SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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billserv.com, Inc.
(Exact name of issuer as specified in its charter)
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Nevada
(State or other jurisdiction of incorporation or organization)
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14607 San Pedro Ave., Suite 100
San Antonio, Texas 78232
210.402.5000
(Address, including zip code, and telephone number, including
area code of issuer's principal executive offices)
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Timothy N. Tuggey
Arter & Hadden LLP
700 N. St Mary's St. #800
San Antonio, Texas 78205
210.354.4300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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I.R.S. Employer Identification Number
98-0190072
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Approximate date of proposed commencement of sale to the public: From time to
time after the Registration Statement becomes effective. If any of the
securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box [X]
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CALCULATION OF REGISTRATION FEE
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Proposed
Amount of Maximum Proposed Maximum Amount of
Title of Each Class of Shares To be Offer Price Aggregate Offering Registration
Securities to be Registered Registered Per Unit(1) Price Fee
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Common Stock 3,782,360(2) $7.34 $27,762,522 $7,718
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(1) Estimated solely for purposes of calculating the registration fee based
upon the average of the bid and asked price on December 23, 1999. Warrants
for shares hereby registered may be exercised at $3.25, $3.75, $6.06,
$6.75, $7.31, $7.41, $7.44, and $8.00.
(2) Includes 1,645,723 shares issuable on exercise of warrants.
The Company hereby amends the Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Acts of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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BILLSERV.COM, INC.
3,782,360 SHARES OF COMMON STOCK
The security holders named under "Selling Security Holders" below have advised
(the "Company") that they may from time to time sell or otherwise dispose of
3,782,360 shares of the Company's Common Stock (the "Common Stock" or "Share")
to which this Prospectus relates, of which 1,645,723 Shares are issuable upon
exercise of Warrants to purchase common stock (the "Warrants"), (collectively
the "Secondary Shares"), at prices then obtainable. The Company will not receive
any of the proceeds from the sale of Common Stock by such security holders other
than amounts received upon exercise of the Warrants in accordance with their
terms. Such security holders, and any securities dealers or brokers to or
through which they effect sales of the above shares of Common Stock, may be
deemed to be underwriters with respect to such securities within the meaning of
the Securities Act of 1933, and any profits realized by such persons may be
deemed to be underwriting commissions.
The Company's Common Stock is quoted on the NASD OTC BB under the symbol BLLS.
On December 23, 1999, the closing bid quotation for the Common Stock was $7.31.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" IMMEDIATELY
FOLLOWING THIS SUMMARY FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS OF THE SECURITIES OFFERED HEREBY.
THE DATE OF THIS PROSPECTUS IS DECEMBER 27, 1999.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY....................................................... 4
RISK FACTORS............................................................. 6
USE OF PROCEEDS.......................................................... 16
DETERMINATION OF OFFERING PRICE.......................................... 16
SELLING STOCKHOLDERS .................................................... 17
PLAN OF DISTRIBUTION .................................................... 19
DIRECTORS AND EXECUTIVE OFFICERS......................................... 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........... 23
EXECUTIVE COMPENSATION................................................... 24
DESCRIPTION OF SECURITIES................................................ 26
INTEREST OF NAMED EXPERT AND COUNSEL..................................... 26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITY................................................ 27
DESCRIPTION OF BUSINESS.................................................. 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION AND PLAN OF OPERATION............................... 35
PROPERTIES AND EQUIPMENT................................................. 41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 41
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................. 43
FINANCIAL STATEMENTS..................................................... 44
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AVAILABLE INFORMATION
Prior to filing the registration statement on Form SB-2 of which this Prospectus
is a part, the Company has been subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such,
billserv.com Inc. is a "reporting company."
The Company has filed with the Commission a registration statement on Form SB-2
of which this Prospectus is a part. This registration statement or any part
thereof, together with all other reports and other information filed by
billserv.com may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street N.W., Judiciary Plaza,
Washington, D.C. 20549. Copies of such material may be obtained from the Public
Reference Section of the Commission's Washington, D.C. office at prescribed
rates. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission at http://www.sec.gov.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. A number of important factors could cause the
Company's actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as those
discussed elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors".
THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS WITH ANNUAL REPORTS CONTAINING
AUDITED FINANCIAL STATEMENTS CERTIFIED BY ITS INDEPENDENT PUBLIC ACCOUNTANTS AND
QUARTERLY REPORTS CONTAINING UNAUDITED FINANCIAL STATEMENTS FOR EACH OF THE
FIRST THREE QUARTERS OF EACH FISCAL YEAR.
PROSPECTUS SUMMARY
billserv.com, Inc. (the "Company") is a service bureau clearinghouse in the
electronic bill presentment and payment ("EBPP") industry. EBPP is the process
of presenting a bill in a secure environment on the Internet and allowing the
customer to pay the bill through the electronic transfer of funds. EBPP is
alternatively referred to as "Internet billing" or "Ebilling."
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As a startup enterprise, with approximately 50 employees, the Company expects to
earn its first operating revenues in the fourth quarter of 1999. The Company
intends to generate four principal revenue streams: Internet billing services
("EServ"), Internet publishing of statements ("EPublishing"), customer care
services through Internet and traditional telephony technologies ("ECare"), and
professional services associated with the implementation and maintenance of
these Internet technologies ("EConsulting"). The Company is currently capable of
providing services in each of these areas, although ECare services are available
only on a limited basis. In addition, the Company is developing an Internet
portal with EBPP capabilities.
The security holders named under "Selling Security Holders" below have advised
the Company that they may from time to time sell or otherwise dispose of
3,782,360 shares of the Common Stock to which this Prospectus relates, of which
1,645,723 Shares are issuable upon exercise of the Warrants, (collectively the
"Secondary Shares"), at prices then obtainable. The Company will not receive any
of the proceeds from the sale of Common Stock by such security holders other
than amounts received upon exercise of the Warrants in accordance with their
terms. Such security holders, and any securities dealers or brokers to or
through which they effect sales of the above shares of Common Stock, may be
deemed to be underwriters with respect to such securities within the meaning of
the Securities Act of 1933, and any profits realized by such persons may be
deemed to be underwriting commissions. The exercise price for 1,404,637 of the
1,645,723 Warrants is $3.75 per share. The remaining 199,849 Warrants were
issued to Pennsylvania Merchant Group ("PMG"), placement agent for the common
stock on other warrants. In addition to these Warrants, the Company has also
issued a Warrant to Kingship, Ltd. for the purchase of 41,237 Common Shares.
If all of these Warrants are exercised in full the Company would receive
proceeds of $6,389,165. To the extent such exercise occurs, the Company intends
to use such funds for general corporate expenditures.
The Company has registered the Secondary Shares to provide the holders thereof
with freely tradeable securities, but the registration of such shares does not
necessarily mean that any of such shares will be offered or sold by the holders
thereof. The Selling Stockholders may from time to time offer and sell all or a
portion of the Secondary Shares, in negotiated transactions or otherwise, at
prices then prevailing or related to the then current market price or at
negotiated prices. The Secondary Shares may be sold directly or through brokers
or dealers, or in a distribution by one or more underwriters on a firm
commitment or best efforts basis. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Secondary Shares to be made directly or
through agents. The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of Secondary
Shares may be deemed to be "underwriters" within the meaning
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of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by them and any profit on the resale of the Secondary
Shares may be deemed to be underwriting commissions or discounts under the
Securities Act. The Company will not receive any of the proceeds from the sale
of any Secondary Shares by the Selling Stockholders but has agreed to bear the
expenses of registration of the Secondary Shares, other than commissions and
discounts of agents or broker-dealers and transfer taxes, if any.
The following table sets forth certain selected financial data of billserv.com,
Inc. as of and for the nine months ended September 30, 1999, and as of and for
the period from inception (July 30, 1998) through December 31, 1998. The
information contained in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and related notes included
elsewhere herein.
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NINE MONTHS JULY 30, 1998
ENDED (INCEPTION)
SEPTEMBER 30, 1999 TO DECEMBER 31, 1998
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Revenues ....................................... $ -- $ --
Net loss ....................................... (3,991,349) (289,770)
Net loss per common share - basic and diluted... (0.38) (0.03)
Total assets ................................... 3,406,243 407,530
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RISK FACTORS
The securities offered herein (the "Secondary Shares") involve a high
degree of risk. Accordingly, before deciding to purchase, investors should
carefully consider the following risk factors along with the other matters
discussed herein.
LACK OF OPERATING HISTORY; LIMITED RELEVANCE OF HISTORICAL FINANCIAL
INFORMATION. The Company was organized in 1998 and has only recently begun
operations as a public company. The Company has not been profitable; nor has the
Company generated any significant revenue. Through September 30, 1999, the
Company's accumulated deficit
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was $4,291,055. Accordingly, all information included herein may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future.
POSSIBLE VIOLATION OF SECURITIES LAWS. On or about December 3, 1998, the
Company, then under the control of former management, and then known as Goldking
Resources, Inc., concluded an offering of approximately 5.3 million shares of
the Company's common stock. This transaction was completed through the
cancellation of approximately 6.2 million shares, held by shareholders who
tendered their shares to the Company, followed by the Company's issuance of 5.3
million shares to 15 new shareholders, who paid par value to the Company for
such shares, in the total amount of approximately $5,300.00. The new
shareholders also paid an additional $300,000 to the shareholders who had agreed
to cancel their shares. Subsequently, some of these new shareholders sold the
shares into the secondary market. The Company timely filed a Form D reporting
this transaction to the SEC, and claimed exemption under Rule 504. The SEC has
challenged the validity of this claimed exemption.
The Company disputes the following assertions, but it is possible that the
issuance of shares described above may have violated provisions of the federal
and state securities laws which subject the Company to fines, penalties or other
regulatory enforcement action. There can be no assurance that the SEC or
applicable state authorities will not pursue any enforcement action. The Company
disputes any such liability.
Additionally, while the Company also disputes the following assertions, it is
possible that shareholders who purchased the shares described above may have the
right under state and federal securities laws to require the Company to
repurchase their shares, for the amount originally paid, plus interest. The
Company disputes any such liability.
Based upon the best information available to the Company at this time, the
Company has calculated a range of possible, but disputed, exposure that exists
for the Company in light of the disputed civil liabilities described above.
Accordingly, in the event these disputed civil liabilities were successfully
asserted, the Company could be liable to the 15 new shareholders, and to any
shareholder that immediately purchased from these 15 shareholders, in an amount
ranging from approximately $5,300 up to approximately $2.9 million, plus
interest. This range of possible exposure is calculated by reference to the
average closing price for a share of the Company's common stock, weighted for
reported daily volume, during December 1998 and January 1999; the number of
shares possibly sold during the same period of time; and the closing price of
one share on December 11, 1999. The foregoing range could be adjusted higher or
lower depending upon adjustments to any of the referenced items, and as any new
information becomes available to the Company.
UNCERTAIN RELIABILITY, GROWTH AND CONSUMER ACCEPTANCE OF THE INTERNET, INTERNET
TECHNOLOGY, AND ELECTRONIC COMMERCE. The electronic commerce market is a
relatively new and growing service industry. If the electronic commerce market
fails to grow or grows slower than anticipated, or if the Company, despite an
investment of
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significant resources, is unable to adapt to meet changing customer requirements
or technological changes in this emerging market, or if the Company's services
and related products do not maintain a proportionate degree of acceptance in
this growing market, the Company's business, operating results, and financial
condition could be materially adversely affected. Additionally, the security and
privacy concerns of existing and potential customers may inhibit the growth of
the electronic commerce market in general, and the Company's customer base and
revenues in particular. Similar to the emergence of the credit card and
automatic teller machine ("ATM") industries, the Company and other organizations
serving the electronic commerce market must educate users that electronic
transactions use encryption technology and other electronic security measures
that make electronic transactions more secure than paper-based transactions.
While the Company believes that it is utilizing proven applications designed for
premium data security and integrity to process electronic transactions, there
can be no assurance that the Company's use of such applications will be
sufficient to address the changing market conditions or the security and privacy
concerns of existing and potential customers. Adverse publicity raising concerns
about the safety or privacy of electronic transactions, or widely reported
breaches of the Company's or another providers security, have the potential to
undermine consumer confidence in the technology and thereby have a materially
adverse effect on the Company's business. In addition, there can be no guarantee
that the Internet will continue to grow in acceptance or maintain its
reliability, or that new technologies might supplant the Internet in part or in
whole.
UNCERTAIN GROWTH OF PROPORTION OF ELECTRONIC REMITTANCES. The Company's future
financial performance will be materially affected by the percentage of bill
payments which can be cleared electronically. Accordingly, the Company's
inability to continue to decrease the percentage of remittances effected by
paper documents will result in flat or decreased margins, and a reversal of the
current trend toward a smaller proportion of paper-based payments would have a
material adverse effect upon the Company's business, operating results, and
financial condition.
RISK OF INABILITY TO ADAPT TO RAPID TECHNOLOGICAL CHANGE; RISK OF DELAYS. The
Company's success is highly dependent on its ability to develop new and enhanced
services, and related products that meet changing customer requirements. At
present, the Company's four principal products, EServ, ECare, EPublishing and
EConsulting are available, although ECare services remain available only on
limited basis. Nonetheless, the market for the Company's services is
characterized by rapidly changing technology, evolving industry standards,
emerging competition and frequent new and enhanced software, service and related
product introductions. In addition, the software market is subject to rapid and
substantial technological change. The Company, to remain successful, must be
responsive to new developments in hardware and semiconductor technology,
operating systems, programming technology, and computer capabilities. In many
instances, the new and enhanced services, products, and technologies are in the
emerging stages of development and marketing, and are subject to the risks
inherent in the development and marketing of new software, services, and
products. The Company may not successfully identify new service opportunities,
and develop and bring new and
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enhanced services and related products to market in a timely manner; there can
be no assurance that any such services, products or technologies will develop or
will be commercially successful, that the Company will benefit from such
developments or that services, products, or technologies developed by others
will not render the Company's services, and related products noncompetitive or
obsolete. If the Company is unable, for technological or other reasons, to
develop and introduce new services and products in a timely manner in response
to changing market conditions or customer requirements, or if new or enhanced
software, services, and related products do not achieve a significant degree of
market acceptance, the Company's business, operating results, and financial
condition would be materially adversely affected.
CHANGES IN REGULATION OF ELECTRONIC COMMERCE AND RELATED FINANCIAL SERVICES.
Management believes that the Company is not required to be licensed by the
Office of the Comptroller of the Currency, the Federal Reserve Board, or other
federal or state agencies that regulate or monitor banks or other types of
providers of electronic commerce services. There can be no assurance that a
federal or state agency will not attempt to regulate providers of electronic
commerce services, such as the Company, which could impede the Company's ability
to do business in the regulator's jurisdiction. The Company is subject to
various laws and regulations relating to commercial transactions generally, such
as the Uniform Commercial Code, and may also be subject to the electronic funds
transfer rules embodied in Regulation E, promulgated by the Federal Reserve
Board. Given the expansion of the electronic commerce market, it is possible
that the Federal Reserve might revise Regulation E or adopt new rules for
electronic funds transfer affecting users other than consumers. Because of
growth in the electronic commerce market, Congress has held hearings on whether
to regulate providers of services and transactions in the electronic commerce
market, and it is possible that Congress or individual states could enact laws
regulating the electronic commerce market. If enacted, such laws, rules and
regulations could be imposed on the Company's business and industry and could
have a material adverse effect on the Company's business, operating results, and
financial condition.
UNCERTAINTY OF ACH ACCESS. The ACH Network is a nationwide batch-oriented
electronic funds transfer system which provides for the interbank clearing of
electronic payments for participating financial institutions. The Federal
Reserve rules provide that the ACH system is available only through a bank. To
access the Network, customers of the Company will authorize the Company to
originate an ACH entry. As the originator, the Company forwards transaction data
to the Originating Depository Financial Institution ("ODFI"), which is a
participating financial institution that must abide by the provisions of the ACH
Operating Rules and Guidelines. The ODFI sorts and transmits the file to an ACH
Operator. The Arizona Clearing House Association, Federal Reserve, New York
Automated Clearing House, and Visa USA act as ACH Operators, central clearing
facilities through which financial institutions transmit or receive ACH entries.
The ACH Operator then distributes the ACH file to the Receiving Depository
Financial Institution, the bank of the customer, which makes the funds available
to the customer. If the Federal
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Reserve rules were to change to further restrict or modify access to the ACH,
the Company's business could be materially adversely affected.
INTENSE COMPETITION IN ELECTRONIC COMMERCE AND RELATED FINANCIAL SERVICES.
Portions of the electronic commerce market are becoming increasingly
competitive. The Company expects to face significant competition in all of its
customer markets. Although few companies have focused their efforts as service
bureau consolidators in the EBPP industry, the Company expects that new service
bureau companies will emerge and compete for the small to medium size biller
business. The Company further believes that software providers, consumer front
ends, banks and Internet portals will provide increasingly competitive billing
solutions for small to medium size billers. In addition, a number of banks have
developed, and others in the future may develop, home banking services in-house.
The Company believes that banks will also compete for the EBPP business of small
to medium size billers.
The Company expects competition to increase from both established and emerging
companies and that such increased competition will result in reduced transaction
costs which could materially adversely affect the Company's business, operating
results, and financial condition. Moreover, the Company's current and potential
competitors, many of whom have significantly greater financial, technical,
marketing, and other resources than the Company, may respond more quickly than
the Company to new or emerging technologies or could expand to compete directly
against the Company in any or all of its target markets. Accordingly, it is
possible that current or potential competitors could rapidly acquire significant
market share. There can be no assurance that the Company will be able to compete
against current or future competitors successfully or that competitive pressures
faced by the Company will not have a material adverse effect on its business,
operating results, and financial condition.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company currently
plans to meet its capital requirements primarily through issuance of equity
securities, capital lease financing, and in the longer term, revenue from
operations. The Company recently concluded equity financing through the Selling
Security Holders, with proceeds to the Company in the amount of $7,905,251.
However, the Company anticipates the need to raise additional funds through
public or private debt or equity financing in order to take advantage of
unanticipated opportunities, including more rapid expansion or acquisitions of
complementary businesses or technologies, or to develop new or enhanced services
and related products, or otherwise respond to unanticipated competitive
pressures. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the then current stockholders of the
Company may be reduced and such equity securities may have rights, preferences
or privileges senior to those of the holders of the Company's common stock.
There can be no assurance that additional financing will be available on terms
favorable to the Company, or at all. If adequate funds are not available or are
not available on acceptable terms, the Company may not be able to take advantage
of unanticipated opportunities, develop new or enhanced services and related
products or otherwise respond to unanticipated competitive pressures and the
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Company's business, operating results, and financial condition could be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continued contributions of its key management, marketing,
service and related product development and operational personnel, including its
Chairman and Chief Executive Officer, Michael R. Long; its President and Chief
Operating Officer, Louis A. Hoch; its Senior Vice President of Business
Development, David S. Jones; its Chief Financial Officer, Lori K. Turner; its
General Counsel, Marshall N. Millard; and its Vice President of Business
Development, Randy Kauftheil. The Company's operations could be affected
adversely if, for any reason, any of these officers ceased to be active in the
Company's management. The Company maintains proprietary nondisclosure and
non-compete agreements with all of its key employees. The Company intends to
secure key person life insurance policies on Mr. Long. The success of the
Company depends to a large extent upon its ability to retain and continue to
attract highly skilled personnel. Competition for employees in the electronic
commerce industry is intense, and there can be no assurance that the Company
will be able to attract and retain enough qualified employees. If the business
of the Company grows, it may become increasingly difficult to hire, train and
assimilate the new employees needed. The Company's inability to retain and
attract key employees could have a material adverse effect on the Company's
business, operating results, and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly results of
operations may fluctuate significantly as a result of a number of factors,
including changes in the Company's pricing policies or those of its competitors,
relative rates of acquisition of new customers, delays in the introduction of
new or enhanced services, software, and related products by the Company or by
its competitors or market acceptance of such services and products, other
changes in operating expenses, personnel changes, and general economic
conditions. These factors will impact the Company's operating results.
Fluctuations in operating results could result in volatility in the price of the
Company's common stock.
RISK OF PRODUCT DEFECTS. The software products utilized by the Company could
contain errors or "bugs" that could adversely affect the performance of services
or damage a user's data. In addition, as the Company increases its share of the
electronic commerce services market, software reliability and security demands
will increase. The Company attempts to limit its potential liability for
warranty claims through limitation-of-liability provisions in its customer
agreements. There can be no assurance that the measures taken by the Company
will prove effective in limiting the Company's exposure to warranty claims.
Despite the existence of various security precautions, the Company's computer
infrastructure may be also vulnerable to viruses or similar disruptive problems
caused by its customers or third parties gaining access to the Company's
processing system.
EROSION OF REVENUE FROM SERVICES. The profitability of the Company's business
depends, to a substantial degree, upon billers electing to continue to
periodically renew contracts. In the event that a substantial number of these
customers were to decline to
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renew these contracts for any reason, the Company's revenues and profits would
be adversely affected. Sales of the Company's services are dependent upon
customer demand for the services, which is affected by pricing decisions, the
competition of similar products and services, and reputation of the products and
services for performance. Most of the Company's services are likely to be sold
within the utilities and financial services industries, and poor performance by
the Company in performing its services has the potential to undermine the
Company's reputation and affect future sales of other services. A substantial
decrease in revenue from services would have a material adverse effect upon the
Company's business, operating results, and financial condition.
RISK OF LOSS FROM RETURNED TRANSACTIONS, MERCHANT FRAUD OR ERRONEOUS
TRANSMISSIONS. The Company relies upon the Federal Reserve's ACH for electronic
fund transfers and conventional paper check and draft clearing systems for
settlement of payments by check or drafts. In its use of these established
payment clearance systems, the Company generally bears the same credit risks
normally assumed by other users of these systems arising from returned
transactions caused by insufficient funds, stop payment orders, closed accounts,
frozen accounts, unauthorized use, disputes, theft, or fraud. In addition, the
Company also assumes the risk of merchant fraud and transmission errors when it
is unable to have erroneously transmitted funds returned by an unintended
recipient. Merchant fraud includes such actions as inputting false sales
transactions or false credits.
RISK OF SYSTEM FAILURE. The Company's operations are dependent on its ability to
protect its computer equipment against damage from fire, earthquake, power loss,
telecommunications failure or similar event. Any damage or failure that causes
interruptions in the Company's operations could have a material adverse effect
on the Company's business, operating results, and financial condition. The
Company's property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur.
RISK OF YEAR 2000 OPERATIONAL DEFECTS. The Company has completed the process of
determining whether or not its products, its internal systems, computers and
software, and the products and systems of its critical vendors and suppliers are
Year 2000 compliant. Based upon the Company's review, and because the Company's
systems and software are relatively new, management believes that the Company's
internal systems and those of its critical vendors and suppliers, are Year 2000
compliant. Accordingly, the Company does not currently expect that costs
associated with Year 2000 compliance will have a material effect on operations
or financial position. Although the Company believes that its Year 2000 review
has identified all material Year 2000 issues, there can be no absolute assurance
that the Company identified and resolved all such issues. If the Company
discovers Year 2000 problems in the future, it may not be able to develop,
implement, or test remediation or contingency plans in a timely or
cost-effective manner.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY INFRINGEMENT
CLAIMS. The Company regards some of its services as proprietary and relies
primarily on
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a combination of trademark and trade secret laws, employee and third party
non-disclosure agreements, and other intellectual property protection methods to
protect its services. Existing intellectual property laws afford only limited
protection, and it may be possible for unauthorized third parties to copy the
Company's services and related products or to reverse engineer or obtain and use
information that the Company regards as proprietary. There can be no assurance
that the Company's competitors will not independently develop services and
related products that are substantially equivalent or superior to those of the
Company.
LIMITED PRIOR MARKET. Prior to December 3, 1998, there was no public market for
the Company's common stock, and no public market may be developed or sustained
for such stock. The Company's Shares are now traded NASD OTC BB. There can be no
assurance that an active or liquid trading market in the Company's common stock
will develop or be sustained.
LIMITED LIQUIDITY OF STOCK. The lack of a prior, liquid market for the Company's
shares may make it difficult for shareholders to sell their shares in the
Company. Prior to December 3, 1998, there was no public market for the Company's
common stock, and no public market may be developed or sustained for such stock.
There can be no assurance that an active or liquid trading market in the
Company's common stock will develop or be sustained. The Company's Shares are
now traded on the NASD OTC BB. Moreover, the Company's stock may qualify as a
"penny stock" under the Penny Stock Suitability Reform Act of 1990. The
liquidity of penny stock is affected by specific disclosure procedures to be
followed by all broker-dealers, including but not limited to, determining the
suitability of the stock for a particular customer, and obtaining a written
agreement from the customer to purchase the stock.
