT C
HVAC DESIGN CRITERIA
The HVAC system is capable of cooling all occupancy areas of the Premises to an
inside temperature of 75(degree) Fahrenheit and 50% maximum relative humidity
with an outside air temperature of 100(degree) Fahrenheit. The system shall be
capable of heating all occupancy areas of the Premises to an inside temperature
of 75(degree) Fahrenheit and no minimum relative humidity with an outside air
temperature of 18(degree) Fahrenheit.
The HVAC interior loads design basis is:
o One (1) person per 150 square feet, plus
o Heat dissipation from Building Standard lighting, plus
o Two (2) watts per square foot for Tenant miscellaneous power heat dissipation.
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.
STATE OR OTHER
JURISDICTION OF PERCENTAGE OF
NAME INCORPORATION SHARES OWNED
- ------------------------------- --------------- -------------
Billing Concepts, Inc. Delaware 100%
Aptis, Inc. Delaware 100%
CUville.com, Inc. Delaware 100%
Enhanced Services Billing, Inc. Delaware 100%
FIData, Inc. Delaware 100%
Princeton eCom Corporation Delaware 24%
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, 333-66903, 333-70947, and 333-70951).
ARTHUR ANDERSEN LLP
San Antonio, Texas
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA 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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 134,007
<SECURITIES> 0
<RECEIVABLES> 45,715
<ALLOWANCES> 1,662
<INVENTORY> 0
<CURRENT-ASSETS> 213,211
<PP&E> 45,969
<DEPRECIATION> 20,101
<TOTAL-ASSETS> 255,079
<CURRENT-LIABILITIES> 139,658
<BONDS> 0
0
0
<COMMON> 374
<OTHER-SE> 111,761
<TOTAL-LIABILITY-AND-EQUITY> 255,079
<SALES> 7,198
<TOTAL-REVENUES> 181,324
<CGS> 5,553
<TOTAL-COSTS> 109,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> 27,401
<INCOME-TAX> 11,579
<INCOME-CONTINUING> 15,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,822
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.42
</TABLE>