VOLATILITY OF STOCK PRICE. The market price of the Company's common stock is
subject to significant fluctuations in response to variations in quarterly
operating results, the failure of the Company to achieve operating results
consistent with securities analysts' projections of the Company's performance,
and other factors. The stock market has experienced extreme price and volume
fluctuations and volatility that has particularly affected the market prices of
many technology, emerging growth, and developmental stage companies. Such
fluctuations and volatility have often been unrelated or disproportionate to the
operating performance of such companies. Factors such as announcements of the
introduction of new or enhanced services or related products by the Company or
its competitors, announcements of joint development efforts or corporate
partnerships in the electronic commerce market, market conditions in the
technology, banking, telecommunications and other emerging growth sectors, and
rumors relating to the Company or its competitors may have a significant impact
on the market price of the Company's common stock.
CONTROL BY PRINCIPAL STOCKHOLDERS. Currently, the directors and executive
officers of the Company and their affiliates collectively own approximately 30%
of the outstanding shares of the Company's common stock. As a result, these
stockholders are able to
13
<PAGE>
exercise significant influence over matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying or
preventing a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE.
Currently, the Company has 13,113,065 shares of the Company's common stock
outstanding. Six million one hundred thirty-six thousand six hundred
thirty-seven 6,136,637 shares are restricted pursuant to Rule 144; and 946,428
are restricted under Regulation S; but 6,030,000 are not. Furthermore, under the
terms of a private placement concluded in December of 1999, the Company is
obligated to seek registration of 2,136,637 common shares and 1,645,723 shares
underlying warrants. Sales of substantial amounts of unrestricted shares in the
public market or the prospect of such sales could adversely affect the market
price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS; CERTAIN PROVISIONS OF NEVADA LAW; CERTIFICATE OF
INCORPORATION, BY-LAWS, AND STOCKHOLDER RIGHTS PLAN. Certain provisions of
Nevada law, the Company's Certificate of Incorporation, Bylaws, and a proposed
stockholder rights plan could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. In 1999, the Company's approved an amendment to
the Company's Bylaws, to provide for the Board of Directors to be divided into
three classes of directors serving staggered three-year terms. Such
classification of the Board of Directors expands the time required to change the
composition of a majority of directors and may tend to discourage a proxy
contest or other takeover bid for the Company. The Company also intends to seek
shareholder approval to allow issuance of rights to acquire common stock under
certain conditions, without any further vote or action by the stockholders. The
issuance of common stock under a stockholder rights plan could decrease the
amount of earnings and assets available for distribution to the holders of the
Company's common stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Company's common stock. In
certain circumstances, such issuance could have the effect of decreasing the
market price of the Company's common stock.
DIFFICULTY IN MANAGEMENT OF GROWTH. The Company may experience a period of rapid
growth which could place a significant strain on its resources. The Company's
ability to manage growth successfully will require the Company to continue to
improve its operational, management and financial systems and controls as well
as to expand its work force. A significant increase in the Company's customer
base would necessitate the hiring of a significant number of additional customer
care and technical support personnel as well as computer software developers and
technicians, qualified candidates for which, at the present time, are in short
supply. In addition, the expansion and adaptation of the Company's computer and
administrative infrastructure will require substantial operational, management,
and financial resources. Although the Company believes that its current
infrastructure is adequate to meet the needs of its customers in the foreseeable
future, there can be no assurance that the Company will be able to expand and
adapt its infrastructure to meet additional demand on a timely basis, at a
commercially reasonable
14
<PAGE>
cost, or at all. If the Company's management is unable to manage growth
effectively, hire needed personnel, expand and adapt its computer infrastructure
or improve its operational, management, and financial systems and controls, the
Company's business, operating results, and financial condition could be
materially adversely affected.
ACQUISITION-RELATED RISKS. In the future, the Company may pursue acquisitions of
complementary service or product lines, technologies, or businesses. Future
acquisitions by the Company could result in potentially dilutive issuance of
equity securities, the incurrence of debt and contingent liabilities, and
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's business, operating
results, and financial condition. In addition, acquisitions involve numerous
risks, including difficulties in the assimilation of the operations,
technologies, services, and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or limited direct prior experience, and the
potential loss of key employees of the acquired company. From time to time, the
Company evaluates potential acquisitions of businesses, services, products, or
technologies. The Company has no present commitments or agreements with respect
to any material acquisition of other businesses, services, products, or
technologies. In the event that such an acquisition were to occur, however,
there can be no assurance that the Company's business, operating results, and
financial condition would not be materially adversely affected.
UNLIKELY PAYMENT OF DIVIDENDS. The Company has paid no cash dividends and has no
present plan to pay cash dividends, intending instead to reinvest its earnings,
if any. However, payment of future cash dividends will be determined from time
to time by its Board of Directors, based upon its future earnings, financial
condition, capital requirements and other factors. The Company is not presently
subject to any restriction on its present or future ability to pay such
dividends.
DEPENDENCE UPON CONTRACTS WITH BILLERS. The Company's business is dependent upon
performing under the terms of agreements with billers. Although the Company is
unaware of any circumstance which would prevent the enforcement of these
agreements, there can be no assurance that the Company might not be able to
fully perform under these agreements or that other factors may prevent billers
from processing billing information through the Company.
DEPENDENCE UPON CONTRACTS WITH TRADING PARTNERS. The Company's business is
dependent upon executing and maintaining agreements with front ends such as
CheckfreeTM, TranspointTM, and IntuitTM to provide dependable financial services
for customers of billers. Such financial services include ACH processing through
the customer's bank and delivery of good funds to the Company for remittance to
the billers. There can be no assurance that any of the front ends will be able
to perform under these agreements in the future.
15
<PAGE>
ANTICIPATED BILLING SYSTEM EXPENDITURES. To facilitate and support the growth
anticipated in its business, the Company plans to make significant expenditures
in its operations over the next one to three years. These expenditures are
expected to be made in the areas of software development, licensing, hardware,
and related staffing. The Company believes that it will be able to fund these
expenditures with internally generated funds and financing, but there can be no
assurance that such funds will be generated or spent in these projects.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market could adversely affect the market price for
the Company's Common Stock, which could have a direct impact on the value of the
Shares.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE. This registration statement
contains certain forward-looking statements and information relating to the
Company that are based on the beliefs of the Company's management as well as
assumptions made by and assumptions made by and information currently available
to the Company's management. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this
registration statement. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of any Secondary
Shares by the Selling Stockholders but has agreed to bear the expenses of
registration of the Secondary Shares, other than commissions and discounts of
agents or broker-dealers and transfer taxes, if any. No assurance can be given
that any or all of the Warrants will be exercised. Accordingly, as far as can be
determined as of the date of the Prospectus, the proceeds received by the
Company upon exercise of Warrants, if any, will be used for general corporate
purposes and for working capital which may include payment of salaries, rent,
research and development, purchase of inventory and marketing expenses. Such
proceeds would aggregate $6,780,177 if all the Warrants were exercised.
DETERMINATION OF OFFERING PRICE
The Common Stock is quoted and traded on the NASD OTC BB under the trading
symbol "BLLS." The trading does not constitute, nor should it be considered, an
established public trading market for the Common Stock. See "Risk Factors--
Shares Eligible for Future Sale."
16
<PAGE>
The following table sets forth the high ask and low bid for the Shares of
billserv.com, Inc. for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions, and may
not necessarily represent actual transactions.
Calendar Quarter Bid Prices
Ended Low High
---------------------------------------------------
December 31, 1998(1) 2 3/8 3 3/8
March 31, 1999 2 3/4 8 5/8
June 30, 1999 4 1/4 10 1/8
September 30, 1999 3 13/16 7 3/4
(1) No previous periods are reported as the Company was initially traded
publicly in the fourth quarter 1998.
The Company has 13,113,065 shares of common stock outstanding, including the
2,136,637 shares issued pursuant to private placement and registered hereby. Of
this total amount, 6,030,000 of such shares are nonrestricted; 6,136,637 of such
shares are restricted pursuant to Rule 144; and 946,428 shares are restricted
pursuant to Regulation S. As of December 23, 1999, the number of holders of
record of the common stock, $.001 par value, of the Company was approximately
4,348.
The Company is not aware of any public market for the Warrants. The exercise
price for the 1,645,723 Warrants currently outstanding was determined by
considering several factors, including the current market price for the
Company's stock.
SELLING STOCKHOLDERS
The following table sets forth the name, number of Shares of Common Stock and
the number of Shares underlying the Warrants owned by each Selling Stockholder.
Since the Selling Stockholders may sell all, a portion or none of their Shares,
no estimate can be made of the aggregate number of Shares that are offered
hereby or that will be owned by each Selling Stockholder upon completion of the
offering to which this Prospectus relates. The Shares offered by this Prospectus
may be offered from time to time by the Selling Stockholders named below:
<TABLE>
<CAPTION>
RELATIONSHIP NUMBER OF PERCENTAGE OF
NAME TO ISSUER SHARES (1) OWNERSHIP (2)
- ---- ------------------- ------------ --------------------
<S> <C> <C> <C>
Barnett & Co. None 603,076 4.086%
Briggs & Stratton (Retirement Acct) None 184,692 1.251%
Curt Byerly & Joan Byerly None 30,800 0.209%
Donaldson Lufkin Jenrette Securities None 61,384 0.416%
Corp. as Custodian FBO Frank J. Cambell
Dr. John H. Diepold None 30,800 0.209%
Robert D. Evans None 161,538 1.095%
William T. Hagan None 31,230 0.212%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
RELATIONSHIP NUMBER OF PERCENTAGE OF
NAME TO ISSUER SHARES (1) OWNERSHIP (2)
- ---- ------------------- ------------ --------------------
<S> <C> <C> <C>
Bill Hodde and Martha S. Hodde None 107,692 0.730%
Mitchell D. Hovendick None 30,800 0.209%
Lighthouse Capital, L.P. None 276,770 1.875%
London Pacific Diversified Growth None 53,846 0.365%
NILE None 301,538 2.043%
The Paisley Fund, L.P. None 89,230 0.605%
The Paisley Pacific Fund None 352,308 2.387%
Leonid C. Prince None 24,554 0.166%
Michael Procacci, Jr. None 61,600 0.417%
Charles M. Robins None 19,692 0.133%
Toupro Inc. None 30,800 0.209%
William D. Williams & Thelma C. Williams None 9,232 0.063%
Jeffrey & Denise Hamren None 40,000 0.271%
Kingship, Ltd. None 348,929(3) 2.364%
Pennsylvania Merchant Group None 199,849 1.354%
Michele Acito None 10,000 0.068%
Charles Brennan, Jr. and Annette Brennan None 10,000 0.068%
Mario D'Alonso None 10,000 0.068%
Donaldson, Lufkin Jenrette Securities None 15,000 0.102%
Corp. as Custodian FBO James D'Amore
Jeffrey S. Hamren and Denise C. Hamren None 10,000 0.068%
Bill Hodde and Martha S. Hodde None 80,000 0.542%
Sharon Jemal None 50,000 0.339%
Leslie J. Leff None 50,000 0.339%
Richard Leff and Lorraine Leff None 15,000 0.102%
Ron Leff None 50,000 0.339%
Lighthouse Capital, L.P. None 50,000 0.339%
Robert J. McLaughlin and Maureen McLaughlin None 10,000 0.068%
Margaret McNamara None 2,000 0.014%
The Paisley Fund, L.P. None 100,000 0.678%
The Paisley Pacific Fund None 200,000 1.355%
Michael Procacci None 20,000 0.136%
P.M. Procacci and Mary Procacci None 10,000 0.068%
Donaldson, Lufkin, Jenrette Securities None 10,000 0.068%
Corp. as Custodian FBO Philip J. Procacci
Peter S. Rawlings None 10,000 0.068%
Anthony Tedeschi and Lois Tedeschi None 15,000 0.102%
Jan Vyas and Medhavini Nyas None 5,000 0.034%
</TABLE>
(1) Includes ownership of Shares issuable upon exercise of Warrants.
(2) Assumes ownership percentage of Shares after exercise of all Warrants.
(3) A Warrant for 41,237 Shares was issued to this investor in partial
consideration for a bridge loan made prior to the private placement.
18
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to (i) the offer and sale or other distribution from
time to time of up to 1,645,723 Warrant Shares if, and to the extent that,
holders of the Warrants exercise the Warrants and (ii) the offer and sale or
other distribution from time to time of up to 2,136,637 Common Shares by the
holders thereof. The Company has registered the Secondary Shares to provide the
holders thereof with freely tradeable securities, but the registration of such
shares does not necessarily mean that any of such shares will be offered or sold
by the holders thereof.
The Company will not receive any proceeds from the offering of the Secondary
Shares by the Selling Stockholders. The Selling Stockholders may from time to
time sell all or a portion of the Secondary Shares through the NASD OTC BB, in
negotiated transactions or otherwise, at prices then prevailing or related to
the then current market price or at negotiated prices. The Secondary Shares may
be sold directly or through brokers or dealers, or in a distribution by one or
more underwriters on a firm commitment or best-efforts basis. The methods by
which the Secondary Shares may be sold include (i) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (ii) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus, (iii) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and (iv) privately negotiated transactions. The
Selling Stockholders may from time to time deliver all or a portion of the
Secondary Shares to cover a short sale or sales made after the date of this
Prospectus, or upon the exercise or closing of a call equivalent position or a
put equivalent position entered or established after the date of this
Prospectus. The Selling Stockholders and any broker-dealers participating in the
distribution of the Secondary Shares may be deemed to be "underwriters" within
the meaning of the Securities Act, and any profit on the sale of the Secondary
Shares by the Selling Stockholders and any commissions received by any such
broker-dealers may be deemed to be underwriting commissions or discounts under
the Securities Act. The Selling Stockholders may sell all or any portion of the
Secondary Shares in reliance upon Rule 144 under the Securities Act.
At a time a particular offer of Secondary Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name of any
dealers or agents and any commissions and other terms constituting compensation
from the Selling Stockholders and any other required information. The Secondary
Shares may be sold from time to time at varying prices determined at the time of
sale or at negotiated prices. In order to comply
19
<PAGE>
with the securities laws of certain states, if applicable, the Secondary Shares
may in such circumstances be sold only through registered or licensed brokers or
dealers. In addition, in certain states, the Secondary Shares may not be sold
unless they have been registered or qualified for sale in such state or an
exemption from such registration or qualification requirement is available and
is complied with.
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth the directors and executive officers and key employees
of the Company as of December 15, 1999, their respective ages, the year in which
each was first elected or appointed a director, and any other office in the
Company held by each director.
1. DIRECTORS AND EXECUTIVE OFFICERS
Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR/ AGE POSITION HELD POSITION HELD
OFFICER SINCE
- ----------------- ----- ------------- --------------
<S> <C> <C> <C>
Michael R. Long ...... 55 Director, Chairman and C.E.O. December, 1998
Louis A. Hoch ........ 34 Director, President and C.O.O. December, 1998
David S. Jones ....... 26 Director and Executive Vice President December, 1998
Lori A. Turner ....... 42 Treasurer, Vice President and C.F.O. December, 1998
Marshall Millard ..... 37 Secretary, Vice President and December, 1998
General Counsel
E. Scott Crist ....... 36 Director January, 1999
Roger R. Hemminghaus . 62 Director April, 1999
</TABLE>
20
<PAGE>
2. FAMILY RELATIONSHIPS
No family relationship exists between or among any of the directors, executive
officers, and significant employees, as defined below, of the Company or any
person contemplated to become such.
3. BUSINESS EXPERIENCE
MICHAEL R. LONG, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Long became Chairman and Chief Executive Officer of the Company as of
December 1998. Mr. Long has over 29 years of senior executive management and
systems development experience in six publicly traded companies, as well as
successfully operating his own systems consulting business. In the past five
years, Mr. Long has held positions at U.S. Long Distance Corp., as Vice
President of Management Information Systems from December 1993 to August 1996;
Billing Concepts, Inc., as Vice President of Information Technologies from
August 1996 to June 1997, and Andersen Consulting as Business Development
Director, Financial Services, from October 1997 to December 1998. Anderson
Consulting is a worldwide consulting firm and affiliate of Arthur Andersen
accounting firm. Billing Concepts, Inc. is a leading operator of comprehensive
billing systems that collect long distance charges from telephone users on
behalf of more than 1,300 telephone companies.
LOUIS A. HOCH, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Hoch joined the Company as President and Chief Operating Officer in December
1998. Mr. Hoch's background has been primarily in the telecommunications
industry in which he has over 10 years of experience. Most recently, from April
to December 1998, Mr. Hoch was the Subject Matter Expert for Call Centers in
Telecom, at Andersen Consulting. His leadership in the call center industry was
acknowledged by Andersen Consulting when it classified his processes and
technology architecture to be one of their guidelines for best practices in call
center development. While employed at Billing Concepts, Inc. from June 1991 to
April 1998, Mr. Hoch successfully built large billing systems that were proven
flexible enough to sustain exponential growth in record volumes, and call
centers that integrated the latest in technology and processes. During his
tenure at Billing Concepts, Mr. Hoch held successive positions; as a Tech
Support Representative, Program Analyst, Program Manager, MIS Manager, and
finally, Director of Information Technology. Mr. Hoch holds a B.B.A. in Computer
Information Systems and an M.B.A. in International Business Management, both
from Our Lady of the Lake University. He is certified as a Computer Professional
(CCP) by the Institute for Certification of Computing Professionals (ICCP).
21
<PAGE>
DAVID S. JONES, DIRECTOR AND EXECUTIVE VICE-PRESIDENT
Mr. Jones joined the Company in December 1998. He has been active in the
Internet billing industry almost since its inception. While employed at Billing
Concepts, Inc., from 1997-98, Mr. Jones was responsible for defining strategic
direction involving Internet technology. Mr. Jones has played an essential role
in the development of the necessary relationships needed to be effective in the
Internet billing marketplace, and has been directly involved in the marketing of
the Company's products. Mr. Jones continues to manage the ongoing development of
systems for the Company. From 1996 to 1997, Mr. Jones owned and operated his own
business which provided ongoing service and support to automated teller
facilities for various financial institutions. From 1993 to 1996, Mr. Jones was
general manager of a specialty beverage operation in San Antonio. He has
completed business finance and general business studies at Millikin University
and the University of Texas at Austin.
LORI A. TURNER, TREASURER, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Lori A. Turner, C.P.A., joined the Company as Chief Financial Officer in
December 1998. Prior to joining the Company, Ms. Turner served as Treasurer and
Chief Financial Officer at Docucon, Inc. She held various positions at Docucon,
including Controller, Vice-President, Finance, and Assistant Secretary from 1990
until her departure in 1999. From 1984 through 1989, Ms. Turner held various
financial positions at Fuddruckers, Inc., a fast-food restaurant chain. Prior to
joining Fuddruckers, she worked as a consultant for Fuddruckers and other firms.
Ms. Turner holds a M.B.A. from the University of Texas at San Antonio.
MARSHALL MILLARD, SECRETARY, VICE PRESIDENT AND GENERAL COUNSEL
Mr. Millard also joined the Company in December 1998. He possesses over 10 years
experience in providing legal counsel to publicly-traded and privately-held
companies. Mr. Millard has extensive experience in negotiating and preparing
strategic alliances, mergers and acquisitions, financing agreements and other
business contracts and has a strong background in litigation and appeals. He is
licensed to practice law in the Supreme Court and all lower courts in the State
of Texas, the Western District of Texas and the Fifth Circuit Court of Appeals.
He earned a Juris Doctor degree from St. Mary's University School of Law, in
1987, where he served as a Senior Associate Editor for the ST. MARY'S LAW
JOURNAL. Mr. Millard has held corporate counsel positions at Southwestern Bell
Telephone, a subsidiary of SBC Communications, 1993; U.S. Long Distance Corp.
(now owned by Qwest Communications International), 1993-1996; and Billing
Concepts, 1996-1998.
E. SCOTT CRIST, DIRECTOR
Mr. Crist became a director of the Company in January 1999. He is the President
and Chief Executive Officer of Telscape International, Inc., one of the world's
fastest growing
22
<PAGE>
multinational carriers of voice, video and data services. Prior to joining
Telscape, Mr. Crist was a founder of Orion Communications, Inc., a long distance
company, where he served as President. He also previously served a President and
Chief Executive Officer of Matrix Telecom, a long distance company which ranked
number seven on the Inc. Magazine list of the 500 fastest growing companies in
1995. Mr. Crist also founded D.S. Communications, a domestic long distance
company, where he served as President and Chief Executive Officer. Mr. Crist
holds a M.B.A. from the J.L. Kellogg School at Northwestern University, and a
B.S., magna cum laude, in Electrical Engineering, with a Telecommunications
Design emphasis, from North Carolina State University.
ROGER R. HEMMINGHAUS, DIRECTOR
Mr. Hemminghaus became a director of the Company in April 1999. He currently
serves as Chairman of the Board of Directors of Ultramar Diamond Shamrock Corp.,
having retired in January 1999 as Chief Executive Officer of the same company.
He also serves as a director for Luby's Cafeterias, Inc.; New Centuries
Energies; and The Nature Conservancy of Texas. From 1996 to January 1999, Mr.
Hemminghaus served as Chairman and Chief Executive Officer of Ultramar Diamond
Shamrock Corp, following the merger of Ultramar Corporation and Diamond
Shamrock, Inc. Prior to this merger, Mr. Hemminghaus served as Chairman, Chief
Executive and President of Diamond Shamrock, Inc., where he had been employed
since 1984. Mr. Hemminghaus also serves on the National Executive Board of the
Boy Scouts of America, and various non-profit boards in Texas. He is a graduate
of Auburn University, where he received a B.S. in Chemical Engineering.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
1. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The Company has no non-management, beneficial owners of more than five percent
(5%) of the outstanding amount of its Common Stock.
2. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the share ownership
of the Company's Common Stock by its officers and directors, both individually
and as a group, and by the record and/or beneficial owners of more than 5
percent of the outstanding amount of such stock:
23
<PAGE>
SHARES OWNED BENEFICIALLY AND OF RECORD
PERCENT OF CLASS
TITLE OF AMOUNT & NATURE OF PERCENT OF OWNERSHIP
CLASS NAME AND ADDRESS BENEFICIAL OWNERSHIP AS OF DECEMBER 23,
1999 (1)
- ------- --------------------- ----------------------- -----------------
Common Michael R. Long (2)
Stock 15546 Clover Ridge
San Antonio, TX 78248 1,183,333 9.02%
Common Louis A. Hoch (3)
Stock 15138 Grayoak Forest
San Antonio, TX 78248 1,191,334 9.09%
Common David S. Jones (4)
Stock 11530 Vance Jackson
San Antonio, TX 78230 1,183,333 9.02%
Common Lori Turner
Stock 11205 Woodridge Forest
San Antonio TX 78249 100,000 0.77%
Common Marshall Millard
Stock 18123 Summer Knoll
San Antonio, TX 78258 150,000 1.1%
Common All directors, officers
Stock and employees as a group (5)
(9 persons) 4,008,000 30.56%
(1) ALL OWNERSHIP IS STATED AS OF DECEMBER 23, 1999. IN 1999, THE COMPANY
OPTIONS TO PURCHASE 924,600 SHARES OF COMMON STOCK TO VARIOUS EXECUTIVE
OFFICERS, DIRECTORS AND EMPLOYEES, INCLUDING THOSE LISTED ABOVE. THESE
OPTIONS ARE NOT REFLECTED IN THE TABLE SET FORTH ABOVE. SEE EXECUTIVE
COMPENSATION BELOW.
(2) MICHAEL R. LONG IS THE CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF
EXECUTIVE OFFICER OF THE COMPANY.
(3) LOUIS A. HOCH, IS THE CHIEF OPERATING OFFICER, PRESIDENT AND A DIRECTOR
OF THE COMPANY.
(4) DAVID S. JONES IS THE EXECUTIVE VICE PRESIDENT AND A DIRECTOR OF THE
COMPANY.
(5) ALL STOCK HELD BY OFFICERS AND/OR DIRECTORS IS RESTRICTED PER RULE 144.
EXECUTIVE COMPENSATION
A. EXECUTIVE OFFICER COMPENSATION
No executive officer of the Company received or accrued cash compensation in
excess of $20,000 during fiscal year ended 1998. The following tables sets forth
all compensation
24
<PAGE>
paid by the Company during the fiscal year ending December 31, 1998 to all
executive officers of the Company:
NAME OF PRINCIPAL RESTRICTED
POSITION YEAR SALARY(1) STOCK AWARDS (2)
- ----------------- ---- -------- ---------------
Michael R. Long 1998 $ 14,835 1,183,333
Chairman and C.E.O.
Louis A. Hoch 1998 $ 11,868 1,183,334
President and C.O.O.
David S. Jones 1998 $ 14,840 1,183,333
Executive Vice President
Marshall Millard 1998 $ 7,318 150,000
Secretary, Vice President
and General Counsel
Lori A. Turner 1998 $ NA 100,000
Treasurer, Vice President
and C.F.O.
(1) Each of the named executives have entered into an employment agreement
with the Company. These agreements have a three (3) year term and
provide for an annual salary, bonuses at the discretion of the Board of
Directors, and health benefits. The figures reflected are stated for
December 1998. In 1999, each of the named officers are to receive 1999
salary compensation as follows: Mr. Long, $150,000; Mr. Hoch, $140,000;
Mr. Jones, $120,000; Ms. Turner, $100,000; and Mr. Millard, $100,000.
(2) This table reflects only common stock ownership granted in connection
with the executive's employment arrangement with the Company. In 1999,
subject to shareholder approval, the officers named have been awarded
the following number of options to purchase shares of common stock of
the Company: Mr. Long, 100,000; Mr. Hoch, 100,000; Mr. Jones, 100,000;
Ms. Turner, 40,000; and Mr. Millard, 40,000. The option price in each
case is $2.81 per share.
B. COMPENSATION OF DIRECTORS
In 1998, the directors of the Company were not compensated for their services in
that capacity. In 1999, the Company intends to seek shareholder approval of a
director's compensation plan, which would provide for certain stock options,
plus out-of-pocket expenses.
Subject to stockholder approval of the director's compensation plan, the Company
has awarded options to purchase common stock of the Company to Messrs. Crist and
Hemminghaus. Mr. Crist holds 40,000 options with an exercise price of $2.81 per
share;
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Mr. Hemminghaus holds 80,000 options with an exercise price of $5.18 per share.
The options vest over a three year period.
DESCRIPTION OF SECURITIES
The Company's Articles of Incorporation, as amended, authorizes 200,000,000
shares of Common Stock, par value $0.001 per share. As of December 22, 1999, the
Company had 13,113,065 shares of Common Stock issued and outstanding held by
approximately 4,348 record holders. In addition, the Company has issued and
outstanding 1,645,723 warrants convertible into 1,645,723 Shares Common Stock.
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote of the
outstanding shares present at a stockholders' meeting is required for most
actions to be taken by stockholders. Directors of the Company are elected by a
plurality. The holders of the Common Stock do not have cumulative voting rights.
Accordingly, the holders of a majority of the voting power of the shares voting
for the election of directors can elect all of the directors if they choose to
do so. The Common Stock bears no preemptive rights, and is not subject to
redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Company's Board of Directors out of funds legally available. Any
dividends declared with respect to shares of Common Stock will be paid pro rata
in accordance with the number of shares of Common Stock held by each
stockholder. However, the Company, in its present line of business, has never
declared or paid any cash dividends on the Common Stock. For the foreseeable
future, the Company expects to retain any earnings to finance the operation and
expansion of the Company's business. In addition, it is anticipated that the
terms of future debt and/or equity financing may restrict the payment of cash
dividends. Therefore, the payment of any cash dividends on the Common Stock is
unlikely.
INTEREST OF NAMED EXPERT AND COUNSEL
The Company has not hired any "expert" or "counsel" on a contingent basis or
that will receive a direct or indirect interest in the Company, or who was a
promoter, director, officer or employee of the Company.
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABLITY
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers or persons controlling
the Company, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
The Company has agreed to indemnify each Selling Shareholder, its officers,
directors and constituent partners, if any, and each person controlling (within
the meaning of the Securities Act) such Selling Shareholder, against all claims,
losses, damages or liabilities (or actions in respect thereof) suffered or
incurred by any of them, to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or any related
registration statement incident to this Registration, or any omission (or
alleged omission) to state therein a material fact required to be stated herein
or necessary to make the statements herein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to actions or inaction required of the
Company in connection with any such Registration. The Company has agreed to
reimburse each Selling Shareholder, its officers, directors and constituent
partners, if any, and each person who controls any such Selling Shareholder, for
any reasonable, documented legal and other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action.
Each Selling Shareholder has agreed to indemnify the Company, each of its
directors and officers, each placement agent and underwriter, if any, of the
Company's securities covered by this Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other Selling Shareholder, each of its officers, directors and
constituent partners and each person controlling such other Selling Shareholder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) suffered or incurred by any of them and arising out of or based upon
any untrue statement (or alleged untrue statement) of a material fact contained
in this Registration Statement or related prospectus, or any omission (or
alleged omission) to state herein a material fact required to be stated herein
or necessary to make the statements herein not misleading; and will reimburse
the Company, such other Selling Shareholders, such directors, officers,
partners, persons, placement agent, underwriters and controlling persons for any
reasonable, documented legal and other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action.
The Company has also agreed to indemnify and hold harmless the placement agent,
Pennsylvania Merchant Group ("PMG"), and its affiliates, directors, officers,
controlling persons, and employees from and against all claims, damages. Losses,
liabilities and
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expenses as the same are incurred, relating to or arising from
PMG's involvement in the private placement of the securities subject to this
Registration Statement.
DESCRIPTION OF BUSINESS
A. COMPANY HISTORY
billserv.com is a Nevada corporation with its principal offices currently
located at 14607 San Pedro Ave., Suite 100, San Antonio, Texas 78232. Additional
information about the Company may be obtained at the Company's Internet address,
HTTP://WWW.BILLSERV.COM. The Company offices may be contacted by telephone at
210-402-5000.
The Company was incorporated on June 4, 1998 as a mineral development company,
under the name Goldking Resources, Inc. The principal asset of the company was a
mineral claim located in British Columbia, Canada. After the Company (then under
prior management) further analyzed the cost involved in developing the mineral
claim, it determined that the Company would have greater value as a corporate
vehicle for other operations. Accordingly, the Company obtained NASD OTC
Bulletin Board ("OTC BB") trading status, and on December 3, 1998, acquired and
merged with billserv.com, Inc., a company incorporated in Texas in July 30, 1998
("billserv-Texas"), with business plans to operate in the Internet billing
industry, but having no substantial assets, revenues or operations.
billserv-Texas was owned in its entirety by the current management directors of
the Company, who were not affiliated with any of the officers, directors or
shareholders of Goldking Resources.
On December 3, 1998, Goldking Resources, Inc. combined with billserv-Texas,
changed its name to billserv.com, Inc. and began trading on the OTC BB, under
the symbol BLLS. By virtue of this reverse merger, in which Goldking Resources
(now known as billserv.com, Inc.) was the surviving entity, the Company was able
to position itself into an emerging high-growth market, and billserv-Texas was
able to merge with and into a company already trading on the NASD OTC BB.
Concurrent with the merger with billserv-Texas, the Company secured advances of
$2.0 million over a five month period from Messrs. James R. King, Robert D.
Smith and Richard M. Jeffs, all of Vancouver, BC, Canada (hereinafter the
"Consulting Group"). The Company also entered into a Consulting Agreement with
this Group for the provision of investor relations, fundraising assistance and
public relations services. The initial advances by the Consulting Group were
subsequently repaid from Regulation S equity financing of $5.3 million.
On or about October 15, 1999 and December 23, 1999, the Company obtained
additional equity financing, net of expenses, totaling $7,905,251 from the
Selling Shareholders, in exchange for which the Company issued the Secondary
Shares registered hereby.
B. GENERAL OVERVIEW OF BUSINESS
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billserv.com, Inc. (the "Company") is a service bureau clearinghouse in the
electronic bill presentment and payment ("EBPP") industry. EBPP is the process
of presenting a bill in a secure environment on the Internet and allowing the
customer to pay the bill through the electronic transfer of funds. EBPP is
alternatively referred to as "Internet billing" or "Ebilling."
As a startup enterprise, with approximately 50 employees, the Company expects to
earn its first operating revenues in the fourth quarter of 1999. The Company
intends to generate four principal revenue streams: Internet billing services
("EServ"), Internet publishing of statements ("EPublishing"), customer care
services through Internet and traditional telephony technologies ("ECare"), and
professional services associated with the implementation and maintenance of
these Internet technologies ("EConsulting"). The Company is currently capable of
providing services in each of these areas, although ECare services are available
only on a limited basis. In addition, the Company is developing an Internet
portal with EBPP capabilities.
Through September 30, 1999, the Company has expended $600,389 on research and
development of its products and services. Of the four principal product and
service areas, only ECare is available on a limited basis, as the Company
intends to develop, build and staff a customer care center which integrates
Internet and traditional telephony capabilities. While development costs for
this product are extremely difficult to project, and may change as more
definitive plans are developed, the Company estimates expenditures ranging from
$3,000,000 to $4,000,000 for the development and construction of its first
customer care center.
The Company has entered into strategic service or marketing agreements with
Transpoint, LLP, an EBPP consolidator and aggregator owned by Microsoft
Corporation; First Data Corporation, and Citibank Check Free Corporation; Bank
of America; CyberCash, Inc., an Internet payment technologies leader; and
NETDelivery Corporation, an electronic data management enterprise. These
agreements are in addition to the Company's existing agreement with Checkfree
Corporation.
Additionally, the Company has secured service agreements to provide its EServ
product to National Computer Print, Inc., one of the nation's largest print and
mail companies; Sallie Mae Corporation, the nation's leading provider of
financial services for post-secondary education; Ultramar Diamond Shamrock
Corporation, a major independent petroleum refining, petroleum product and
convenience merchandise concern; PC Free, Inc., a strategic bundler of computer
hardware and software; and UDP, Inc., which provides billing and messaging
services in the telecommunications industry. Each of these agreements involve
two phases of service by the Company. The first phase is a piloting period,
during which the customer and Company systems are analyzed and tested. The
second phase of service is operational, involving the actual delivery of the
EServ product to the biller/customer and its customers. Currently, the Company
is experiencing a 3-4 month piloting phase with its initial customers. The
duration of this phase is expected to
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be reduced over time with each additional Company customer, as historical and
operating history will indicate potential, recurring customer service issues,
for future reference. In the fourth quarter of 1999, the Company will generate
its initial operating revenue for the EServ product, as some of its initial
customers completed the piloting phase of service.
The Company primarily targets middle market billers that produce monthly
recurring bills to their customer base. Examples of these billers include
utilities, credit card issuers, security monitoring services, financial
services, cable service providers and communications providers. The Company also
targets traditional print-house service companies that require assistance in
their conversion to Internet billing.
In a typical scenario, the Company will analyze a biller's existing billing
system and enable the biller to transmit its print stream to the Company for
electronic bill processing. The Company will then process the billing
information from the biller's print stream and transmit the data to a selected
consumer "front end," an Internet website destination where the consumer has
chosen to receive bills in an electronic medium. Examples of front ends, also
called aggregators, include Check Free, Transpoint, Bank of America the biller's
website, the consumer's bank website, and Internet portals such as Yahoo,
Excite, Lycos, AOL and others. After receiving the bill on its chosen website,
the consumer may review and pay the bill by selecting the available payment
option on the website. Payment is completed through ACH (Automated Clearing
House) transfer of funds as directed by the consumer and enabled by the
consumer's chosen front end.
The Company will charge a volume-sensitive transaction fee for each bill or
statement presented electronically over the Internet. Pricing is also reflective
of the multi-year term commitment selected by the biller. The Company also
charges a set-up fee for implementing Internet billing capabilities for the
biller.
The Company believes a biller can achieve substantial savings by utilizing the
electronic billing services offered by the Company instead of continuing to
publish paper-based bills. These savings are primarily realized in reduced
printing, mailing and handling costs.
The Company believes that consumers will increasingly demand to receive and pay
their bills over the Internet, particularly at a single front end website
individually selected by the consumer. The Company believes it has an advantage
in the EBPP market in that it can assist a biller in presenting a bill to any
consumer at any Internet website chosen by that consumer. In this regard, the
Company functions as a clearinghouse for selected consumer front ends. By
contrast, the Company believes that today a biller is forced to either choose
one particular consumer front end, and therefore one website, or build its own
EBPP capabilities and manage all of the various front end relationships itself,
an undertaking which involves considerable time and costs, and displaces the
biller's resources from its core business functions.
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The Company believes that a biller's statement, as presented on a consumer's
chosen website, provides targeted marketing opportunities for that biller and
third party advertisers. Just as paper-based bills received by consumers often
contain marketing inserts and product offerings, the electronic bill provides
for electronic bill inserts. The Company believes that the biller can achieve
additional revenues by providing consumers with purchasing opportunities on its
bill space.
The Company believes that today it has few competitors in its role as an EPBB
service bureau clearinghouse of small to medium size billers. The Company,
however, expects that competition will increase dramatically in the near future.
The Company expects to have increased competition from front ends, traditional
print and mail companies, and existing and new market entrants.
Electronic presentment of statements, or EPublishing, enables a company to
provide business-to-business distribution of traditional paper-based statements
over the Internet. An example of such statements includes those sent by
investment or fund managers to brokers. The Company believes that statement
producers can achieve substantial time and cost savings by transferring
publishing and distribution functions to an Internet-based service provider.
The Company believes it can also generate revenues from customer care center
operations, whether those operations are generated from billers' outsourced
customer care functions or from marketing opportunities from electronic bill
marketing inserts. The Company therefore plans to build Internet-enabled
customer interaction centers to capitalize on these marketing opportunities.
The Company offers professional consulting services to assist billers, statement
producers, call center operators and other Internet business participants in
establishing and maintaining their own customized Internet billing, presentment
or communications systems.
In April 1999, the Company announced that it was establishing its own Internet
portal at the website WWW.BILLS.COM. The operations of the Internet portal have
been organized under "bills.com, Inc.," a Delaware corporation which will
operate as a wholly-owned subsidiary of the Company. The Company expects that
the Internet portal of bills.com will be operational during the first quarter of
2000, and will be available for consumer use and interaction thereafter.
Consumers may currently register with bills.com by visiting the website and
entering applicable billing information.
The core function of bills.com is to operate as an Internet bill presentment and
payment service for consumers. In this regard, bills.com will operate a consumer
front end, similar to CheckFree. In addition, bills.com will provide other
on-line features such as stock quotes, mortgage quotes, loan applications and
approvals, banking, shopping, news, weather, sports and other features. In this
connection, bills.com has recently entered into
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an agreement with InfoSpace.com to develop these on-line features, some of which
have been implemented.
bills.com expects to earn revenues through Internet banner advertising on its
website, as well as through sponsorship agreements with other Internet portals.
The Company believes that companies will purchase space on its bills.com website
in order to take advantage of the potentially large number of consumers who will
use the site as an Internet bill presentment and payment service. The Company's
bills.com subsidiary currently possesses no relationship with other
Internet-based enterprises, nor has the Company sought any such relationships;
however, the Company intends to seek relationships this year with other Internet
portals which may result in payments of annual sponsorship fees to bills.com in
exchange for providing links to their respective Internet portals.
C. INDUSTRY OVERVIEW
Internet usage has increased dramatically in the last decade. As a result, many
new personal and commercial applications have been developed for Internet users
and increasingly consumers are conducting business through Internet
applications. The Company believes that Internet billing will be one of the next
significant applications of the Internet. Companies such as CheckFree and
Transpoint have been established in order to develop Internet billing into a
commercially viable alternative to paper-based billing and payment systems.
Research indicates that there are approximately 110 million households in the
United States with each receiving an average of twelve (12) bills per month.
Assuming an average charge of $0.40 for each EBPP transaction, the Company
estimates annual industry revenue potential of $6.4 billion. If 33% of
households pay their bills online, the market potential is $2.1 billion per
year. The Company believes that if small businesses are included in the
calculation, the market size doubles to over $4 billion per year.(1)
According to the Bank Administration Institute, five industries utilities,
communications, credit cards, insurance, and lending institutions are
responsible for over one-half of all consumer bill payments.(2) Because of the
large number of recurring bills, these industries are the most likely to be the
first to offer electronic bill presentment.
D. PRODUCTS AND SERVICES
In order to meet real and anticipated market demand, the Company has developed
and is marketing the following products and services:
- -------------------
1 "Internet Billing: Waiting for the Banks," Salomon Smith Barney,
October 15, 1998, p. 20
2 "Internet Billing: Waiting for the Banks," p. 17
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ESERV (INTERNET BILLING SERVICE BUREAU). EServ creates the option for companies
currently printing and mailing bills to instead publish the bills on the
Internet wherever their consumers may choose to receive, view and pay them.
Currently, there are several Internet locations, or "front ends," from which
consumers may choose to access and pay bills electronically. The principal front
ends are CheckFree TransPoint and Bank of America as well as the biller's
website. It is important for a biller to be able to deliver statements to all of
these front ends, because each consumer will demand to receive electronic bills
at their preferred front end. Similarly, consumer acceptance will be accelerated
if consumers can use any front end they wish to view and pay their bills.
EServ is the focal point for managing all of the front end relationships. EServ
will allow billers to concentrate resources on their core business and still
exploit the growth of Internet billing. EServ's goal is to offer a familiar
business model to billers who today use traditional print and mail methods, but
allow for one delivery channel to publish bills and one delivery channel to
receive payments and accounts receivable data. With EServ, billserv.com assumes
the responsibility of managing the multiple systems, multiple delivery channels,
and multiple relationships necessary to make Internet billing effective.
EServ is competitively priced because billserv.com pays one-time integration
fees to the front ends for each biller, and volume-based per statement charges,
aggregating the volume of all of its billers. This reduction in cost enables
billserv.com to charge a one-time implementation fee to each biller and a per
statement fee which is less than the rate a biller would pay if supporting an
internal Internet billing system.
EPUBLISHING (INTERNET PRESENTMENT OF STATEMENTS). The EPublishing product
enables business-to-business distribution of traditional paper-based statements,
such as those produced by investment or fund managers for their brokers.
The EPublishing solution will allow businesses such as investment fund managers
or current print vendors to transmit already existing print files to the Company
for manipulation and presentment on a website that the brokerage community or
other business can access for viewing. The Company will also implement
substantial data archival systems that will house statement history and allow
for disaster recovery through a sophisticated back-up system.
While the market size for this product is very difficult to estimate, the
Company believes it is substantial. The Company is aware of one large
traditional print and mail operation that produces more than six million
statement pages per month. These paper statements are boxed and mailed to more
than 2,500 brokers. Each broker reviews and files these statements creating
inefficient workflow processes and storage costs. Assuming that most brokers are
already Internet-enabled, making the transition to an electronic retrieval and
storage system will be simple and more cost efficient than the current methods.
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ECARE (CUSTOMER INTERACTION CENTER). ECare is similar in nature to traditional
call centers, but with multiple communication entry points such as telephone,
Internet, interactive voice response, email and fax. The Internet communication
component may support Web chat, IP Telephony (voice over the Internet), Web
Whiteboarding (visual interactive on-screen markings), email and Web Video
conferencing. The call centers will provide revenue opportunities through
traditional outsourced customer care services as well as through fulfillment
services via electronic bill marketing inserts.
ECONSULTING (PROFESSIONAL SERVICES). EConsulting will provide custom build
solutions for companies seeking an in-house EBPP or related system. These
services can range from assisting in the development an Internet billing
strategy to actually building an EBPP system for the biller. In this regard, the
Company can assist the biller in overcoming the learning curve associated with
EBPP. The market for this product primarily consists of large first tier or
second tier billers.
BILLS.COM (INTERNET PORTAL). bills.com will operate as an Internet portal
offering an electronic bill presentment service for consumers. In this regard,
bills.com will operate a consumer front end, similar to CheckFree. Unlike other
consumer front ends, however, bills.com will offer its services free of charge
to consumers. In addition, bills.com will provide other on-line features such as
stock quotes, mortgage quotes, loan applications and approvals, banking,
shopping, news, weather, sports and other features to consumers who enter the
website.
E. SALES AND MARKETING
I. STRATEGY
The Company foresees two broad-based approaches to its sales and marketing
strategy. The first approach is based on a geographic concentration, whereby the
Company will attempt to secure a critical mass of billing customers in a densely
populated metropolitan area. These billing customers would be local and regional
utilities or other companies from which consumers receive a substantial number
of their total monthly statements. The Company will concurrently approach local
banks and credit unions in order to develop Internet billing relationships.
These financial institutions could also market to their respective customer
bases, thereby driving consumer acceptance and demand for Internet billing
services. The geographic model would be replicated on a national and
international basis. The Company will develop a sales force to meet the demands
presented by the geographic sales model.
The second approach of the Company's sales and marketing strategy will be a
non-geographic expansion model. In this approach, the Company will pursue
vertical markets and traditional print and mail enterprises and encourage
companies in these areas to offer Internet billing services to their print and
mail customers, wherever they may be located.
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To supplement its sales efforts, the Company intends to develop a marketing
compact disc which would be presented to targeted executives within prospective
billing customers. The compact disc will contain a clear value proposition
supported by video and demonstration capabilities.
To further its sales and marketing strategies, the Company will attend and make
presentations at industry-specific trade shows and in trade publications. It is
the Company's plan to have a significant presence at each of these trade shows
to ensure direct contact with prospect companies and executives. Trade
publications will be used to promote the brand and services. The Company will
evaluate the effectiveness of this program based upon revenue generation, reader
response cards and in-bound calls for more information.
For the newly-formed bills.com subsidiary, marketing efforts may be directed
toward a nationwide campaign of television commercials, Internet banner
advertisements, news media briefings, and the offering of incentives for new
subscribers.
II. SUPPORT
The Company's sales and marketing efforts, their associated costs and precise
timing are under development, and thus extremely difficult to project. Until
sufficient funds are available, the Company will be unable to pursue fully its
sales and marketing strategies. In order to fund these efforts, the cost of
which will likely exceed the amount of $3,000,000 over the next twelve (12)
month period, the Company currently plans to issue additional equity securities,
undertake capital lease financing arrangements, and in the longer term expend
revenue from operations.
The Company is currently capable of providing services in each of its key
product areas, although ECare services are available on a limited basis, due
primarily to the size and configuration of the company's current facilities.
Through September 30, 1999, the Company has expended approximately $600,389 on
research and development of its products and services. To further support its
ECare product sales and service, the Company intends to develop, build and staff
a customer care center which integrates Internet and traditional telephone
capabilities. While development costs for this center are difficult to project,
and may change as more extensive plans are developed later this year, the
Company estimates expenditures ranging from $3,000,000 to $4,000,000 for the
development and construction of its customer call center.
The Company currently employs 50 personnel; and projects that it will have
approximately 60 employees by March 31, 2000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION AND PLAN OF OPERATION
A. GENERAL
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billserv.com, Inc. is a service bureau consolidator in the EBPP industry. As a
development stage enterprise, the Company has yet to receive any operating
revenues. However, the Company intends to generate four principal revenue
streams: Internet billing services, Internet publishing of statements, customer
care services through Internet and traditional telephony technologies, and
professional services associated with the implementation and maintenance of
these Internet technologies. The Company has a limited operating history on
which to base an evaluation of its businesses and prospects. The Company's
prospects must be considered in light of the risks, expenses, and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets such as electronic
commerce. Such risks for the Company include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks, the Company must, among other things, maintain and increase
its customer base, implement and successfully execute its business and marketing
strategy, continue to develop and upgrade its technology and
transaction-processing systems, provide superior customer service, respond to
competitive developments, improve its Web site, and attract, retain and motivate
qualified personnel. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so could have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations.
Since inception, the Company has incurred losses and as of September 30, 1999
had an accumulated deficit of $4,291,055. The Company believes that its success
will depend in large part on its ability to (a) secure additional financing to
meet capital and operating requirements, (b) capture a major portion of the
medium to large size market of billers as its customer base, (c) drive the
consumer adoption rate of EBPP, and (d) meet changing customer requirements and
technological changes in an emerging market. Accordingly the Company intends to
invest heavily in its product development, technology, and operating
infrastructure development as well as marketing and promotion. Because the
Company's services will require a significant amount of investment in
infrastructure and a substantial level of fixed operating expenses, achieving
profitability depends on the Company's ability to generate a high volume of
revenues. As a result of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company is unable to
accurately forecast its revenues. The Company's current and future expense
levels are based largely on its investment plans and estimates of future
revenues and are to a large extent fixed. Sales and operating results will
depend on the volume of transactions completed and related services rendered.
The timing of such services and transactions and the Company's ability to
fulfill a biller's demands are difficult to forecast. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in revenues in relation to the
Company's planned expenditures could have an adverse effect on the Company's
business, prospects, financial condition and results of operations. Further, the
Company may from time to time make certain pricing, service,
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marketing or acquisition decisions that could have a material adverse effect on
its business, prospects, financial conditions and results of operations.
B. PLAN OF OPERATION
The Company's plan of operation for the next twelve months is to: (1) further
develop trading partner relationships with front ends such as CheckFree,
Transpoint, Bank of America, all of which have executed agreements with the
Company; (2) develop trading partner relationships with Internet portals such as
in order to gain access to as many Internet users as possible. (3) execute
billing agreements with as many billers as possible; (4) design, develop and
market its Internet portal where the consumer can view and pay bills; (5) build
systems which will operate the EBPP and other operations of the Company; (6)
attract and retain highly qualified employees in order to appropriately staff
business operations; and (7) provide the facilities and resources necessary to
achieve the business goals of the Company. The Company currently employs 40
personnel and projects that it will have approximately 60 employees by the end
of 1999.
C. RESULTS OF OPERATIONS--FROM INCEPTION TO DECEMBER 31, 1998
The Company's activities for the five month period from inception to December
31, 1998 resulted in net operating losses of $289,770. The Company generated no
revenues during the period. Operating expenses were generally not incurred until
December 1998.
Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services under a consulting agreement with the Consulting Group described below
at Item 7. The Company expanded its sales and marketing staff subsequent to
December 31, 1998 and intends to continue such expansion. It also will increase
marketing and sales capabilities through various marketing and sales activities,
including, advertising in trade publications, promotional activities and
aggressive trade show attendance. Therefore the Company expects marketing and
sales expense to increase substantially.
General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. In
1998, financial and investor relation services provided to the Company by the
Consulting Group, a related party, totaled $100,000. The Company expanded its
general and administrative staff subsequent to December 31, 1998 and intends to
continue such expansion. Therefore, the Company expects general and
administrative expenses to increase substantially as it incurs additional costs
related to the growth of its business.
D. RESULTS OF OPERATIONS - QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
37
<PAGE>
The Company's activities for the quarter and nine months ending September 30,
1999 resulted in a net operating loss of $1,539,858 and $3,991,349 respectively.
The Company generated no revenues during the period.
Selling expenses consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities, as well as advertising
services purchased from the Company's Consulting Group which totaled $100,000
and $400,000 for the quarter and nine months ended September 30,1999. The
Company expanded its sales and marketing staff during the quarter ended
September 30, 1999 and intends to continue such expansion. The Company has
opened sales offices in Arizona, California, Massachusetts, New Jersey, North
Carolina, Pennsylvania, and Texas. The Company plans to increase its marketing
and sales capacities through various marketing and sales activities, including,
advertising in trade publications, promotional activities, and aggressive trade
show attendance. Therefore the Company expects marketing and sales expense to
increase substantially.
Research and development expenses totaled $260,847 and $600,389 for the quarter
and nine months ended September 30, 1999. The Company devoted these resources to
development of its technology infrastructure and operating systems. The Company
is continuing to invest significantly in research and development, particularly
in the development of its technology infrastructure and operating systems in
anticipation and support of revenue growth, quality improvement and efficiency
enhancement opportunities.
General and administrative expenses consisted primarily of payroll and related
expenses for executive, accounting, legal and administrative personnel, as well
as professional and consulting fees and other general corporate expenses. For
the quarter and nine months ended September 30, 1999, financial and investor
relation's services provided under the Consulting Agreement totaled $100,000 and
$650,000. The Company expects general and administrative expenses to increase as
the Company expands its staff and incurs additional costs related to the growth
of its business.
E. LIQUIDITY AND CAPITAL RESOURCES
From inception to date, the Company's operations have been funded from advances
under an equity placement. This placement was concluded and fully funded on June
11, 1999, pursuant to Regulation S. The Company issued 946,428 shares of common
stock in exchange for $5.3 million in cash. Advances outstanding at the time of
the placement totaling $2 million were repaid from the proceeds, as well as
amounts due to a related party for investor and public relations services for $1
million. An additional $200,000 was paid during the quarter ended September 30,
1999 to the Consulting Group for services under the consulting agreement.
In addition to the equity placement, on August 6, 1999, the Company issued a
short-term note payable to an accredited investor for $1 million. The note was
issued as bridge
38
<PAGE>
financing until such time as the Company completed the private placement
offering ("Offering"). The Offering was completed in December 1999. A total of
2,136,637 common shares were issued resulting in net proceeds of approximately
$7,905,251. One half of the short-term note payable, or $500,000 was converted
into Common Stock under the Offering. The remaining $500,000 was repaid on
October 18, 1999.
At September 30, 1999, the Company had positive working capital of $350,383.
During the third quarter and the first nine months of 1999 the Company made
significant expenditures and commitments for capital improvements consistent
with anticipated growth in operations, infrastructure and personnel. The Company
anticipates it will make additional investments in and for capital improvements
utilizing proceeds of the Offering completed in October 1999 and which will
require additional financing, either through the use of equipment leasing
arrangements, or other equity financing.
The Company purchased the domain name bills.com for $75,000 in April 1999, at
which time it announced the establishment its own Internet portal at the website
WWW.BILLS.COM. The company will amortize the amount over a ten year period. The
operations of the Internet portal have been organized under "bills.com, Inc.", a
Delaware corporation that will operate as a wholly-owned subsidiary of the
Company. The portal is currently available for consumer use and interaction. The
Company will continue to develop the website and to enhance its design.
bills.com(TM) expects to earn revenues through Internet banner advertising on
its website, as weLL as through sponsorship agreements with other Internet
portals. The Company believes that companies will purchase space on its
bills.com(TM) website in order to take advantage of tHE potentially large number
of consumers who will use the site as an Internet bill presentment and payment
service. The Company currently has plans to invest only limited funds to support
and market the portal; however, the Company could at any time decide to devote
additional financial resources to the portal.
The Company has engaged Pennsylvania Merchant Group ("PMG"), to provide
strategic and financial advisory services, including analysis of markets,
products, positioning, financial models, organizations and staffing, potential
strategic alliances, capital requirements and funding options. In exchange for
these advisory services, the Company issued a warrant to PMG to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is immediately
exercisable and expires in five (5) years. This warrant was issued in accordance
with exemption under Section 4(2) of the Securities Act of 1933, as amended,
because the transaction is by an issuer not involving a public offering.
The Company secured long-term financing for portions of its computer, software
and telephone systems, and furniture during the second and third quarter of
1999. It entered into four three-year capital leases for approximately $208,292,
which have an interest rate of 10.8%. The term of the leases include a
requirement of security totaling 50% of the total lease for which the company
purchased a certificate of deposit for $105,000.
39
<PAGE>
Additionally, the Company entered into a two-year capital lease totaling
$487,131 carrying an interest rate of approximately 17%. The terms of the lease
include a requirement of an initial security deposit in the form of a
certificate of deposit equal to 70% of the total dollars financed, 25% of the
security will be released to the Company on each six month anniversary of the
lease inception date.
The Company's headquarters are located in San Antonio, Texas. The Company
entered into a two-year lease for its headquarters beginning in May 1999 for
8,000 square feet which was modified to include an additional 3,000 square feet
beginning in August 1999. The Company anticipates acquiring additional adjacent
leased space to meet the requirements of its expanding clerical, administrative
and sales activities. Additionally, the Company leases sales offices in
Hollidaysburg, Pennsylvania; Dallas, Texas; Phoenix, Arizona; and Concord,
Massachusetts and plans to open additional sales offices throughout the United
States. The Company also anticipates increasing its lease commitments with the
establishment of a customer care center within the next 12 months.
The Company intends to develop, build and staff a customer care center, which
integrates Internet and traditional telephone capabilities to further support
it, eCare product sales and service. While development costs for this center are
difficult to project, and may change as more extensive plans are developed later
this year, the Company estimates expenditures ranging from $3,000,000 to
$4,000,000 for the development and construction of its customer care center. The
Company plans to meet its capital requirements primarily through use of cash on
hand, additional issuance of equity securities, capital lease financing, and in
the longer term, revenue from services.
The Company's sales and marketing efforts, their associated costs and precise
timing are under development, and thus extremely difficult to project. Until
sufficient funds are available, the Company will be unable to pursue fully its
sales and marketing strategies. In order to fund these efforts, the cost of
which will likely exceed the amount of $3,000,000 over the next twelve (12)
month period, the Company currently plans to issue additional equity securities,
undertake capital lease financing arrangements, and in the longer term expend
revenue from operations.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. These date code fields will need to
distinguish 21st century dates from 20th century dates to avoid system failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements.
As of December 15, 1999, the Company has completed the process of determining
whether or not its products, its internal systems, computers and software, and
the products and systems of its critical vendors and suppliers are Year 2000
compliant. The cost
40
<PAGE>
associated with this review has been minimal, primarily because the Company has
utilized internal personnel to complete the review, and because the Company's
systems are relatively new. To date, this evaluation process has resulted in the
following:
IT Systems. The Company has conducted a preliminary survey of
its IT hardware and software and believes that all such hardware
and software is Year 2000 compliant.
Non-IT Systems and Infrastructure. Machinery and equipment used
in operations has been inventoried and assessed for Year 2000
compliance. The Company believes all such items are Year 2000
compliant.
Vendors. The Company has completed the process of ascertaining
whether or not its vendors and suppliers are Year 2000
compliant. Again, the Company believes that all of its critical
vendors are Year 2000 compliant.
Given these results of its Year 2000 review, in a reasonable worst case
scenario, the Company might experience some disruptions in certain of its
peripheral operating systems or with certain non-critical vendors. The Company
believes that sufficient redundancy exists in its systems and vendor
relationships to minimize any substantial detrimental effects on the Company's
operations and financial position.
Although the Company believes that its Year 2000 review has identified all
material Year 2000 issues, there can be no absolute assurance that the Company
identified and resolved all such issues. If the Company discovers Year 2000
problems in the future, it may not be able to develop, implement, or test
remediation or contingency plans in a timely or cost-effective manner.
PROPERTIES AND EQUIPMENT
As of May 1, 1999 the Company entered into a two-year lease for its headquarters
in San Antonio, Texas for 10,000 square feet. The Company anticipates acquiring
additional adjacent leased space to meet the needs of its expanding clerical,
administrative and sales activity. Additionally, the Company leases sales
offices in Hollidaysburg, Pennsylvania, North Carolina, Dallas, Texas and
Phoenix, Arizona, and plans to open additional sales offices throughout the
United States. The Company also anticipates increasing its lease commitments
with the establishment of a customer care center within the next twelve months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A. TRANSACTIONS WITH MANAGEMENT AND OTHERS; CERTAIN BUSINESS RELATIONSHIPS;
PROMOTERS
41
<PAGE>
Concurrent with and in connection with the Regulation S equity financing
described herein, the Company entered into a consulting agreement, effective
December 1, 1998, with the Consulting Group, located at 1090 W. Pender Street,
Suite 420, Vancouver BC V632N7, under which that Group provided or will provide
financing, investor relations, public relations and advertising services for the
Company for a period of one year. The total consideration paid and to be paid to
the Consulting Group for all services to the Company is $1.2 million; the
Company has not allocated this amount between and among the various services of
the Consulting Group. Additionally, between the period of December 1998 and May
1999, the Consulting Group advanced to the Company the sum of $2.0 million,
which was subsequently repaid on June 11, 1999, from the proceeds of closing the
Regulation S financing in the amount of $5.3 million.
On May 7, 1999, the Company entered into a certain Business Development
Agreement, and a related Independent Sales Agent Agreement, with Southwest
Business Corporation ("SBC"), of San Antonio, Texas. In exchange for sales and
marketing services and support described in these agreements, which generally
includes identification, introduction, sales to, and support of prospective
customers, and subject to performance criteria described therein (volume-based
customer billings thresholds), SBC may earn the right to purchase up to 500,000
shares of common stock of the Company. The warrant is for a term of three years
after the Company's common stock is offered for sale on a recognized stock
market, which the Company construes to include the NASDAQ National or SmallCap
Markets; the exercise price is 110% of the per share price of the common stock
at May 7, 1999, which was $6.50.
On May 18, 1999, the Company contracted with Pennsylvania Merchant Group
("PMG"), of West Conshohocken, Pennsylvania, to provide strategic and financial
advisory services, including analysis of markets, products, positioning,
financial models, organizations and staffing, potential strategic alliances,
capital requirements and funding options. In exchange for these advisory
services, the Company agreed to issue to PMG a warrant to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is exercisable for
five (5) years.
On or about May 18, 1999, a warrant was issued to PMG for 111,085 shares in
exchange for advisory services. This warrant has an exercise price of $6.75
which represents the average closing price of the Company's stock over the
twenty (20) business days preceding the date of engagement for advisory
services. On October 15, and October 22, 1999, the Company issued to PMG two
warrants to purchase a total 37,524 Shares of Common Stock of the Company at an
exercise price of $3.25 which represents the price at which the Holders of the
Secondary Shares purchased the Shares. On the following dates, four additional
warrants (the "Additional Warrants") for the number of shares indicated were
issued to PMG in consideration for additional services rendered relating to the
private placement. The exercise price for the Additional Warrants was determined
by the closing price of the Company's stock on the day each warrant was issued.
42
<PAGE>
NUMBER OF SHARES EXERCISE PRICE ISSUE DATE
---------------- -------------- -----------------
18,900 $8.00 December 16, 1999
19,950 $7.44 December 17, 1999
8,890 $7.41 December 21, 1999
3,500 $7.31 December 23, 1999
Except as described above, there is no affiliation between or among the Company,
Consulting Group, SBC and PMG. The Company possesses separate relationships with
each of these groups or entities.
B. INDEBTEDNESS OF MANAGEMENT
No member of management of the Company is or has been indebted to the Company in
an amount in excess of $60,000. No director or executive officer is personally
liable for repayment of amounts advanced under any financing received by the
Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
The Company's common stock is traded on the NASD OTC BB. The following table
sets forth the range of high and low bid quotations as reported during the most
recent fiscal year. Bid quotations represent prices between dealers, do not
include retail markup, mark down or other fees or commissions, and do not
necessarily represent actual transactions.
Calendar Quarter Bid Prices
Ended Low High
- ------------------------------------------------------
December 31, 1998(1) 2 3/8 3 3/8
March 31, 1999 2 3/4 8 5/8
June 30, 1999 4 1/4 10 1/8
September 30, 1999 3 13/16 7 3/4
(1) No previous periods are reported as the Company was initially listed in the
fourth quarter 1998.
The Company has 13,113,065 shares of common stock outstanding, including the
2,136,637 shares issued and registered hereby; of this amount, 6,030,000 of such
shares are nonrestricted; 6,136,637 of such shares are restricted pursuant to
Rule 144; and 946,428 shares are restricted pursuant to Regulation S. As of
December 23, 1999, the number of holders of record of the common stock, $.001
par value, of the Company was approximately 4,348.
B. DIVIDEND POLICY
The Company has paid no cash or stock dividends and has no present plan to pay
any such dividends, intending instead to reinvest its earnings, if any. However,
payment of future dividends will be determined from time to time by its board of
directors, based upon its future earnings, financial condition, capital
requirements and other factors. The Company is not presently subject to any
restriction on its present or future ability to pay such dividends.
43
<PAGE>
FINANCIAL STATEMENTS
billserv.com, Inc.
(a development stage company)
Financial Statements
Period Ended December 31, 1998
Report of Independent Auditors
Board of Directors
billserv.com, Inc.
We have audited the accompanying balance sheet of billserv.com, Inc. (a
development stage company) as of December 31, 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for the period
from inception (July 30, 1998) through December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides 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 billserv.com, Inc. at December
31, 1998, and the results of its operations and its cash flows for the period
from inception (July 30, 1998) through December 31, 1998 in conformity with
generally accepted accounting principles.
Ernst & Young LLP
San Antonio, Texas
June 1, 1999, except for Note 7,
as to which the date is November 19, 1999
44
<PAGE>
billserv.com, Inc.
(a development stage company)
Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 329,618
Related party accounts receivable ........................... 24,000
Prepaid expenses ............................................ 3,213
Other current assets ........................................ 31,149
---------
Total current assets ........................................... 387,980
Property and equipment, net of
accumulated depreciation of $559 ............................ 19,550
---------
Total assets ................................................... $ 407,530
=========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................ $ 3,779
Accounts payable - related party ............................ 150,000
Accrued expenses ............................................ 38,127
Advance from shareholders ................................... 500,000
---------
Total current liabilities ...................................... 691,906
Equity subject to potential redemption ......................... 5,300
Shareholders' equity (deficit):
Common stock - $.001 par value, 200,000,000 shares
authorized, 10,030,000 shares issued and
outstanding at December 31, 1998 ......................... 10,030
Additional paid-in capital .................................. --
Deficit accumulated during the development stage ............ (299,706)
---------
Total shareholders' equity (deficit) ........................... (289,676)
---------
Total liabilities and shareholders' equity (deficit) ........... $ 407,530
=========
SEE ACCOMPANYING NOTES.
45
<PAGE>
billserv.com, Inc.
(a development stage company)
Statement of Operations
From Inception (July 30, 1998) to December 31, 1998
Revenues .................................................... $ --
Operating expenses:
Selling expenses ......................................... 88,298
General and administrative ............................... 200,913
Depreciation ............................................. 559
------------
Total operating expenses .................................... 289,770
------------
Loss before income taxes .................................... (289,770)
Income taxes ................................................ --
------------
Net loss .................................................... $ (289,770)
============
Net loss per common share - basic ........................... $ (0.03)
============
Weighted average common shares outstanding - basic .......... 10,030,000
============
SEE ACCOMPANYING NOTES.
46
<PAGE>
billserv.com, Inc.
(a development stage company)
Statement of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
ADDITIONAL DURING THE SHAREHOLDERS'
COMMON STOCK PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at inception ......................... 1,000 $ -- $ -- $ -- $ --
Acquisition of shares and reverse merger
on December 9, 1998 ........................ 10,029,000 10,030 -- (4,636) 5,394
Reclass of equity subject to potential
redemption ................................. -- -- -- (5,300) (5,300)
Net loss for the period ...................... -- -- -- (289,770) (289,770)
----------------------------------------------------------------------------------
Balance at December 31, 1998 ................. 10,030,000 $ 10,030 $ -- $ (299,706) $ (289,676)
==================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
47
<PAGE>
billserv.com, Inc.
(a development stage company)
Statement of Cash Flows
From Inception (July 30, 1998) to December 31, 1998
OPERATING ACTIVITIES
Net loss ......................................................... $(289,770)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ............................................... 559
Changes in operating assets and liabilities:
Increase in related party receivables .................... (24,000)
Increase in prepaid expenses and other current assets .... (34,362)
Increase in accounts payable and accrued liabilities ..... 191,906
---------
Net cash used in operating activities ............................ (155,667)
INVESTING ACTIVITIES
Purchase of equipment ............................................ (20,109)
Proceeds of acquisition/merger ................................... 5,394
---------
Net cash used in investing activity .............................. (14,715)
FINANCING ACTIVITY
Advance from shareholders ........................................ 500,000
---------
Net cash provided by financing activity .......................... 500,000
---------
Increase in cash ................................................. 329,618
Cash and cash equivalents at beginning of period ................. --
---------
Cash and cash equivalents at end of period ....................... $ 329,618
=========
SEE ACCOMPANYING NOTES.
48
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
billserv.com, Inc. (the Company) was incorporated on July 30, 1998 under the
laws of the state of Texas for the purpose of providing billing services over
the Internet. The Company, having no substantial assets, was acquired by and
merged with and into Goldking Resources, Inc. (Goldking). A shareholder of
Goldking transferred 4,000,000 shares of stock to the principals and certain key
employees of the Company in exchange for all 1,000 shares of the Company's
stock.
The shares of Goldking, a Nevada corporation formed to develop mineral rights,
are traded on the National Association of Securities Dealers Over-the-Counter
Bulletin Board (NASD OTC BB). On December 3, 1998, Goldking Resources, Inc.
changed its name to billserv.com, Inc. and began trading under the symbol BLLS.
The acquisition has been accounted for as a "reverse acquisition" under the
purchase method. The paid-in capital of the Company has been credited for
$5,394, the fair value of the tangible net assets of Goldking. The results of
operations of Goldking have been included in the Company's financial statements
from December 9, 1998.
Comprehensive loss is the same as net loss for the period ended December 31,
1998.
BASIS OF PRESENTATION
The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operations and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenues. The Company
plans to meet its capital requirements primarily through funding under a
financing agreement and issuance of equity securities, capital lease financing,
and in the longer term, revenue from services.
49
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenue consists of implementation fees, transaction fees, and professional and
consulting fees. Recognition of implementation fee revenue is recognized when
customer setup is complete. Transaction fees are recognized as revenue upon
completion of transactions. Professional and consulting fees are recognized when
services are rendered.
FEDERAL INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes." This statement
establishes financial accounting and reporting standards for deferred income tax
assets and liabilities that arise as a result of differences between the
reported amounts of assets and liabilities for financial reporting and income
tax purposes.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at original cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets. The Company's computer systems are currently depreciated over a period
of three years.
50
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
1. SIGNFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted
net loss per common share is not presented as the assumed exercise of stock
options is antidilutive due to the Company's net loss.
2. ADVANCE FROM SHAREHOLDERS
The Company has received advances from a related party on a contemplated private
placement of the Company's common stock. As of December 31, 1998, $500,000 had
been advanced to the Company. An additional $1,500,000 was advanced in the
period from January 1999 through May 1999. The equity securities will be issued
under a Regulation S exemption. It is anticipated that net proceeds to the
Company under this offering will be approximately $5.3 million. Of the proceeds,
$1.2 million will be reserved for payments under the Company's Consulting
Agreement. See Note 3.
3. CONSULTING AGREEMENT
The Company has entered into a Consulting Agreement with a consulting group,
consisting of minority shareholders, which will provide financial consulting,
public relations services, advertising services, and investor relations
services. The term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for services totaling $1.2 million. At December
31, 1998, the Company had received $150,000 in services from the consulting
group. The related liability has been recorded as Accounts Payable - Related
Party and will be paid from the proceeds of the Regulation S offering. See Note
2.
4. INCOME TAXES
At December 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $290,000 which expires in the tax
year 2019. The Company recorded a deferred tax asset and a corresponding
valuation allowance of approximately $98,000 at December 31, 1998. There were no
material temporary differences between the financial statement and tax basis of
assets and liabilities.
51
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
4. INCOME TAXES (CONTINUED)
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense at December 31, 1998 is:
Tax at U.S. federal statutory rates ................. $(98,000)
Valuation allowance ................................. 98,000
--------
Income tax expense .................................. $ --
========
5. SUBSEQUENT EVENT
In January 1999, the Company's Board of Directors ratified, subject to
shareholder approval, the adoption of three stock option plans and reserved
4,500,000 shares of its common stock for issuance to certain employees,
consultants and directors. Under this plan, incentive and nonqualified options
may be granted. Options granted under this plan are 33 1/3% vested after one
year and vest thereafter at a rate of approximately 2.78% per month. In the
event of a stock dividend, stock split or reverse stock split, reclassification,
or recapitalization, the aggregate number and/or class of shares subject to the
plan and exercise price prior to such occurrence are appropriately adjusted. The
Company intends to submit these plans for shareholder approval in late 1999.
6. YEAR 2000 ISSUE (UNAUDITED)
Although the Company is not aware of any material operational issue or costs
associated with preparing its internal systems for the year 2000, there can be
no assurance that the Company will not experience serious unanticipated negative
consequences and/or material costs caused by undetected errors or defects in the
technology used in its internal systems, which include third-party software and
hardware technology.
52
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
7. EQUITY SUBJECT TO POTENTIAL REDEMPTION
On or about December 3, 1998, the Company, then under the control of former
management, and then known as Goldking Resources, Inc., concluded an offering of
approximately 5.3 million shares of the Company's common stock. This transaction
was completed through the cancellation of approximately 6.2 million shares, held
by shareholders who tendered their shares to the Company, followed by the
Company's issuance of 5.3 million shares to 15 new shareholders, who paid par
value to the Company for such shares, in the total amount of approximately
$5,300.00. The new shareholders also paid an additional $300,000 to the
shareholders who had agreed to cancel their shares. Subsequently, some of these
new shareholders sold the shares into the secondary market. The Company timely
filed a Form D reporting this transaction to the SEC, and claimed exemption
under Rule 504. The SEC has challenged the validity of this claimed exemption.
The Company disputes the following assertions, but it is possible that the
issuance of shares described above may have violated provisions of the federal
and state securities laws which subject the Company to fines, penalties or other
regulatory enforcement action. There can be no assurance that the SEC or
applicable state authorities will not pursue any enforcement action. The Company
disputes any such liability.
Additionally, while the Company also disputes the following assertions, it is
possible that shareholders who purchased the shares described above may have the
right under state and federal securities laws to require the Company to
repurchase their shares, for the amount originally paid, plus interest. The
Company disputes any such liability.
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<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Financial Statements (continued)
December 31, 1998
7. EQUITY SUBJECT TO POTENTIAL REDEMPTION (CONTINUED)
Based upon the best information available to the Company at this time, the
Company has calculated a range of possible, but disputed, exposure that exists
for the Company in light of the disputed civil liabilities described above.
Accordingly, in the event these disputed civil liabilities were successfully
asserted, the Company could be liable to the 15 new shareholders, and to any
shareholder that immediately purchased from these 15 shareholders, in an amount
ranging from approximately $5,300 up to approximately $2.9 million, plus
interest. This range of possible exposure is calculated by reference to the
average closing price for a share of the Company's common stock, weighted for
reported daily volume, during December 1998 and January 1999; the number of
shares possibly sold during the same period of time; and the closing price of
one share on November 11, 1999. The foregoing range could be adjusted higher or
lower depending upon adjustments to any of the referenced items, and as any new
information becomes available to the Company.
54
<PAGE>
Financial Statements
Period Ended September 30, 1999
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------------- --------------
<S> <C> <C>
Assets:
Cash and cash equivalents ........................................... $ 1,498,703 $ 329,618
Related party accounts receivable ................................... 55,911 24,000
Prepaid expenses .................................................... 147,114 3,213
Other current assets ................................................ 205,336 31,149
----------- -----------
Total current assets ................................................ 1,907,064 387,980
Property and equipment, net of accumulated
depreciation and amortization of $161,289 and $559 ............... 1,099,219 19,550
Other assets ........................................................ 399,960 --
=========== -----------
Total assets ........................................................ $ 3,406,243 $ 407,530
=========== ===========
Liabilities & shareholders' equity (deficit):
Current liabilities:
Accounts payable .................................................. $ 122,366 $ 3,779
Note payable ...................................................... 1,000,000 --
Accrued expenses .................................................. 124,866 38,127
Current portion of obligations under capital leases ............... 296,430 --
Other current liabilities ......................................... 13,019 --
Advance from shareholders ......................................... -- 500,000
Accounts payable, related party ................................... -- 150,000
----------- -----------
Total current liabilities ........................................... 1,556,681 691,906
Obligations under capital leases, less current portion ..................... 333,859
Equity subject to potential redemption ..................................... 5,300 5,300
Shareholders' equity (deficit):
Common stock, $.001 par value, 200,000,000 shares
authorized; 10,976,428 issued and outstanding
at September 30, 1999, 10,030,000 issued and
outstanding at December 31, 1998 ............................... 10,976 10,030
Paid-in capital ................................................... 5,790,482 --
Deficit accumulated during the development stage .................. (4,291,055) (297,706)
----------- -----------
Total shareholders' equity (deficit) ................................ 1,510,403 (289,676)
----------- -----------
Total liabilities and shareholders' equity (deficit) ................ $ 3,406,243 $ 407,530
=========== ===========
</TABLE>
See notes to financial statements
55
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30,
1998
THREE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 1999
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues ...................................... $ -- $ -- $ --
Operating expenses
Research and development .................... 260,847 600,389 600,389
Selling expenses ............................ 536,629 1,278,566 1,366,864
General and administrative .................. 516,463 1,810,388 2,011,301
Depreciation & amortization ................. 87,541 168,805 169,364
------------ ------------ ------------
Total operating expenses ...................... 1,401,480 3,858,148 4,147,918
------------ ------------ ------------
Operating loss ................................ (1,401,480) (3,858,148) (4,147,918)
Other income (expense):
Interest income ............................. 24,774 36,905 36,905
Interest expense ............................ (165,279) (173,433) (173,433)
Other income ................................ 2,127 3,327 3,327
------------ ------------ ------------
Total other income (expense) .................. (138,378) (133,201) (133,201)
------------ ------------ ------------
Loss before income taxes ...................... (1,539,858) (3,991,349) (4,281,119)
Income taxes .................................. -- -- --
============ ============ ============
Net loss ...................................... $ (1,539,858) $ (3,991,349) $ (4,281,119)
============ ============ ============
Net loss per common share - basic ............. $ (0.14) $ (0.38) $ (0.42)
============ ============ ============
Weighted average common shares
outstanding - basic ......................... 10,976,428 10,414,811 10,276,027
============ ============ ============
</TABLE>
See notes to financial statements
56
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
COMMON STOCK PAID-IN DEVELOPMENT SHAREHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance July 30, 1998
(date of inception) ................................. 1,000 $ -- $ -- $ -- $ --
Reclass of equity subject to potential redemption ..... (5,300) (5,300)
Acquisition of shares and reverse merger,
December 9, 1998 ................................... 10,029,000 10,030 -- (4,636) 5,394
Net loss from inception (July 30, 1998 to
December 31, 1998) ................................. -- -- -- (289,770) (289,770)
---------------------------------------------------------------------------
Balance at December 31, 1998 .......................... 10,030,000 10,030 -- (299,706) (289,676)
Shares issued under Reg S,
June 11, 1999 ....................................... 946,428 946 5,299,054 -- 5,300,000
Issuance of Common Stock Warrants,
May 18, 1999 ........................................ -- -- 356,583 -- 356,583
Issuance of Common Stock Warrants,
August 6, 1999 ...................................... -- -- 134,845 -- 134,845
Net loss for the nine months ending
September 30, 1999 .................................. -- -- -- (3,991,349) (3,991,349)
---------------------------------------------------------------------------
Balance at September 30, 1999 ......................... 10,976,428 $ 10,976 $ 5,790,482 $(4,291,055) $ 1,510,403
===========================================================================
</TABLE>
See notes to financial statements
57
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30, 1998
NINE MONTHS (INCEPTION)
ENDED TO
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................. $(3,991,349) $(4,281,119)
Adjustments to reconcile net loss to net
cash used in operating activities-
Issuance of common stock warrants .................................... 491,428 491,428
Depreciation and amortization ........................................ 168,805 169,364
Changes in current assets and current liabilities-
(Increase) decrease in related party receivables ..................... (31,911) (55,911)
(Increase) decrease in prepaid expenses and other current assets ..... (318,088) (352,450)
Increase (decrease) in accounts payable and accrued liabilities ...... 205,326 397,232
Increase (decrease) in accounts payable related party ................ (150,000) (150,000)
Increase (decrease) in other current liabilities ..................... 13,019 13,019
----------- -----------
Net cash used in operating activities ................................ (3,612,770) (3,768,437)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................................... (665,398) (685,507)
Proceeds from sale of property and equipment ......................... 116,320 116,320
Purchase of long term investments .................................... (286,098) (286,098)
Purchase of intangible assets ........................................ (75,000) (75,000)
Deposits - long term ................................................. (42,834) (42,834)
Proceeds of acquisition/merger ....................................... -- 5,394
----------- -----------
Net cash used in investing activities ................................ (953,010) (967,725)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable ........................................... 1,000,000 1,000,000
Advance from shareholders ............................................ 1,500,000 2,000,000
Repayment to shareholders ............................................ (2,000,000) (2,000,000)
Issuance of common stock ............................................. 5,300,000 5,300,000
Payments on obligations under capital lease .......................... (65,135) (65,135)
----------- -----------
Net cash provided by financing activities ............................ 5,734,865 6,234,865
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 1,169,085 1,498,703
CASH AND CASH EQUIVALENTS, beginning of period ................................. 329,618 --
----------- -----------
CASH AND CASH EQUIVALENTS, end of period ....................................... $ 1,498,703 $ 1,498,703
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES:
Purchases of equipment under capital leases .......................... $ 695,423 $ 695,423
</TABLE>
See notes to financial statements
58
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's principal activities have been research and development, raising
capital, and organizational activities. Accordingly, it is considered a
development stage company. The Company expects to incur losses during its first
year of operation and may incur losses in subsequent years as development
efforts continue after the commencement of generation of revenue. The Company
plans to meet its capital requirements primarily through funding under
borrowings and issuance of equity securities, capital lease financing, and in
the longer term, revenue from services.
The Company's statements have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the results for the interim
periods shown. Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to such SEC rules
and regulations. The results for the interim periods are not necessarily
indicative of results for the full year. The financial statements contained
herein should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10, as amended.
The Company's operations began in November 1998, and as a result, there are no
results of operations presented for the three months period ended September 30,
1998. No revenue was recorded during 1998.
2. STOCK ISSUANCE UNDER REGULATION S
On June 11, 1999, the Company issued 946,428 shares of common stock, in exchange
for $5.3 million in cash. The stock was issued pursuant to exemption under
Regulation S.
3. RELATED PARTY TRANSACTIONS
The Company entered into an agreement ("Consulting Agreement") to receive
financial consulting, public relations services, advertising services, and
investor relations' services from a group of minority shareholders ("Consulting
Group"). The term of the agreement is for one year, from November 1, 1998 to
October 31, 1999, and provides for services totaling $1.2 million. The Company
paid $1 million to the Consulting Group, previously reported as Accounts Payable
- - Related Party, from the proceeds of the Regulation S offering which was
completed on June 11, 1999. The remaining $200,000 under the agreement was paid
to the Consulting Group during the third quarter of 1999.
59
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
4. OBLIGATIONS UNDER CAPITAL LEASES
Equipment held under capital leases is stated at the present value of minimum
lease payments at the inception of the related leases. Equipment held under
capital leases and leasehold improvements are amortized on a straight-line basis
over the estimated useful life of the assets. Amortization of equipment held
under capital leases is included with depreciation expense. Repairs and
maintenance costs are charged to expense as incurred. At September 30, 1999,
there was $695,423 of office and computer equipment held under capital leases.
The following is a schedule, by year, of future minimum lease payments under
capital leases, together with the present value of the minimum lease payments as
of September 30, 1999:
Year ending December 31,
1999 $ 92,745
2000 370,979
2001 226,289
2002 43,183
Total minimum lease payments $ 733,196
Less: amount representing interest (102,907)
-----------
$ 630,289
Less: current portion (296,430)
-----------
Obligations under capital leases $ 333,859
===========
60
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
5. OPERATING LEASES
The Company leases office space and other equipment under noncancelable
operating leases expiring in 2004. Future minimum lease payments required under
these leases entered into by the Company, by year and in the aggregate, consist
of the following at September 30, 1999:
Year ending December 31,
1999 $ 52,588
2000 200,799
2001 50,548
2002 6,074
2003 6,074
Thereafter 3,400
-----------
Total minimum lease payments $ 319,483
===========
6. OTHER ASSETS
The Company purchased the domain name bills.com for $75,000 in April 1999. The
Company has utilized the domain name for its own Internet portal at the website
www.bills.com. The domain name is reflected in Other Assets. The Company is
amortizing the amount over a ten year period. Additionally, certificates of
deposit purchased for security of long term capital leases are classified under
Other Assets.
7. NOTE PAYABLE
On August 6, 1999, the Company issued a one-year unsecured note payable for $1
million to an accredited investor, which bears interest at 9% per annum, payable
quarterly. The proceeds of this note payable were allocated for use in corporate
operations and to supplement the Company's cash reserves until future equity
financing was obtained. In connection with the issuance of the note, the Company
paid a $20,000 loan origination fee to a venture capitalist firm and issued a
warrant to the accredited investor. See Note 9.
8. EQUITY SUBJECT TO POTENTIAL REDEMPTION
On or about December 3, 1998, the Company, then under the control of former
management, and then known as Goldking Resources, Inc., concluded an offering of
61
<PAGE>
approximately 5.3 million shares of the Company's common stock. This transaction
was completed through the cancellation of approximately 6.2 million shares, held
by shareholders who tendered their shares to the Company, followed by the
Company's issuance of 5.3 million shares to 15 new shareholders, who paid par
value to the Company for such shares, in the total amount of approximately
$5,300. The new shareholders also paid an additional $300,000 to the
shareholders who had agreed to cancel their shares. Subsequently, some of these
new shareholders sold the shares into the secondary market. The Company timely
filed a Form D reporting this transaction to the SEC, and claimed exemption
under Rule 504. The SEC has challenged the validity of this claimed exemption.
The Company disputes the following assertions, but it is possible that the
issuance of shares described above may have violated provisions of the federal
and state securities laws which subject the Company to fines, penalties or other
regulatory enforcement action. There can be no assurance that the SEC or
applicable state authorities will not pursue any enforcement action. The Company
disputes any such liability.
Additionally, while the Company also disputes the following assertions, it is
possible that shareholders who purchased the shares described above may have the
right under state and federal securities laws to require the Company to
repurchase their shares, for the amount originally paid, plus interest. The
Company disputes any such liability.
Based upon the best information available to the Company at this time, the
Company has calculated a range of possible, but disputed, exposure that exists
for the Company in light of the disputed civil liabilities described above.
Accordingly, in the event these disputed civil liabilities were successfully
asserted, the Company could be liable to the 15 new shareholders, and to any
shareholder that immediately purchased from these 15 shareholders, in an amount
ranging from approximately $5,300 up to approximately $2.9 million, plus
interest. This range of possible exposure is calculated by reference to the
average closing price for a share of the Company's common stock, weighted for
reported daily volume, during December 1998 and January 1999; the number of
shares possibly sold during the same period of time; and the closing price of
one share on November 11, 1999. The foregoing range could be adjusted higher or
lower depending upon adjustments to any of the referenced items, and as any new
information becomes available to the Company.
62
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
SEPTEMBER 30, 1999
9. STOCK WARRANT AGREEMENTS
On May 7, 1999, the Company contracted to issue a warrant for the purchase of up
to 500,000 shares of common stock to Southwest Business Corporation ("SWBC"), of
San Antonio, Texas. Subject to specific performance criteria in sales and
marketing of the Company's products, SWBC may earn the right to purchase shares
of common stock, at 110% of the closing bid price as of May 7, 1999 ($7.15),
over a three-year term. If SWBC meets the contract requirements, the warrant
will be issued in accordance with an exemption under Section 4(2) of the
Securities Act of 1933, as amended, because the transaction is by an issuer not
involving a public offering. No warrants had been issued as of September 30,
1999.
On May 18, 1999, the Company contracted with Pennsylvania Merchant Group ("PMG")
to provide strategic and financial advisory services. In exchange for these
advisory services, the Company issued to PMG a warrant to purchase 111,085
shares of common stock of the Company at an exercise price of $6.75 per share
(which represents the average closing price of the Company's stock over the
twenty (20) day period preceding May 18, 1999). The warrant is exercisable for
five (5) years. This warrant was issued in accordance with an exemption under
Section 4(2) of the Securities Act of 1933, as amended, because the transaction
is by an issuer not involving a public offering. Using the fair value based
method of accounting, the company recorded $356,583 of expense and a
corresponding credit to paid-in-capital related to the issuance of this warrant.
This expense is included in the general and administrative line item in the
Statements of Operations for the nine months ended September 30, 1999. No shares
had been exercised as of September 30, 1999.
As part of the August 6, 1999 debt issuance, the Company issued a warrant to the
accredited investor for the purchase of 41,237 shares of the Company's Common
Stock at an exercise price of $6.0625, which represents the average reported
closing sale price of the Company's Common Stock for the ten (10) business days
immediately preceding the loan agreement. The warrant is immediately exercisable
and carries a term of five years and piggyback registration rights. Using the
fair value based method of accounting, the company recorded $134,845 of expense
and a corresponding credit to paid-in-capital related to the issuance of this
warrant. This expense is included in the interest expense line item in the
Consolidated Statement of Operations for the quarter and nine months ended
September 30,1999. See Note 7.
63
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
10. SUBSEQUENT EVENTS
On October 15, 1999 and October 22, 1999, ("the Closing") the Company issued
1,230,792 and 173,845 shares of Common Stock (the "Shares"), respectively to
twenty-one accredited investors under a private placement offer (the
"Offering"). The shares were issued at $3.25 per share which represented a
discount upon the average reported closing sale price of the Company's Common
Stock for the ten (10) business days immediately preceding the Closing date. Net
proceeds to the Company totaled approximately $4,188,053, net of expenses of
$377,009, which included $264,299, or 6.5% of the Offering, paid Pennsylvania
Merchant Group ("PMG") as Placement Agent. Of the Shares issued on October 22,
1999, 153,845 shares were issued in satisfaction of the $500,000 of the
Company's outstanding short-term note payable. The remaining $500,000 of the
outstanding short-term note payable was paid on October 18, 1999.
In accordance with the terms of the Offering, the Company also issued warrants
to the twenty-one investors to purchase 1,404,637 shares of Common Stock at
$3.75 per share, or one warrant for each Share issued. The warrants are
exercisable for three years from the date of issuance, or October 14, 2002. The
Company has right to call the exercise of the warrants at any time after six
months after the date of the issuance and after the closing price of the Common
Stock exceeds $12.00 for a period of twenty (20) consecutive trading days. Upon
such call notice from the Company, the holders of the warrants must exercise the
warrants within thirty days, after which time the Company will redeem each
warrant for $.05.
Pursuant to the terms of the Offering, the Company shall file a registration
statement with the SEC within thirty days of the Closing for the purpose of
registering the Shares and underlying warrants. The Company shall also use its
best efforts to maintain with the SEC a Registration Statement that is
effective, as of one hundred twenty (120) days after Closing, and otherwise
cause the Shares and Warrant Shares to be Registered under the Securities Act
until the date on which the Shares and Warrant Shares are eligible for resale or
other disposition under Rule 144 without regard to the volume limitations
thereof.
If a Registration Statement is not filed on or before thirty (30) days after
Closing, or is not effective on or before one hundred twenty (120) days after
Closing (the "Target Date"), as required above, then for every applicable thirty
(30) day period after the applicable target date, the Company shall pay to
Purchaser, as liquidated damages, an amount equal to two percent (2%) of the
total Offering Price of such Shares (without reference to the Warrant Shares or
the Placement Agent Warrant Shares) for each thirty (30) day period following
the applicable Target Date until such time as the registration statement is
declared effective or, in the case of a late filing, is filed. Such payment
shall be made to the Purchaser by cashier's check or wire transfer in
immediately available funds to an account designated, in writing, by Purchaser.
64
<PAGE>
billserv.com, Inc.
(a development stage company)
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
10. SUBSEQUENT EVENTS (CONTINUED)
As additional compensation for acting as Placement Agent for the Offering, the
Company issued a warrant to PMG for the purchase of 37,524, or 3% of the Shares
sold in the Offering. The warrant is immediately exercisable, carries a five
year term, an exercise price of $3.25, piggyback registration rights, and a
cashless exercise provision.
65
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada law sets forth the powers of the Company to indemnify officers,
directors, employees and agents. The Articles of Incorporation for the Company
provide as follows:
"No director or officer shall have any personal liability to the
corporation or its stockholders for damages for breach of fiduciary
duty as a director or officer, except that this Article shall not
eliminate or limit the liability of a director or officer for (i)
acts or omissions that involve intentional misconduct, fraud or a
knowing violation of the law, or (ii) the payment of dividends in
violation of Nevada Revised Statutes."
Except to the extent herein above set forth, there is no charter provision,
bylaw, contract, arrangement or statute pursuant to which any director or
officer of the Company is indemnified in any manner against any liability which
he may incur in his capacity as such. The Company also maintains a standard
director and officer liability policy to fund the Company's obligations as
stated herein above.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company has agreed to pay all expenses associated with the registration of
the Secondary Shares, including the following:
Placement Agent Fees $ 525,919
Other Expenses 54,497
Legal and Accounting Fees 105,475
----------
Total Expenses $ 685,891
==========
RECENT SALES OF UNREGISTERED SECURITIES
There are issued and outstanding 13,113,065 shares of common stock which were
sold as follows:
A. THE FORMATION OF GOLDKING RESOURCES
On or about July 10 and 14, 1998, a total of 10,000,000 shares of common stock
were sold for a total of $10,000 to one individual, Mr. Adam Smith, of
Vancouver, BC, Canada, who then served as a director and the President of the
Company; and seven (7) corporate shareholders. Mr. Smith acquired 4,000,000
shares at such time; and the corporate shareholders acquired 6,000,000 shares.
On or about July 15 and 30, and August 19, 1998, thirty-three (33) individuals
acquired 742,500 shares of common stock, for the total purchase price of $7,425.
On or about September 5, 1998, three (3) individual shareholders paid $13,000
for 130,000 shares. All of the share issuances described above were concluded at
the direction of former management of the Company.
66
<PAGE>
All of the shares of common stock described above were issued in compliance with
exemption under Section 4(2) of the Securities Act of 1933, as amended, because
the transactions were concluded by an issuer not involving a public offering, or
pursuant to exemption under Rule 504, because the total amount of the offering
of those shares did not exceed $1 million. Form D relating to these offerings
were filed with the Securities and Exchange Commission.
B. CURRENT MANAGEMENT'S ACQUISITION OF SHARES IN GOLDKING RESOURCES
On or about October 26, 1998, in a transaction facilitated by the Consulting
Group, the current management directors of the Company agreed to acquire the
4,000,000 shares held by Mr. Smith, then the President of the Company, then
known as Goldking Resources, Inc.; these shares were subsequently transferred to
the current management directors of the Company, Messrs. Long, Hoch and Jones,
and other key executives of the Company, in December 1998. Neither Messrs. Long,
Hoch and Jones nor any other executive of the Company paid cash consideration
for the shares received, but instead transferred their shares in billserv-Texas
to Goldking, which subsequently caused the merger of billserv-Texas with and
into Goldking. All of these common shares were transferred in compliance with
exemption under Section 4(1) of the Securities Act of 1933, because the
transaction was by a person other than an issuer, underwriter or dealer. The
shares are restricted under Rule 144.
Current management completed this transaction, and the transactions described
immediately below in paragraph 3, in order to obtain a preexisting corporate
entity, whose shares were traded on the OTC BB. Current management believed that
developing the Company's business in this vehicle would facilitate funding
efforts for the Company in the future. Additionally, management believed that
the Consulting Group, which had introduced current management to Goldking
Resources, could assist with funding of the Company at a future date. The
Company's relationship with the Consulting Group ultimately resulted in
completion of Regulation S financing described below.
C. RELATED CANCELLATION OF "OLD" GOLDKING SHARES, AND ISSUANCE OF NEW SHARES
On December 3, 1998, in a transaction related to current management's
acquisition of Mr. Smith's 4,000,000 shares (described above), the Company,
under former management's control, issued 5,359,500 shares of common stock at
par in reliance upon exemption under Rule 504, and received for cancellation
6,202,000 shares, held by eleven (11) Goldking shareholders (the "Cancelling
Holders"), with unanimous shareholder consent. The 5,359,500 shares described
above were issued to fifteen (15) individual and institutional investors. The
total purchase price for all shares issued was $305,359.50, of which $300,000
was paid directly to Mr. Smith and the Cancelling Holders by the 15 new
shareholders; the balance was paid to the Company. Additionally, the Company's
sole asset immediately prior to this transaction, a mineral claim, was
transferred out of the Company for the benefit of Mr. Smith and the Cancelling
Holders. Form D relating to the Rule 504 offering was filed with the Securities
and Exchange Commission.
67
<PAGE>
D. ISSUANCES UNDER NEW MANAGEMENT
After current management was in place, on May 7, 1999, the Company contracted to
issue a warrant for the purchase of up to 500,000 shares of common stock to SBC,
of San Antonio, Texas. Subject to specific performance criteria in sales and
marketing of the Company's products, SBC may earn the right to purchase shares
of common stock, at 110% of the closing bid price as of May 7, 1999 ($6.50),
over a three year term. If SBC meets the contract requirements, the warrant will
be issued in accordance with exemption under Section 4(2) of the Securities Act
of 1933, as amended, because the transaction is by an issuer not involving a
public offering.
On May 18,1999, the Company also contracted with Pennsylvania Merchant Group
("PMG"), of West Conshohocken, Pennsylvania, to provide strategic and financial
advisory services, including analysis of markets, products, positioning,
financial models, organizations and staffing, potential strategic alliances,
capital requirements and funding options. In exchange for these advisory
services, the Company issued to PMG a warrant to purchase 111,085 shares of
common stock of the Company at an exercise price of $6.75 per share (which
represents the average closing price of the Company's stock over the twenty (20)
day period preceding May 18, 1999). The warrant is exercisable for five (5)
years. This warrant will be issued in accordance with exemption under Section
4(2) of the Securities Act of 1933, as amended, because the transaction is by an
issuer not involving a public offering. In order to secure bridge financing for
the private placement offering, the Company issued a Warrant for 41,237 Shares
of its Common Stock to Kingship LTD. This Warrant has an exercise price of
$6.0625 per share and expires on August 6, 2004.
On June 11, 1999, the Company issued 946,428 shares of common stock to two
corporate investors, in exchange for $5.3 million in cash. The stock was issued
pursuant to exemption under Regulation S. Neither investor is a "U.S. person"
under Regulation S. Proceeds of this offering were used to repay advances to the
Company by the Consulting Group of $2.0 million; to fund contractual commitments
totaling $1.2 million for fundraising and public and investor relations services
performed or to be performed by the Consulting Group; and for other general
corporate operating purposes.
On or about October 15, and October 22, 1999, the Company issued 1,404,637
Shares of Common Stock and Warrants convertible to 1,404,637 shares, to certain
of the Selling Shareholders, in exchange for $4,565,063 million in cash, in
connection with this offering, the Company issued a Warrant for 37,524 shares to
the placement agreement Pennsylvania Merchant Group. In addition, on or about
December 22, 1999, the Company issued 732,000 shares to certain of the Selling
Shareholders for $4,026,000. Four additional warrants for a total of 51,240
shares were issued to PMG in connection with this December offering. All of the
stock was issued pursuant to Rule 506, Regulation D. Form D was timely filed
with the Securities and Exchange Commission.
68
<PAGE>
EXHIBITS
Index of Exhibits:
1. Articles of Organization and Bylaws
2. Common Stock Purchase Agreement(1)
3. Registration Rights Agreement
4. Investor Warrant Agreement
5. Bridge Loan Warrant
6. PMG Advisory Warrant Agreement
7. Form of PMG Placement Agent Warrant (2)
8. Opinion regarding legality (to be filed with amendment)
9. Auditor's Consent to use of Financial Statements
(1) This is the form of Common Stock Purchase Agreement executed by the
Company and named Selling Shareholders with respect to 1,604,486
shares of Common Stock; the form of Agreement with respect to
732,000 shares of Common Stock is identical, except that the
provision granting the right to purchase shares pursuant to
warrants is deleted.
(2) This is the form of the five warrants issued to PMG in
consideration of services rendered as Placement Agent. The five
"Placement Agent Warrants" may be exercised for a total of 88,764
shares of the Company's common stock. See "Issuance Under New
Management".
UNDERTAKINGS
The undersigned registrant hereby further undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
69
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of San
Antonio, State of Texas, on the ______ day of December, 1999.
billserv.com, Inc.
A Nevada Corporation
By: _________________________________
Louis A. Hoch,
President and Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
____________________________________
Michael R. Long
Chief Executive Officer and Director
Date:_______________________________
____________________________________
Louis A. Hoch
President and Director
Date:_______________________________
____________________________________
David S. Jones
Executive Vice President and Director
Date:_______________________________
____________________________________
Lori Turner
Chief Financial Officer and
Principal Accounting Officer
Date:_______________________________
70
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
GOLDKING RESOURCES INC.
* * * * *
The undersigned, acting as incorporator, pursuant to the provisions of the
laws of the State of Nevada relating to private corporations, hereby adopts the
following Articles of Incorporation:
ARTICLE ONE. [NAME]. The name of the corporation is:
GOLDKING RESOURCES INC.
ARTICLE TWO. [RESIDENT AGENT]. The initial agent for service of process
is Nevada Agency and Trust Company, 50 West Liberty Street, Suite 880, City of
Reno, County of Washoe, State of Nevada 89501.
ARTICLE THREE. [PURPOSES]. The purposes for which the corporation is
organized are to engage in any activity or business not in conflict with the
laws of the State of Nevada or of the United States of America, and without
limiting the generality of the foregoing, specifically:
I. [OMNIBUS]. To have to exercise all the powers now or hereafter
conferred by the laws of the State of Nevada upon corporations organized
pursuant to the laws under which the corporation is organized and any and
all acts amendatory thereof and supplemental thereto.
II. [CARRYING ON BUSINESS OUTSIDE STATE]. To conduct and carry on
its business or any branch thereof in any state or territory of the United
States or in any foreign country in conformity with the laws of such state,
territory, or foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant, store or other
facility.
III. [PURPOSES TO BE CONSTRUED AS POWERS]. The purposes specified
herein shall be construed both as purposes and powers and shall be in no
wise limited or restricted by reference to, or inference from, the terms
<PAGE>
of any other clause in this or any other article, but the purposes and
powers specified in each of the clauses herein shall be regarded as
independent purposes and powers, and the enumeration of specific purposes
and powers shall not be construed to limit or restrict in any manner the
meaning of general terms or of the general powers of the corporation; nor
shall the expression of one thing be deemed to exclude another, although it
be of like nature not expressed.
ARTICLE FOUR. [CAPITAL STOCK]. The corporation shall have authority to
issue an aggregate of TWO HUNDRED MILLION (200,000,000) Common Capital Shares,
PAR VALUE ONE MILL ($0.001) per share for a total capitalization of TWO HUNDRED
THOUSAND DOLLARS ($2,000,000).
The holders of shares of capital stock of the corporation shall not be
entitled to pre-emptive or preferential rights to subscribe to any unissued
stock or any other securities which the corporation may now or hereafter be
authorized to issue.
The corporation's capital stock may be issued and sold from time to time
for such consideration as may be fixed by the Board of Directors, provided that
the consideration so fixed is not less than par value.
The stockholders shall not possess cumulative voting rights at all
shareholders meetings called for the purpose of electing a Board of Directors.
ARTICLE FIVE. [DIRECTORS]. The affairs of the corporation shall be
governed by a Board of Directors of no more than eight (8) nor less than one (1)
person. The names and addresses of the first Board of Directors are:
NAME ADDRESS
---- -------
Adam Smith 1327 Laburnum Street
Vancouver, British Columbia
Canada V6J 3W4
Gordon Ross Krushnisky 1070 Eden Crescent
Delta, British Columbia
Canada V41 1W7
ARTICLE SIX. [ASSESSMENT OF STOCK]. The capital stock of the corporation,
after the amount of the subscription price or par value has been paid in, shall
not be subject to pay debts of
<PAGE>
the corporation, and no paid up stock and no stock issued as fully paid up shall
ever be assessable or assessed.
ARTICLE SEVEN. [INCORPORATOR]. The name and address of the incorporator of
the corporation is as follows:
NAME ADDRESS
---- -------
Amanda Cardinalli 50 West Liberty Street, Suite 880
Reno, Nevada 89501
ARTICLE EIGHT. [PERIOD OF EXISTENCE]. The period of existence of the
corporation shall be perpetual.
ARTICLE NINE. [BY-LAWS]. The initial By-laws of the corporation shall be
adopted by its Board of Directors. The power to alter, amend, or repeal the
By-laws, or to adopt new By-laws, shall be vested in the Board of Directors,
except as otherwise may be specifically provided by the By-laws.
ARTICLE TEN. [STOCKHOLDERS' MEETINGS]. Meetings of stockholders shall be
held at such place within or without the State of Nevada as may be provided by
the By-laws of the corporation. Special meetings of the stockholders may be
called by the President or any other executive officer of the corporation, the
Board of Directors, or any member thereof, or by the record holder or holders of
at least ten percent (10%) of all shares entitled to vote at the meeting. Any
action otherwise required to be taken at a meeting of the stockholders, except
election of directors, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by stockholders having at
least a majority of the voting power.
ARTICLE ELEVEN. [CONTRACTS CORPORATION]. No contract or other transaction
between the corporation and any other corporation, whether or not a majority of
the shares of the capital stock of such other corporation is owned by this
corporation, and no act of this corporation shall in any way be affected or
invalidated by the fact that any of the directors of this corporation are
pecuniarily or otherwise interested in, or are directors or officers of such
other corporation. Any director of this corporation, individually, or any form
of which such director may be a member, may be a party to or may be pecuniarily
or otherwise interested in any contract or transaction of the corporation;
provided, however, that the fact that he or such firm is so interested shall be
disclosed or shall have been known to the Board of Directors of this
corporation, or a majority thereof; and any director of this corporation who is
also a director or officer of such other corporation, or who is so interested,
may be counted in determining the existence of a quorum at any meeting of the
<PAGE>
Board of Directors of this corporation that shall authorize such contract or
transaction, and may vote thereat to authorize such contract or transaction,
with like force and effect as if he were not such director or officer of such
other corporation or not so interested.
ARTICLE TWELVE. [LIABILITY OF DIRECTORS AND OFFICERS]. No director or
officer shall have any personal liability to the corporation or its stockholders
for damages for breach of fiduciary duty as a director or officer, except that
this Article Twelve shall not eliminate or limit the liability of a director or
officer for (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law, or (ii) the payment of dividends in violation of the
Nevada Revised Statutes.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has hereunto affixed her
signature at Reno, Nevada this 3rd day of June, 1998.
/s/ AMANDA CARDINALLI
Amanda Cardinelli
STATE OF NEVADA )
: ss.
COUNTY OF WASHOE )
On the 3rd day of June, 1998, before me, the undersigned, a Notary Public
in and for the State of Nevada, personally appeared AMANDA CARDINALLI, known to
me to be the person described in and who executed the foregoing instrument, and
who acknowledged to me that she executed the same freely and voluntarily for the
uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ MARGARET A. OLIVEE,
NOTARY PUBLIC
Residing in Reno, Nevada
My Commission Expires:
October 10, 1998
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
GOLDKING RESOURCES INC.
The undersigned certify that, pursuant to the provisions of the Nevada Revised
Statutes, GOLDKING RESOURCES INC., a Nevada corporation, adopted the following
resolutions to amend its articles of incorporation:
1. All of the directors consented in writing to the following resolution dated
November 20, 1998:
RESOLVED that the secretary of the Company is directed to obtain from the
stockholders owning at least a majority of the voting power of the
outstanding stock of the Company their written consent to the amendment of
article one of the articles of incorporation to change the name of the
Company from GOLDKING RESOURCES INC. to BILLSERV.COM, INC.
2. A majority of the stockholders holding ninety-one percent of the common
shares outstanding of Goldking Resources Inc. consented in writing to the
following resolution dated November 20, 1998:
RESOLVED that article one of the Company's articles of incorporation be
amended as follows:
ARTICLE ONE [NAME] The name of the corporation is:
BILLSERV.COM, INC.
The undersigned president and secretary of GOLDKING RESOURCES INC., a Nevada
corporation, signed below on November 26, 1998.
GOLDKING RESOURCES INC.
/s/ ADAM SMITH
Adam Smith, President
/s/ MARY M. HETHEY,
Mary M. Hethey, Secretary
Province of
British Columbia
On November 26, 1998, before me, the undersigned notary public, personally
appeared ADAM SMITH, PRESIDENT, known to be the persons described in and who
executed the foregoing instrument and who acknowledged to me that they executed
it voluntarily for the purposes described.
I have set my hand and affixed my official seal on November 26, 1998.
/s/ Illegible Name
Notary Public
Residing in British Columbia
My commission expires: on death
<PAGE>
Province of
British Columbia
On November 26, 1998, before me, the undersigned notary public, personally
appeared MARY M. HETHEY, SECRETARY, known to be the persons described in and who
executed the foregoing instrument and who acknowledged to me that they executed
it voluntarily for the purposes described.
I have set my hand and affixed my official seal on November 26, 1998.
/s/ Illegible Name
Notary Public
Residing in Vancouver, BC
My commission expires: on death
<PAGE>
BYLAWS
OF
GOLDKING RESOURCES INC.
A NEVADA CORPORATION
ARTICLE 1
OFFICES
SECTION 1. The registered office of this corporation shall be in the City of
Reno, State of Nevada.
SECTION 2. The Corporation may also have offices at such other places both
within and without the State of Nevada as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 1. All annual meetings of the stockholders shall be held at the
registered office of the corporation or at such other place within or without
the State of Nevada as the Directors shall determine. Special meetings of the
stockholders may be held at such time and place within or without the State of
Nevada as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of the stockholders shall be held on the anniversary
date of incorporation each year if not a legal holiday and, and if a legal
holiday, then on the next secular day following, or at such other time as may be
set by the Board of Directors from time to time, at which the stockholders shall
elect by vote a Board of Directors and transact such other business as may
properly be brought before the meeting.
SECTION 3. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute or by the Articles of Incorporation, may
be called by the President or the Secretary, by resolution of the Board of
Directors or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose of the proposed meeting.
SECTION 4. Notices of meetings shall be in writing and signed by the President
or Vice-President or the Secretary or an Assistant Secretary or by such other
person or persons as the Directors shall designate. Such notice shall state the
purpose or purposes for which the meeting is called and the time and the place,
which may be within or without this State, where it is to be held. A copy of
such notice shall be either delivered personally to or shall be mailed, postage
prepaid, to each stockholder of record entitled to vote at such meeting not less
than ten nor more than sixty days before such meeting. If mailed, it shall be
directed to a stockholder at his address as it appears upon the records of the
corporation and upon such mailing of any such notice, the service thereof shall
be complete and the time of the notice shall begin to run from the date upon
which such notice is deposited in the mail for transmission to such stockholder.
Personal delivery of any such notice to an officer of the corporation or
association, or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. In the event of the
transfer of stock after delivery of such notice of and prior to the holding of
the meeting, it shall not be necessary to delivery or mail such notice of the
meeting to the transferee.
SECTION 5. Business transactions at any special meeting of stockholders shall
be limited to the purpose stated in the notice.
SECTION 6. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Articles of
Incorporation. If, however, such
<PAGE>
-2-
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcements at the meeting, until a quorum shall be presented or
represented. At such adjourned meetings at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
SECTION 7. When a quorum is present or represented at any meeting, the vote of
the holders of 10% of the stock having voting power present in person or
represented by proxy shall be sufficient to elect Directors or to decide any
question brought before such meeting, unless the question is one upon which by
express provision of the statute or of the Articles of Incorporation, a
different vote shall govern and control the decision of such question.
SECTION 8. Each stockholder of record of the corporation shall be entitled at
each meeting of the stockholders to one vote for each share standing in his name
on the books of the corporation. Upon the demand of any stockholder, the vote
for Directors and the vote upon any question before the meeting shall be by
ballot.
SECTION 9. At any meeting of the stockholders any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two or
more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all the powers conferred by such written instruction upon all of the
persons so designated unless the instrument shall otherwise provide. No proxy or
power of attorney to vote shall be voted at a meeting of the stockholders unless
it shall have been filed with the Secretary of the meeting when required by the
inspectors of election. All questions regarding the qualifications of voters,
the validity of proxies and the acceptance of or rejection of votes shall be
decided by the inspectors of election who shall be appointed by the Board of
Directors, or if not so appointed, then by the presiding officer at the meeting.
SECTION 10. Any action which may be taken by the vote of the stockholders at a
meeting may be taken without a meeting if authorized by the written consent of
stockholders holding at least a majority of the voting power, unless the
provisions of the statute or the Articles of Incorporation require a greater
proportion of voting power to authorize such action in which case such greater
proportion of written consents shall be required.
ARTICLE 3
DIRECTORS
SECTION 1. The business of the corporation shall be managed by its Board
of Directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
SECTION 2. The number of Directors which shall constitute the whole board
shall be not less than one and not more than eight. The number of Directors may
from time to time be increased or decreased to not less than one nor more than
eight by action of the Board of Directors. The Directors shall be elected at the
annual meeting of the stockholders and except as provided in section 2 of this
Article, each Director elected shall hold office until his successor is elected
and qualified. Directors need not be stockholders.
SECTION 3. Vacancies in the Board of Directors including those caused by
an increase in the number of Directors, may be filled by a majority of the
remaining Directors, though less than a quorum, or by a sole remaining Director,
and each Director so elected shall hold office until his successor is elected at
the annual or a special meeting of the stockholders. The holders of two-thirds
of the outstanding shares of stock entitled to vote may at any time peremptorily
terminate the term of office of all or any of the Directors by vote at a meeting
called for such purpose or by a written statement filed with the Secretary or,
in his absence, with any other officer. Such removal shall be effective
immediately, even if successors are not elected simultaneously and the vacancies
on the Board of Directors resulting therefrom shall only be filled from the
stockholders.
A vacancy or vacancies on the Board of Directors shall be deemed to exist
in case of death, resignation or removal of any Director, or if the authorized
number of Directors be increased, or if the stockholders fail at any annual or
special meeting of stockholders at which any Director or Directors are elected
to elect the full authorized number of Directors to be voted for at the meeting.
<PAGE>
-3-
The stockholders may elect a Director or Directors at any time to fill any
vacancy, or vacancies not filled by the Directors. If the Board of Directors
accepts the resignation of a Director tendered to take effect at a future time,
the Board or the stockholders shall have power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of Directors shall have the effect of
removing any Director prior to the expiration of his term of office.
ARTICLE 4
MEETING OF THE BOARD OF DIRECTORS
SECTION 1. Regular meetings of the Board of Directors shall be held at any
place within or without the State which has been designated from time to time by
resolution of the Board or by written consent of all members of the Board. In
the absence of such designation regular meetings shall be held at the registered
office of the corporation. Special meetings of the Board may be held at a place
so designated or at the registered office.
SECTION 2. The first meeting of each newly elected Board of Directors shall be
held immediately following the adjournment of the meeting of stockholders and at
the place thereof. No notice of such meeting shall be necessary to the Directors
in order legally to constitute the meeting, provided a quorum be present. In the
event such meeting is not so held, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors.
SECTION 3. Regular meetings of the Board of Directors may be held without call
or notice at such time and at such place as shall from time to time be fixed and
determined by the Board of Directors.
SECTION 4. Special meetings of the Board of Directors may be called by the
Chairman or the President or by the Vice-President or by any two Directors.
Written notice of the time and place of special meetings shall be delivered
personally to each Director, or sent to each Director by mail or by other form
of written communication, charges prepaid, addressed to him at his address as it
is shown upon the records or if not readily ascertainable, at the place in which
the meetings of the Directors are regularly held. In case such notice is mailed
or telegraphed, it shall be deposited in the postal service or delivered to the
telegraph company at least forty-eight (48) hours prior to the time of the
holding of the meeting. In case such notice is delivered or faxed, it shall be
so delivered or faxed at least twenty-four (24) hours prior to the time of the
holding of the meeting. Such mailing, telegraphing, delivery or faxing as above
provided shall be due, legal and personal notice of such Director.
SECTION 5. Notice of the time and place of holding an adjourned meeting need
not be given to the absent Directors if the time and place be fixed at the
meeting adjourned.
SECTION 6. The transaction of any meeting of the Board of Directors, however,
called, and noticed or wherever held, shall be as valid as though transacted at
a meeting duly held after regular call and notice, if a quorum be present, and
if, either before or after such meeting, each of the Directors not present signs
a written waiver of notice, or a consent of holding such meeting, or approvals
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 7. The majority of the authorized number of Directors shall be
necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the Directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, unless a greater
number be required by law or by the Articles of Incorporation. Any action of a
majority, although not at a regularly called meeting, and the record thereof, if
assented to in writing by all of the other members of the Board shall be as
valid and effective in all respects as if passed by the Board in regular
meeting.
<PAGE>
-4-
SECTION 8. A quorum of the Directors may adjourn any Directors meeting to meet
again at stated day and hour; provided, however, that in the absence of a
quorum, a majority of the Directors present at any Directors meeting, either
regular or special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
ARTICLE 5
COMMITTEES OF DIRECTORS
SECTION 1. The Board of Directors may, by resolution adopted by a majority of
the whole Board, designate one or more committees of the Board of Directors,
each committee to consist of two or more of the Directors of the corporation
which, to the extent provided in the resolution, shall and may exercise the
power of the Board of Directors in the management of the business and affairs of
the corporation and may have power to authorize the seal of the corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by the
Board of Directors. The members of any such committee present at any meeting and
not disqualified from voting may, whether or not they constitute a quorum,
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. At meetings of such
committees, a majority of the members or alternate members at any meeting at
which there is a quorum shall be the act of the committee.
SECTION 2. The committee shall keep regular minutes of their proceedings and
report the same to the Board of Directors.
SECTION 3. Any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
a written consent thereto is signed by all members of the Board of Directors or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
ARTICLE 6
COMPENSATION OF DIRECTORS
SECTION 1. The Directors may be paid their expenses of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE 7
NOTICES
SECTION 1. Notices to Directors and stockholders shall be in writing and
delivered personally or mailed to the Directors or stockholders at their
addresses appearing on the books of the corporation. Notices to Directors may
also be given by fax and by telegram. Notice by mail, fax or telegram shall be
deemed to be given at the time when the same shall be mailed.
SECTION 2. Whenever all parties entitled to vote at any meeting, whether of
Directors or stockholders, consent, either by a writing on the records of the
meeting or filed with the Secretary, or by presence at such meeting or oral
consent entered on the minutes, or by taking part in the deliberations at such
meeting without objection, the doings of such meeting shall be as valid as if
had at a meeting regularly called and noticed, and at such meeting any business
may be transacted which is not excepted from the written consent to the
consideration of which no objection for want of notice is made at the time, and
if any meeting be irregular for want of notice or such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote at
such meeting; and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
<PAGE>
-5-
SECTION 3. Whenever any notice whatever is required to be given under the
provisions of the statute, of the Articles of Incorporation or of these Bylaws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall de deemed
equivalent thereto.
ARTICLE 8
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. Any person may
hold two or more offices.
SECTION 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall choose a Chairman of the Board who shall be a
Director, and shall choose a President, a Secretary and a Treasurer, none of
whom need be Directors.
SECTION 3. The Board of Directors may appoint a Vice-Chairman of the Board,
Vice-Presidents and one or more Assistant Secretaries and Assistant Treasurers
and such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 4. The salaries and compensation of all officers of the corporation
shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office at the pleasure of
the Board of Directors. Any officer elected or appointed by the Board of
Directors may be removed any time by the Board of Directors. Any vacancy
occurring in any office of the corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors.
SECTION 6. The CHAIRMAN OF THE BOARD shall preside at meetings of the
stockholders and the Board of Directors, and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
SECTION 7. The VICE-CHAIRMAN shall, in the absence or disability of the
Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties as the Board of
Directors may from time to time prescribe.
SECTION 8. The PRESIDENT shall be the chief executive officer of the
corporation and shall have active management of the business of the corporation.
He shall execute on behalf of the corporation all instruments requiring such
execution except to the extent the signing and execution thereof shall be
expressly designated by the Board of Directors to some other officer or agent of
the corporation.
SECTION 9. The VICE-PRESIDENTS shall act under the direction of the President
and in absence or disability of the President shall perform the duties and
exercise the powers of the President. They shall perform such other duties and
have such other powers as the President or the Board of Directors may from time
to time prescribe. The Board of Directors may designate one or more Executive
Vice-Presidents or my otherwise specify the order of seniority of the
Vice-Presidents. The duties and powers of the President shall descend to the
Vice-Presidents in such specified order of seniority.
SECTION 10. The SECRETARY shall act under the direction of the President.
Subject to the direction of the President he shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record the
proceedings. He shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and will perform
other such duties as may be prescribed by the President or the Board of
Directors.
SECTION 11. The ASSISTANT SECRETARY shall act under the direction of the
President. In order of their seniority, unless otherwise determined by the
President or the Board of Directors, they shall, in the absence or
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disability of the Secretary, perform the duties and exercise the powers of the
Secretary. They shall perform other such duties and have such other powers as
the as the President and the Board of Directors may from time to time prescribe.
SECTION 12. The TREASURER shall act under the direction of the President.
Subject to the direction of the President he shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursement in books belonging to the corporation and shall deposit all money
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the corporation as may be ordered by the President or the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the President and the Board of Directors, at its regular meetings, or
when the Board of Directors so requires, an account of all his transitions as
Treasurer and of the financial condition of the corporation.
If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sum and with such surety as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
SECTION 13. The ASSISTANT TREASURERS in order of their seniority, unless
otherwise determined by the President or the Board of Directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. They shall perform such other duties and have such
other powers as the President or the Board of Directors may from time to time
prescribe.
ARTICLE 9
CERTIFICATES OF STOCK
SECTION 1. Every stockholder shall be entitled to have a certificate signed by
the President or a Vice-President and the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the corporation, certifying the
number of shares owned by him in the corporation. If the corporation shall be
authorized to issue more than one class of stock or more that one series of any
class, the designations, preferences and relative, participating, optional or
other special rights of the various classes of stock or series thereof and the
qualifications, limitations or restrictions of such rights, shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such stock.
SECTION 2. If a certificate is signed (a) by a transfer agent other than the
corporation or its employees or (b) by a registrar other than the corporation or
its employees, the signatures of the officers of the corporation may be
facsimiles. In case any officer who has signed or whose facsimile signatures
have been placed upon a certificate shall cease to be such officer before such
certificate is issued, such certificate may be issued with the same effect as
though the person had not ceased to be such officer. The seal of the
corporation, or a facsimile thereof, may, but need not be, affixed to
certificates of stock.
SECTION 3. The Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed upon making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation, if it is satisfied that all provisions of the laws and
regulations applicable to the corporation regarding transfer and ownership of
shares have been complied with, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
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SECTION 5. The Board of Directors may fix in advance a date not exceeding sixty
(60) days nor less than ten (10) days preceding the date of any meeting of
stockholders, or the date of the payment of any dividend, or the date of the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining the
consent of stockholders for any purpose, as a record date for the termination of
the stockholders entitled to notice of and to vote at any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividend, or to
give such consent, and in the such case, such stockholders, and only such
stockholders as shall be stockholders or record on the date so fixed, shall be
entitled to notice of and to vote as such meeting, or any adjournment thereof,
or to receive such payment of dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
such record date fixed as aforesaid.
SECTION 6. The corporation shall be entitled to recognize the person registered
on its books as the owner of the share to be the exclusive owner for all
purposes including voting and dividends, and the corporation shall not be bound
to recognize any equitable or other claims to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE 10
GENERAL PROVISIONS
SECTION 1. Dividends upon the capital stock of the corporation, subject to the
provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Articles of Incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends or for
repairing and maintaining any property of the corporation, or for such other
purpose as the Directors shall think conducive to the interests of the
corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 3. All checks or demands for money and notes of the corporation shall
be signed by such officer or officers or such other person or persons as the
Board of Directors may from time to time designate.
SECTION 4. The fiscal year of the corporation shall be fixed by resolution of
the Board of Directors.
SECTION 5. The corporation may or may not have a corporate seal, as may be from
time to time determined by resolution of the Board of Directors. If a corporate
seal is adopted, it shall have inscribed thereon the name of the corporation and
the words "Corporate Seal" and "Nevada". The seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE 11
INDEMNIFICATION
Every person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a Director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a Director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest legally permissible extent under
the general Corporation Law of the State of Nevada from time to time against all
expenses, liability and loss (including attorney's fees, judgment, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in connection therewith. The expenses of officers and Directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
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Director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which may
be enforced in any manner desired by such person. Such right of indemnification
shall not be exclusive of any other right which such Directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and maintain
insurance on behalf of any person who is or was a Director or officer of the
corporation, or is or was serving at the request of the corporation as a
Director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the corporation would have the power to indemnify
such person.
The Board of Directors may from time to time adopt further Bylaws with
respect to indemnification and amend these and such Bylaws to provide at all
times the fullest indemnification permitted by the General Corporation Law of
the State of Nevada.
ARTICLE 12
AMENDMENTS
SECTION 1. The Bylaws may be amended by a majority vote of all the stock issued
and outstanding and entitled to vote at any annual or special meeting of the
stockholders, provided notice of intention to amend shall have been contained in
the notice of the meeting.
SECTION 2. The Board of Directors by a majority vote of the whole Board at any
meeting may amend these Bylaws, including Bylaws adopted by the stockholders,
but the stockholders may from time to time specify particulars of the Bylaws
which shall not be amended by the Board of Directors.
APPROVED AND ADOPTED JUNE 4, 1998.
CERTIFICATE OF THE SECRETARY
I, Mary Hethey, hereby certify that I am the Secretary of GOLDKING RESOURCES
Inc., and the foregoing Bylaws, consisting of 8 pages, constitute the code of
Bylaws of this company as duly adopted at a regular meeting of the Board of
Directors of the corporation held on June 4, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name on June 4, 1998.
/s/ MARY HETHEY
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Secretary
EXHIBIT 2
BILLSERV.COM, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of the
Closing Date (as hereinafter defined) by and between billserv.com, Inc., a
Nevada corporation (the "Company"), with its principal office at 14607 San Pedro
Ave., Suite 100, San Antonio, Texas 78232, and each of the purchasers who are
signatories hereto and any other purchasers who are made a party to this
Agreement pursuant to Section 1 (individually, a "Purchaser" and collectively,
the "Purchasers").
RECITALS
The Company has engaged Pennsylvania Merchant Group (the "Placement
Agent") as exclusive agent of the Company in connection with the placement and
sale (the "Offering") of up to 3,782,360 shares of the Company's Common Stock,
$.001 par value per share (the "Common Stock"). Shares of Common Stock will be
sold by the Company to Purchasers pursuant to Regulation D under the Securities
Act of 1933, as amended (the "Act"). The purchase price of the shares to be
offered in the Offering (the "Offering Price") will be determined based upon a
negotiated discount to the average closing bid for the Common Stock for the last
ten (10) trading days immediately prior to the Closing Date. The Placement Agent
has delivered to each prospective purchaser a private placement memorandum,
dated August 6, 1999, together with an Addendum thereto of even date herewith
(the "Placement Memorandum"), describing the Company's business, financial and
operating condition, the Offering and information regarding risks to be
evaluated when contemplating an investment in the Company through the Offering.
AGREEMENT
In consideration of the mutual promises, representations, warranties and
conditions set forth in the Agreement, the Company and each Purchaser (severally
and not jointly) agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 ISSUE OF SHARES.
(a) The Company has authorized the issuance and sale of up to
3,782,360 shares (the "Shares") of its Common Stock pursuant to the provisions
of this Agreement.
(b) In reliance upon the Purchaser's representations and
warranties contained in Section 4 hereof, and subject to the terms and
conditions set forth herein, the Company hereby agrees to sell to each Purchaser
the aggregate amount of Shares set forth below such Purchaser's signature on the
subscription page bearing such Purchaser's name, such Shares to be sold at the
Offering Price.
(c) In reliance upon the representations and warranties of the
Company contained herein, and subject to the terms and conditions set forth
herein, each Purchaser hereby agrees to purchase the amount of Shares as
determined on the subscription page bearing such Purchaser's name at the
Offering Price. Each Purchaser shall severally, and not jointly, be liable for
only the purchase of the amount of Shares that appears on the subscription page
hereof that relates to such Purchaser.
(d) The Company's agreement with each of the Purchasers is a
separate agreement and the sale of the Shares to each of the Purchasers is a
separate sale.
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2. CLOSING DATE; DELIVERY.
2.1 CLOSING. The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall consist of the sale and purchase of
the Shares and shall be held at the offices of the Placement Agent at such time
and date selected by the Placement Agent and the Company occurring on or before
October 15, 1999, or such later date to which the offering period is extended by
the Company and the Placement Agent (the "Closing Date").
2.2 DELIVERY. Within five (5) days following the Closing, subject to
the terms and conditions hereof, the Company shall deliver to each Purchaser
stock certificates, registered in the same of the Purchaser, representing the
Shares to be purchased by the Purchaser from the Company, dated as of the
Closing, against payment of the purchase price therefor in immediately available
funds by wire transfer or previously cleared check, unless other means of
payment shall have been agreed upon by the Purchaser and the Company. In
addition, subject to the terms and conditions hereof, at the Closing, the
Company shall deliver to each Purchaser a Warrant Certificate, dated as of the
Closing, in the name of the Purchaser, representing the number of Warrants to
which the Purchaser is entitled, which shall equal one Warrant for every one
Share purchased by the Purchaser hereunder.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Purchaser as of the
date hereof and as of the Closing Date as follows:
3.1 ORGANIZATION. The Company is a corporation, duly incorporated,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. The Company has all requisite power and authority to own or lease
its properties and to conduct its business as it is now being conducted. The
Company holds all licenses and permits required for the conduct of its business
as it is now being conducted other than those which, if not obtained, would not
have a material adverse effect on the business, financial condition or results
of operations of the Company. The Company and each Subsidiary is qualified as a
foreign or domestic corporation and is in good standing in all states where the
conduct of its business or its ownership or leasing of property requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the business, financial condition or results of operations of
the Company. The Company has previously delivered a true and complete copy of
its Articles of Incorporation ("Articles") and Bylaws to the Placement Agent.
Excepting only its ownership of bills.com, Inc., a Delaware corporation, a
wholly-owned subsidiary of the Company, the Company does not own more than five
percent (5%) of any class of equity securities of, or greater than a five
percent (5%) equity interest in, any corporation, partnership, limited liability
company or other person.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company on October 4, 1999 is as set forth in the Placement
Memorandum under the heading "SUMMARY -- Capitalization." All of the issued and
outstanding shares of Common Stock have been duly authorized, validly issued and
are fully paid and nonassessable. Except as described in the Placement
Memorandum, there are no existing subscriptions, options, stock option plans,
warrants, calls, commitments, agreements, conversion or other rights of any
character (contingent or otherwise) to purchase or otherwise acquire from the
Company at any time, or upon the happening of any stated event, any shares of
the capital stock of the Company.
3.3 AUTHORITY. The Company has all requisite power and authority to
enter into this Agreement, the Registration Rights Agreement, the Warrant for
the Purchase of Shares of Common Stock, and the Placement Agent Warrant (as
defined in Section 6.6), and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement, the Registration
Rights Agreement and the Placement Agent Warrant, and the consummation of the
transactions contemplated
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hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company and, upon their execution
and delivery by the Company, such agreements will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors' rights and
subject to general equity principles.
3.4 SECURITIES FILINGS.
(a) The Company has filed with the Securities and Exchange
Commission (the "SEC") the documents set forth at Exhibit A of the Placement
Memorandum, and other filings required to be filed with the SEC under the rules
and regulations of the SEC (the "SEC Filings"). The Company's SEC Filings
include a Form 10 Registration Statement (the "Registration Statement"), filed
on June 11, 1999, which was subsequently amended on July 27, 1999. The
Registration Statement became effective on August 11, 1999, but remains subject
to further comment by the SEC. As of the Closing Date, the Company anticipates
that one or more post-effective date amendments of the Registration Statement
will be required by the SEC; accordingly, the Company makes no representations
nor warranties concerning the nature and scope of further comment on the
Registration Statement by the SEC, and the Company's required response thereto.
(b) Except as disclosed in Section 3.4(a) hereof, the SEC
Filings conformed, and any future SEC Filings will conform, in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations of the SEC thereunder as of
their respective filing dates and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The documents or
portions thereof that were incorporated by reference in the SEC Filings pursuant
to the requirements of the Exchange Act, when such incorporated documents or
portions were first filed with the SEC, conformed in all material respects with
any applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder.
(c) The consolidated financial statements of the Company
included in the SEC Filings fairly presented in all material respects the
financial position and results of operations of the Company and the Subsidiaries
at their respective dates and for the respective periods to which they apply.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as stated therein.
3.5 PLACEMENT MEMORANDUM. The Placement Agent has advised the
Company that it has delivered to each prospective purchaser the Placement
Memorandum and an Amended Private Placement Memorandum, which describes the
Company's business, financial and operating condition, the Offering and
information regarding risks to be evaluated when contemplating an investment in
the Company through the Offering.
(a) The Placement Memorandum, as amended, does not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
(b) The consolidated financial statements of the Company
included in the Placement Memorandum fairly present in all material respects the
financial position and results of operations of the Company and the Subsidiaries
at their respective dates and for the respective periods to which they apply.
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved except as stated therein.
3.6 ISSUANCE OF THE SHARES. The Shares, when issued pursuant to the
terms of this Agreement, shall be duly and validly authorized and issued, fully
paid and nonassessable.
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3.7 NO CONFLICT WITH LAW OR DOCUMENTS. The execution, delivery and
consummation of this Agreement, the Registration Rights Agreement, the Warrant
for the Purchase of Common Stock, and the Placement Agent Warrant and the
transactions contemplated hereby and thereby will not (a) conflict with any
provisions of the Articles or Bylaws of the Company or of any Subsidiary or (b)
result in any violation of or default or loss of a benefit under, or permit the
acceleration of any obligation under (in each case, upon the giving of notice,
the passage of time, or both), any mortgage, indenture, lease, agreement or
other instrument, permit, franchise, license, judgment, order, decree, law,
ordinance, rule or regulation applicable to the Company or any of its
properties.
3.8 CONSENTS, APPROVALS AND PRIVATE OFFERING. Except for any filings
required under federal and applicable state securities laws, all of which shall
have been made as of the Closing Date to the extent required as of such time, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any federal, state, local or foreign governmental authority is
required to be made or obtained by the Company in connection with the execution
and delivery of this Agreement, the Registration Rights Agreement, the Warrant
for the Purchase of Common Stock, and the Placement Agent Warrant and the
consummation of the transactions contemplated hereby and thereby.
3.9 ABSENCE OF CERTAIN DEVELOPMENTS. Except as described in the
Admendment to the Placement Memorandum, since August 6, 1999, the Company has
not (a) incurred or become subject to any material liabilities (absolute or
contingent) except current liabilities incurred, and liabilities under contracts
entered into, in the ordinary course of business consistent with past practices;
(b) mortgaged, pledged or subjected to any lien, charge or other encumbrance any
of its assets, tangible or intangible (except for liens for current taxes,
assessments and governmental charges and levies which may be paid without
penalty, interest or other additional charge, or which are being contested in
good faith by appropriate proceedings and are not material in amount or value in
relation to the value of the associated property); (c) sold, assigned or
transferred any of its assets or canceled any debts or obligations except in the
ordinary course of business consistent with past practices; (d) suffered any
extraordinary losses, or waived any rights of substantial value; (e) entered
into any material transaction other than in the ordinary course of business,
consistent with past practices; or (f) otherwise had any change in its
condition, financial or otherwise, except as shown on or reflected in the
consolidated balance sheet as of June 30, 1999, except for changes in the
ordinary course of business consistent with past practices, none of which
individually or in the aggregate has been materially adverse to the Company.
Except as described in the SEC Filings, and Section 3.4(a) hereof, the Company
has not entered into any agreement since August 6, 1999 of the type that would
be required under the SEC's rules and regulations to be filed as an exhibit to a
Report on Form 10-K.
3.9 NO INTEGRATION. The Company has not, directly or indirectly,
solicited any offer to buy or offer to sell any Shares or any other securities
of the Company during the twelve-month period ending on the date hereof except
as may be described in the Placement Memorandum or which would not be integrated
with the sale of the Shares in a manner that would require the registration of
the Offering pursuant to the Act and has no present intention to solicit any
offer to buy or offer to sell any Shares or any other securities of the Company
other than pursuant to this Agreement or pursuant to a registered public
offering of the Company's securities which may be commenced after the completion
of the Offering.
3.10 LITIGATION. Except as described in the Placement Memorandum,
there are no actions, suits, proceedings or investigations pending against or
affecting the Company or any Subsidiary that in the aggregate could reasonably
be anticipated to result in a material adverse effect on the Company.
3.11 INTELLECTUAL PROPERTY. The Placement Memorandum sets forth a
complete and accurate summary of the intellectual property of the Company. The
Company has no knowledge that any intellectual property owned, used or licensed
by the Company infringes upon the lawful rights of any other party.
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3.12 REGISTRATION RIGHTS. Each of the Shares shall be entitled to
the registration rights provided by the Registration Rights Agreement in the
form included herein as Exhibit A.
3.13 WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK. Upon
execution of this Agreement, and payment of the Offering Price, each Purchaser
shall be entitled to warrants for the purchase of common stock of the Company,
upon terms described in the Placement Memorandum and the form of Warrant for the
Purchase of Shares of Common Stock included herein as Exhibit B.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF THE PURCHASER.
Each Purchaser hereby represents and warrants to, and covenants
with, the Company as follows:
4.1 LEGAL POWER. Purchaser has the requisite corporate, partnership,
trust or fiduciary power, as appropriate, and is authorized, if Purchaser is a
corporation, partnership or trust, to enter into this Agreement, to purchase the
Shares hereunder, and to carry out and perform its obligations under the terms
of this Agreement, the Warrant for the Purchase of Common Stock, and the
Registration Rights Agreement.
4.2 DUE EXECUTION. Each of this Agreement, the Warrant for the
Purchase of Common Stock, and the Registration Rights Agreement has been duly
authorized, if Purchaser is a corporation, partnership, trust or fiduciary,
executed and delivered by Purchaser and, upon due execution and delivery by the
Company, this Agreement, the Warrant for the Purchase of Common Stock, and the
Registration Rights Agreement will be valid and binding agreements of Purchaser,
enforceable against Purchaser in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors' rights and subject to general equity
principles.
4.3 INVESTMENT REPRESENTATIONS.
4.3.1 Purchaser is acquiring the Shares for its own account, not as
nominee or agent, for investment and not with a view to or for resale in
connection with any distribution or public offering thereof within the meaning
of the Act, except pursuant to an effective registration statement under the
Act.
4.3.2 Purchaser understands that (i) the Shares have not been
registered under the Act by reason of a specific exemption therefrom, and may
not be transferred or resold except pursuant to an effective registration
statement or exemption from registration and (ii) each certificate representing
the Shares will be endorsed with legends in substantially the following form:
A) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT
TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS;
B) Any legend required to be placed thereon by applicable federal or
state securities laws;
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and (iii) the Company will instruct any transfer agent not to register the
transfer of any of the Shares unless the conditions specified in the foregoing
legend are satisfied.
4.3.3 Purchaser has received and reviewed the Placement Memorandum.
In addition, Purchaser has been furnished with such materials and has been given
access to such information relating to the Company as it or its qualified
representative has requested and has been afforded the opportunity to ask
questions regarding the Company and the Shares, all as Purchaser has found
necessary to make an informed investment decision.
4.3.4 Purchaser is an "accredited investor" as such term is defined
in Rule 501 under the Act and was not formed for the specific purpose of
acquiring the Shares.
4.3.5 Purchaser is a resident of, and all communications regarding
Purchaser's purchase of the Shares were sent to Purchaser in, the state of
Purchaser's residence shown on the subscription page attached hereto.
4.3.6 Purchaser agrees that an unspecified portion of the Offering
Price represents consideration for the issuance of a Warrant, and the balance of
the Offering Price represents the consideration for the purchase of one share of
common stock of the Company. Purchaser shall be responsible for consulting with
his or her personal tax advisor with respect to such allocation and any
resulting consequences of federal or state taxation upon Purchaser's personal
situation.
5. COVENANTS OF THE COMPANY.
5.1 INFORMATION. So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, the Company shall deliver to each
holder of Shares all annual, quarterly or other reports to the extent such
reports are furnished to the Company's public security holders. In the event
that the Company is not so subject, until the fifth anniversary of the Closing,
the Company shall promptly furnish to each holder of Shares (i) as soon as
available, and in any event within 90 days after the end of each fiscal year of
the Company, a consolidated balance sheet of the Company and its consolidated
subsidiaries, if any, as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all prepared in accordance with generally accepted
accounting principles and reported on by independent certified public
accountants of recognized national standing; and (ii) as soon as available, and
in any event within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries, if any, as of the end of such quarter
and the related consolidated statements of income and stockholder's equity
(together with any other quarterly financial statements being prepared by the
Company at such time), setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial or accounting officer of the Company.
5.2 NO INTEGRATION. The Company shall not, directly or indirectly,
engage in any act or activity which may jeopardize the status of the Offering
and sale of the Shares as exempt transactions under the Act or under the
securities or "blue sky" laws of any jurisdiction in which the Offering may be
made. Without limiting the generality of the foregoing, and notwithstanding
anything contained herein to the contrary, the Company shall not, during the six
(6) months following completion of the Offering, (a) directly or indirectly,
engage in any offering of securities which, if integrated with the Offering in
the manner prescribed by Rule 502 (a) of Regulation D and applicable releases of
the Commission, may jeopardize the status of the Offering and sale of the Shares
as exempt transactions under Regulation D; or (B) engage in any offering of
securities, without the opinion of counsel reasonably satisfactory to the
Placement Agent, to the effect that such offering would not result in
integration with this Offering, or
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if integration would so result, that such integration would not jeopardize the
status of this Offer as an exempt transaction under Regulation D.
5.3 USE OF PROCEEDS. The Company shall apply net proceeds from the
sale of the Shares for the purposes set forth under the caption "Use of
Proceeds" in the Placement Memorandum in substantially the manner indicated
thereunder.
5.4 FURTHER ISSUANCES. For a period of 24 months from the date
hereof, without written consent of the Placement Agent, which cannot be
unreasonable withheld, the Company shall not (i) issue any security, other than
Employee Stock options, which is convertible into, exercisable for, or
exchangeable for shares of Common Stock if the number of shares of Common Stock
or price per share of Common Stock is based on the market price of such Common
Stock at the time of such conversion, exercise or exchange, or (ii) engage in
any offering under Regulation S.
5.5 RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR MERGER. In
the event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a subdivision or
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock) or in the event of any consolidation or merger of the
Company with or into another corporation (other than a merger in which merger
the Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock or in the event of any sale, lease, transfer or conveyance to
another corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall use its best efforts to cause
effective provisions to be made so that the Purchaser shall have the right
thereafter to purchase the kind and amount of shares of stock and other
securities receivable upon such reclassification, capital reorganization and
other change, consolidation, merger, sale or conveyance by exchanging the
Purchaser's shares of stock in the Company for the same percentage of shares of
Common Stock received as a result of reclassification, capital reorganization,
change, consolidation, merger, sale or conveyance. The foregoing provisions of
this Section 5.5 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
6. REPRESENTATIONS OF PLACEMENT AGENT; COMPENSATION OF PLACEMENT AGENT.
The Company has authorized the Placement Agent to conduct the Offering under
Regulation D of the Act, and the Placement Agent represents and agrees with the
Company as follows:
6.1 SALES TO ACCREDITED INVESTORS. The Placement Agent has made and
will only make offers and sales of the Shares to Purchasers it reasonably
believes to be "accredited investors" as that term is defined in Rule 501(a)
under the Act.
6.2 REGULATION D COMPLIANCE. The Placement Agent has made and will
make offers and sales of Shares in compliance with Rule 506 and the other
applicable provisions of Regulation D, to the extent applicable to the Placement
Agent, and the Placement Agent has not and will not offer to sell the Shares by
any form of general solicitation or general advertising that is prohibited under
the Act.
6.3 COMPLIANCE GENERALLY. The Placement Agent has and will observe
all securities laws and regulations applicable to it in any jurisdiction in
which it has or may offer, sell or deliver Shares and it will not, directly or
indirectly, offer, sell or deliver Shares or distribute or publish any
prospectus, circular, advertisement or other offering material in relation to
the Shares in or from any state in the United States or country or jurisdiction
except under circumstances that will result in compliance with applicable laws
and regulations.
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6.4 SALES COMMISSIONS. In consideration of the Placement Agent's
services hereunder, the Company shall pay the Placement Agent in cash on the
Closing Date a commission of six and one-half percent (6.5%) of the Offering
Price of each Share sold at such Closing (the "Placement Fee").
6.5 PLACEMENT AGENT EXPENSES. Upon the Closing, the Company agrees
to reimburse the Placement Agent for its reasonable, documented out-of-pocket
expenses incurred in connection with the Offering, including the reasonable fees
and expenses of the Placement Agent's counsel, up to a maximum of $100,000.00.
6.6 PLACEMENT AGENT WARRANT. At the Closing, the Company shall sell
to the Placement Agent warrants to purchase 61,564 shares of the Company's
Common Stock (the "Placement Agent Warrant"), at a purchase price of $.001 per
share of Common Stock underlying the Placement Agent Warrant (the "Warrant
Shares"). The Placement Agent Warrant shall be exercisable at any time before
the fifth anniversary of the Closing at an exercise price per share equal to one
hundred twenty percent (120%) of the Offering Price. The Placement Agent Warrant
shall be in a form satisfactory to the Company and the Placement Agent.
6.7 POSSIBLE PARTICIPATION BY AFFILIATES OF PLACEMENT AGENT.
Affiliates of the Placement Agent may purchase Common Stock in the Offering.
Purchases by such affiliates may be counted toward any applicable minimum
proceeds requirement, but no such individual Placement Agent affiliate purchase
shall consist of more than 10% of such minimum. If such minimum is exceeded, no
individual Placement Agent affiliate purchase beyond that minimum shall exceed
10% of the Common Stock sold in the Offering and all Placement Agent affiliate
purchases beyond such minimum shall not in the aggregate exceed 20% of the
Common Stock sold in the Offering.
7. CONDITIONS TO CLOSING.
7.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. Each Purchaser's
obligation to purchase the Shares at the Closing is subject to the fulfillment,
at or prior to such Closing, of all of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects at the Closing with
the same force and effect as if they had been made on and as of said date.
Except as described in or contemplated by the Placement Memorandum, the
business, assets, financial condition and results of operations of the Company
shall not have been adversely affected in any material way prior to the Closing.
The Company shall have performed in all material respects all obligations herein
required to be performed by it on or prior to the Closing.
(b) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing Date. At the
time of the Closing, the sale and issuance of the Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company are
subject.
(d) REGISTRATION RIGHTS AGREEMENT. The Company shall have
entered into the Registration Rights Agreement.
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(e) WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK. The
Company shall have entered into the Warrant for the Purchase of Shares of Common
Stock.
(e) LEGAL OPINION. Counsel to the Company shall have provided
a legal opinion to the Purchasers reasonably acceptable to the Placement Agent.
7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
fulfillment to the Company's satisfaction, on or prior to the Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchaser in Section 4 hereof shall be true and
correct at the Closing with the same force and effect as if they had been made
on and as of the Closing.
(b) PERFORMANCE OF OBLIGATIONS. The Purchaser shall have
performed and complied in all material respects with all agreements and
conditions herein required to be performed or complied with by them on or before
the Closing, and each Purchaser shall have delivered payment to the Company in
respect of its purchase of Shares.
(c) QUALIFICATIONS, LEGAL INVESTMENT. All authorizations,
approvals, or permits, if any, of any governmental authority or regulatory body
of the United States or of any state that are required in connection with the
lawful sale and issuance of the Shares pursuant to this Agreement shall have
been duly obtained and shall be effective on and as of the Closing. At the time
of the Closing, the sale and issuance of the Shares shall be legally permitted
by all laws and regulations to which each Purchaser and the Company are subject.
8. MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware without regard to any otherwise
applicable principles of conflicts of laws.
8.2 SURVIVAL. The representations and warranties made by the parties
in this Agreement shall survive the consummation of the transactions herein
contemplated until the expiration of the statute of limitations with respect to
claims arising under Section 10(b) of the Securities Exchange Act of 1934, as
amended, with respect to the purchase of Shares hereunder.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.4 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto and
thereto, and the other documents delivered pursuant hereto and thereto,
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
8.5 SEVERABILITY. In the event that any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. To the
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<PAGE>
extent permitted by law, the parties hereto waive the benefit of any provision
of law that renders any provision of this Agreement invalid or unenforceable in
any respect.
8.6 JOINDER. By execution of this Agreement, the Placement Agent
joins this Agreement for purposes of (i) making the representations of the
Placement Agent set forth in Section 6 hereof and (ii) receiving the benefits of
the Company's covenants in such Section 6.
8.7 AMENDMENT AND WAIVER. Except as otherwise provided herein, any
term of this Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the Purchaser. Any
amendment or waiver effected in accordance with this section shall be binding
upon each future holder of any security purchased under this Agreement
(including securities into which such securities have been converted) and the
Company.
8.8 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Purchaser at the respective addresses included herein.
8.9 FEES AND EXPENSES. Except as otherwise provided herein, the
Company and the Purchasers shall bear their own expenses and legal fees incurred
on its behalf with respect to this Agreement and the transactions contemplated
hereby. Purchasers acknowledge that the Placement Agent will receive a
commission equal to six and one-half percent (6.5%) of the Offering Price of
each Share sold in the Offering and will be entitled to purchase for nominal
consideration the Placement Agent Warrant.
8.10 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
8.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
8.12 NO WAIVER. No waiver by any party to this Agreement of any
one or more defaults by any other party or parties in the performance of any of
the provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different nature. Except as expressly
provided herein, no failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
[SIGNATURE PAGE FOLLOWS]
10
EXHIBIT 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made this 15th day of
October, 1999, by BILLSERV.COM, INC., a Nevada corporation (the "Company"), for
the benefit of each Purchaser (individually a "Purchaser" and collectively the
"Purchasers") entering into that certain Common Stock Purchase Agreement (the
"Purchase Agreement") with the Company.
BACKGROUND
Pursuant to the Purchase Agreement, the Company has offered for sale up to
2,195,000 shares (the "Shares") of the Company's Common Stock, par value $.001
per share (the "Common Stock"). In order to induce the Purchasers to purchase
the Shares, the Company has agreed to provide the registration rights set forth
in this Agreement.
1. SECURITIES LAWS REPRESENTATIONS AND COVENANTS OF PURCHASER.
This Agreement is made for the benefit of the Purchasers in reliance upon each
Purchaser's representations to the Company, as the same are set forth in Section
4 of the Purchase Agreement.
2. REGISTRATION RIGHTS.
2.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(b) "FORM S-1, FORM SB-1, FORM S-2, FORM SB-2 AND FORM S-3" shall
mean Form S-1, Form SB-1, Form S-2, Form SB-2 or Form S-3, respectively,
promulgated by the Commission or any substantially similar form then in effect.
(c) The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such Registration Statement.
(d) "REGISTRABLE SECURITIES" shall mean the Shares, Warrant Shares
and the Placement Agent Warrant Shares, so long as such shares are ineligible
for sale under subparagraph (k) of Rule 144.
(e) "REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 2, including, without limitation, all federal
and state registration, qualification and filing fees, printing expenses, fees
and disbursements of
<PAGE>
counsel for the Company, blue sky fees and expenses and, the expense of any
special audits incident to or required by any such Registration.
(f) "REGISTRATION STATEMENT" shall mean Form S-1, Form SB-1, Form
S-2, Form SB-2 or Form S-3, whichever is applicable, unless otherwise specified
herein.
(g) "RULE 144" shall mean Rule 144 promulgated by the Commission
pursuant to the Securities Act.
(h) "PURCHASERS" shall mean, collectively, the Purchasers, their
permitted assignees and transferees and, individually, a Purchaser and any
permitted assignee or transferee of such Purchaser.
(i) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(j) "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
(k) "SELLING SHAREHOLDER" shall mean a holder of Registrable
Securities who requests Registration under Section 2.3 hereof or whose shares of
Common Stock become Registered pursuant to Section 2.2 hereof.
(l) "WARRANT SHARES" shall mean the shares of capital stock of the
Company underlying the Warrant for the Purchase of Shares of Common Stock, and
the Placement Agent Warrant.
Capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Purchase Agreement.
2.2 REQUIRED REGISTRATION.
(a) On or before thirty (30) days after the date of the Closing, the
Company shall file with the Commission a Registration Statement for the purpose
of Registering, upon the effectiveness of such Registration Statement, the
Shares and the Warrant Shares.
(b) The Company shall use its best efforts to maintain with the
Commission a Registration Statement that is effective, as of one hundred twenty
(120) days after the Closing, and otherwise cause the Shares and Warrant Shares
to be Registered under the Securities Act until the date on which the Shares and
Warrant Shares are eligible for resale or other disposition under Rule 144
without regard to the volume limitations thereof.
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(c) If a Registration Statement is not filed on or before thirty
(30) days after Closing, or is not effective on or before one hundred twenty
(120) days after Closing (the "Target Date"), as required above, then the
Company shall pay to Purchaser, as liquidated damages, an amount equal to two
percent (2%) of the total Offering Price of such Shares (without reference to
the Warrant Shares or the Placement Agent Warrant Shares) for each thirty (30)
day period following the applicable Target Date until such time as the
registration statement is declared effective or, in the case of a late filing,
is filed. Such payment shall be made to the Purchaser by cashier's check or wire
transfer in immediately available funds to an account designated, in writing, by
Purchaser.
2.3 PIGGYBACK REGISTRATION.
(a) Until the time set forth in Section 2.3(g) hereof, each time
that the Company proposes to Register a public offering of its Common Stock,
other than (i) pursuant to a Registration Statement on Form S-4 or Form S-8 or
similar or successor forms or (ii) on a Registration Statement filed in
connection with an exchange offer or other offer of Common Stock solely to the
then-existing shareholders of the Company, the Company shall promptly give
written notice of such proposed Registration to all holders of Shares and
Warrant Shares, which shall offer such holders the right to request inclusion of
any Registrable Securities in the proposed Registration.
(b) Each holder of Shares or Warrant Shares shall have ten (10) days
or such longer period as shall be set forth in the notice from the receipt of
such notice to deliver to the Company a written request specifying the number of
shares of Registrable Securities such holder intends to sell and the holder's
intended plan of disposition.
(c) The Company shall have the right to select all underwriters for
any underwritten public offering of securities of the Company, including all
Shares and Warrant Shares; provided, however, the Purchaser may nominate
underwriters, subject to the Company's approval, which will not be unreasonably
withheld. In the event that the proposed Registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
any request under Section 2.3(b) shall contain the holder's agreement that the
Registrable Securities will be included in the underwriting on the same terms
and conditions as the shares of Common Stock, if any, otherwise being sold
through underwriters under such Registration.
(d) Upon receipt of a written request pursuant to Section 2.3(b),
the Company shall promptly use its best efforts to cause all such Registrable
Securities to be Registered, to the extent required to permit sale or
disposition as set forth in the written request.
Notwithstanding the foregoing, if the managing underwriter of an underwritten
public offering determines and advises in writing that the inclusion of all
Registrable Securities proposed to be included in the underwritten public
offering, together with any shares proposed to be sold by the Company for its
own account and any other issued and
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outstanding shares of Common Stock proposed to be included therein by holders
other than the holders of Registrable Securities (such other holders' shares
hereinafter collectively referred to as the "Other Shares"), would interfere
with the successful marketing of the securities proposed to be included in the
underwritten public offering, including the price at which such securities can
be sold, then any holder of Registrable Securities who shall have requested
registration of his or its Shares or Warrant Shares shall not have such shares
or Warrant Shares included in such Registration Statement.
(e) The registration rights provided by this Agreement shall not apply if
(i) a Registration Statement including the Registrable Security is currently
effective; the Registrable Security is eligible for resale under Rule 144
without regard to the volume limitations thereof; and (iii) five years from the
date hereof have elapsed.
2.4 PREPARATION AND FILING. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 2 to use its best efforts
to effect the Registration of any Registrable Securities, the Company shall, as
expeditiously as practicable:
(a) prepare and file with the Commission a Registration Statement
with respect to such Registrable Securities, using such form of available
Registration Statement as is reasonably selected by the Company (unless
otherwise specified herein), and use its best efforts to cause such Registration
Statement to become and remain effective, keeping each Selling Shareholder
advised as to the initiation, progress and completion of the Registration;
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statements and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for, in the case of a Required Registration under Section 2.2, the
period set forth in Section 2.2(b) and, in the case of a Piggyback Registration
under Section 2.3, six months, and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Registrable
Securities covered by such Registration Statement;
(c) furnish to each Selling Shareholder such number of copies of any
summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such Selling Shareholder may reasonably request in order to facilitate the
public sale or other disposition of such Registrable Securities; provided,
however, that no such prospectus need be furnished more than, in the case of a
Required Registration under Section 2.2, six months after the conclusion of the
period set forth in Section 2.2(b) and, in the case of a Piggyback Registration
under Section 2.3, six months after the effective date of the Registration
Statement related thereto;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such Registration Statement under the securities or blue
sky laws of such
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<PAGE>
jurisdictions as each Selling Shareholder shall reasonably request and do any
and all other acts or things which may be reasonably necessary or advisable to
enable such holder to consummate the public sale or other disposition in such
jurisdictions of such Registrable Securities; provided, however, that the
Company shall not be required to consent to general service of process, qualify
to do business as a foreign corporation where it would not be otherwise required
to qualify or submit to liability for state or local taxes where it is not
liable for such taxes; and
(e) at any time when a prospectus covered by such Registration
Statement is required to be delivered under the Securities Act within the
appropriate period mentioned in Section 2.2(b) or Section 2.3(b) hereof, as the
case may be, notify each Selling Shareholder of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and, at
the request of such seller, prepare, file and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statement therein not misleading in the light
of the circumstances then existing. The Company may delay amending or
supplementing the prospectus for a period not to exceed 60 days in the aggregate
in any two year period if the Company is then engaged in negotiations regarding
a material transaction that has not otherwise been publicly disclosed, and the
Selling Shareholders shall suspend their sale of Shares until an appropriate
supplement or prospectus has been forwarded to them or the proposed transaction
is abandoned.
Notwithstanding the foregoing, with respect to the proposed
Registration of Registrable Securities pursuant to Section 2.3 hereof, the
Company may withdraw or cease proceeding with any proposed Registration of
Registrable Securities if it has withdrawn or ceased proceeding with the
proposed Registration of Common Stock of the Company with which the Registration
of such Registrable Securities was to be included.
2.5 EXPENSES. The Company shall pay all Registration Expenses incurred by
the Company in complying with this Section 2.
2.6 INFORMATION FURNISHED BY PURCHASER. It shall be a condition precedent
to the Company's obligations under this Agreement as to any Selling Shareholder
that each Selling Shareholder furnish to the Company in writing such information
regarding such Selling Shareholder and the distribution proposed by such Selling
Shareholder as the Company may reasonably request in preparing the Registration
Statement.
2.7 INDEMNIFICATION.
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2.7.1 COMPANY'S INDEMNIFICATION OF PURCHASERS. The Company shall
indemnify each Selling Shareholder, each of its officers, directors and
constituent partners, and each person controlling (within the meaning of the
Securities Act) such Selling Shareholder, against all claims, losses, damages or
liabilities (or actions in respect thereof) suffered or incurred by any of them,
to the extent such claims, losses, damages or liabilities arise out of or are
based upon any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus or any related Registration Statement incident to
any such Registration, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to actions or inaction required of the Company in connection with any
such Registration; and the Company will reimburse each such Selling Shareholder,
each of its officers, directors and constituent partners and each person who
controls any such Selling Shareholder, for any reasonable, documented legal and
other expenses incurred in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, however, that the indemnity
contained in this Section 2.7.1 shall not apply to amounts paid in settlement of
any such claim, loss, damage, liability or action if settlement is effected
without the consent of the Company (which consent shall not unreasonably be
withheld); and provided, further, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based upon any untrue (or alleged untrue) statement or
omission based upon written information furnished to the Company by such Selling
Shareholder, underwriter, placement agent, controlling person or other
indemnified person and stated to be for use in connection with the offering of
securities of the Company.
2.7.2 SELLING SHAREHOLDER'S INDEMNIFICATION OF COMPANY. Each Selling
Shareholder shall indemnify the Company, each of its directors and officers,
each underwriter, if any, of the Company's securities covered by a Registration
Statement, each person who controls the Company or such underwriter within the
meaning of the Securities Act, and each other Selling Shareholder, each of its
officers, directors and constituent partners and each person controlling such
other Selling Shareholder, against all claims, losses, damages and liabilities
(or actions in respect thereof) suffered or incurred by any of them and arising
out of or based upon any untrue statement (or alleged untrue statement) of a
material fact contained in such Registration Statement or related prospectus, or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading;
and will reimburse the Company, such other Selling Shareholders, such directors,
officers, partners, persons, underwriters and controlling persons for any
reasonable, documented legal and other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that such indemnification and reimbursement shall be to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such Registration
Statement or prospectus in reliance upon and in conformity with written
information furnished to the Company by such Selling Shareholder and stated to
be for use in
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<PAGE>
connection with the offering of Registrable Securities; provided,
further, that Selling Shareholder's liability hereunder shall be limited to any
amount received by Selling Shareholder upon disposition of the Shares or Warrant
Shares.
2.7.3 INDEMNIFICATION PROCEDURE. Promptly after receipt by an
indemnified party under this Section 2.7 of notice of the commencement of any
action which may give rise to a claim for indemnification hereunder, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 2.7, notify the indemnifying party in
writing of the commencement thereof and generally summarize such action. The
indemnifying party shall have the right to participate in and to assume the
defense of such claim, and shall be entitled to select counsel for the defense
of such claim with the approval of any parties entitled to indemnification,
which approval shall not be unreasonably withheld. Notwithstanding the
foregoing, the parties entitled to indemnification shall have the right to
employ separate counsel (reasonably satisfactory to the indemnifying party) to
participate in the defense thereof, but the fees and expenses of such separate
counsel shall be at the expense of such indemnified parties unless the named
parties to such action or proceedings include both the indemnifying party and
the indemnified parties and the indemnifying party or such indemnified parties
shall have been advised by counsel that there are one or more legal defenses
available to the indemnified parties which are different from or additional to
those available to the indemnifying party (in which case, if the indemnified
parties notify the indemnifying party in writing that they elect to employ
separate counsel at the reasonable expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
or proceeding on behalf of the indemnified parties, it being understood,
however, that the indemnifying party shall not, in connection with any such
action or proceeding or separate or substantially similar or related action or
proceeding in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable, documented fees and expenses of
more than one separate counsel at any time for all indemnified parties, which
counsel shall be designated in writing by the Purchasers of a majority of the
Registrable Securities).
2.7.4 CONTRIBUTION. If the indemnification provided for in this
Section 2.7 from an indemnifying party is unavailable to an indemnified party
hereunder in respect to any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the statements
or omissions which result in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or indemnified party
and the parties' relative intent, knowledge, access to information supplied by
such indemnifying party or indemnified party and opportunity to
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<PAGE>
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any documented legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any action, suit, proceeding or claim, or in collecting such
indemnity or reimbursement from the indemnifying party.
3. COVENANTS OF THE COMPANY.
The Company agrees to:
(a) Notify the holders of Registrable Securities in writing included in a
Registration Statement of (i) the issuance by the Commission of any stop order
suspending the effectiveness of such Registration Statement and (ii) upon
learning of the initiation of any proceedings for the purpose of suspending such
effectiveness, the existence of such proceedings. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) If the Common Stock is then listed on a national securities exchange,
use its best efforts to cause the Registrable Securities to be listed on such
exchange. If the Common Stock is not then listed on a national securities
exchange, use its best efforts to facilitate the reporting of the Registrable
Securities on Nasdaq.
(c) Take all other reasonable actions necessary to expedite and facilitate
disposition of the Registrable Securities by the holders thereof pursuant to the
Registration Statement.
(d) With a view to making available to the holders of Registrable
Securities the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the Commission that may at any time permit the
Purchasers to sell securities of the Company to the public without registration,
the Company agrees to:
(i) make and keep adequate current public information with respect
to the Company available, as those terms are understood and defined in Rule 144,
at all times after 90 days after the effective date of the first Registration
Statement filed by the Company for the offering of its securities to the general
public;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934 (the "1934 Act"); and
(iii) furnish to each holder of Shares, so long as such holder of
Shares owns any Shares, forthwith upon written request (a) a written statement
by the Company as to whether it has complied with the reporting requirements of
Rule 144, the Securities Act and the 1934 Act, (b) a copy of the most recent
annual or quarterly report of the
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<PAGE>
Company and such other reports and documents so filed by the Company and (c)
such other information as may be reasonably requested and as is publicly
available in availing the holders of Shares of any rule or regulation of the
Commission which permits the selling of any such securities without
registration.
(e) Prior to the filing of a Registration Statement or any amendment
thereto (whether pre-effective or post-effective), and prior to the filing of
any prospectus or prospectus supplement related thereto, the Company will
provide each Selling Shareholder with copies of all pages thereto, if any, which
reference such Selling Shareholder.
4. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed under the laws of
the State of Delaware without regard to any otherwise applicable principles of
conflicts of laws.
(b) This Agreement may not be assigned by a Purchaser other than to the
purchaser or transferee of all of the Purchaser's Shares, which purchaser or
transferee shall be a permitted assign hereunder and under the Purchase
Agreement. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon, the successors, permitted
assigns, heirs, executors and administrators of the parties hereto.
(c) This Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement among the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and permitted assigns, any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided herein.
(d) In the event that any provision of this Agreement shall be invalid,
illegal or unenforceable, it shall, to the extent practicable, be modified so as
to make it valid, legal and enforceable and to retain as nearly as practicable
the intent of the parties, and the validity legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby. To
the extent permitted by law, the parties waive the benefit of any provision of
law that renders any provision of the Agreement invalid or unenforceable in any
respect.
(e) Except as otherwise provided herein, any term of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a
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<PAGE>
specified period of time or indefinitely), with the written consent of the
Company and the Purchaser.
(f) All notices and other communications required or permitted hereunder
shall be in writing and shall be deemed effectively given upon personal
delivery, on the first business day following mailing by overnight courier, or
on the fifth day following mailing by registered or certified mail, return
receipt requested, postage prepaid, addressed to the Company at its address as
set forth in the Purchase Agreement and to the Purchaser at its address as shown
on the books of the Company.
(g) The titles of the paragraphs and subparagraphs of this Agreement are
for convenience of reference only and are not to be considered in construing
this Agreement.
(h) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one instrument.
(i) No waiver by any party to this Agreement of any one or more defaults
by any other party or parties in the performance of any of the provisions hereof
shall operate or be construed as a waiver of any future default or defaults,
whether of a like or different nature. Except as expressly provided herein, no
failure or delay on the part of any party in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
[SIGNATURE PAGE FOLLOWS]
10
EXHIBIT 4
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
BILLSERV.COM, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1999-__ __________Shares
FOR VALUE RECEIVED, billserv.com, Inc., a Nevada corporation (the
"Company"), with its principal office at 14607 San Pedro, Suite 100, San
Antonio, Texas 78232, hereby certifies that _________________(the "Holder") is
entitled, subject to the provisions of this Warrant, to purchase from the
Company, at any time after the date hereof and continuing until 5:00 p.m. EST on
the third anniversary of the date hereof (the "Expiration Date"), up to the
number of fully paid and nonassessable shares of Common Stock of the Company set
forth above, subject to adjustment as hereinafter provided.
The Holder may purchase such number of shares of Common Stock at a
purchase price per share (as appropriately adjusted pursuant to Section 6
hereof) of $3.75 (the "Exercise Price") (which represents the reported closing
sale price per share of the Common Stock on the date hereof). The term "Common
Stock" shall mean the aforementioned Common Stock of the Company, together with
any other equity securities that may be issued by the Company in addition
thereto or in substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the
exercise or exchange of this Warrant and the price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise or exchange, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares."
Section 1. EXERCISE OF WARRANT. This Warrant may be exercised in
whole or in part on any business day on or before the Expiration Date by
presentation and surrender hereof to the Company at its principal office at the
address set forth in the initial paragraph hereof (or at such other address as
the Company may hereafter notify the Holder in writing) with the Purchase Form
annexed hereto duly executed and accompanied by proper payment of the Exercise
Price in lawful money of the United States of America in the form of a check,
subject to collection, for the number of Warrant Shares specified in the
Purchase Form. If this Warrant should be exercised in part only,
<PAGE>
the Company shall, upon surrender of this Warrant, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Shares purchasable hereunder. Upon receipt by the Company of this
Warrant and such Purchase Form, together with proper payment of the Exercise
Price, at such office, the Holder shall be deemed to be the holder of record of
the Warrant Shares, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Warrant Shares shall
not then be actually delivered to the Holder. The Company shall pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of the Warrant Shares.
Section 2. RESERVATION OF SHARES. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise or
exchange of this Warrant all shares of its Common Stock or other shares of
capital stock of the Company from time to time issuable upon exercise or
exchange of this Warrant. All such shares shall be duly authorized and, when
issued upon the exercise or exchange of the Warrant in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, security interests, charges and other encumbrances or restrictions on
sale (other than any restrictions on sale pursuant to applicable federal and
state securities laws) and free and clear of all preemptive rights.
Section 3. FRACTIONAL INTEREST; MARKET PRICE.
(a) The Company will not issue a fractional share of Common Stock
upon exercise or exchange of this Warrant. Instead, the Company will deliver its
check for the current market value of the fractional share. The current market
value of a fraction of a share is determined as follows: multiply the Market
Price of a full share by the fraction of a share and round the result to the
nearest cent.
(b) For purposes of this Section 3(b), the Market Price of a share
of Common Stock is, if the Common Stock is then publicly traded, the Quoted
Price (as defined in Section 6(g) below) of the Common Stock on the last trading
day prior to the date of exercise or exchange, and otherwise shall be equal to
the Exercise Price.
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<PAGE>
Section 4. ASSIGNMENT OR LOSS OF WARRANT.
(a) Except as provided in Section 9, the Holder of this Warrant
shall be entitled, without obtaining the consent of the Company, to assign its
interest in this Warrant, or any of the Warrant Shares, in whole or in part to
any bona fide officer, director or partner of Holder, PROVIDED, HOWEVER, that
the transferee, prior to any such transfer, agrees in writing, in form and
substance satisfactory to the Company, to be bound by the terms of this
Agreement as if originally a party hereto and provides the Company with an
opinion of counsel in such form reasonably acceptable to the Company and its
counsel, that such transfer would not be in violation of the Act or any
applicable state securities or blue sky laws. Subject to the provisions hereof
and of Section 9, upon surrender of this Warrant to the Company or at the office
of its stock transfer agent or warrant agent, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer or other tax
payable in respect thereof, the Company shall, without charge, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees named
in such instrument of assignment and, if the Holder's entire interest is not
being assigned, in the name of the Holder, and this Warrant shall promptly be
canceled.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
Section 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those set forth in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company on any matters or with respect to any rights
whatsoever as a shareholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the Warrant Shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised or exchanged in accordance with its
terms.
Section 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise or exchange of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any time
after October 15, 1999, the Company:
(A) pays a dividend or makes a distribution on its Common
Stock, in either case in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
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<PAGE>
(C) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(D) makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) ADJUSTMENT FOR OTHER DISTRIBUTIONS. If at any time after October
4, 1999, the Company distributes to all of its Common Stock holders any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E' = E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
M = the Market Price (as defined in (g) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively
determined by the Board of Directors of the Company) on
the record date of the assets or debt securities to be
distributed divided by the number of outstanding shares
of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
In the event that such distribution is not actually made, the Exercise Price
shall again be adjusted to the Exercise Price as determined without giving
effect to the calculation provided hereby. In no event shall the Exercise Price
be adjusted to an amount less than zero.
This subsection does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company and paid in the
4
<PAGE>
ordinary course of business.
(c) ADJUSTMENT FOR COMMON STOCK ISSUE. If at any time after October
4, 1999, the Company issues shares of Common Stock for consideration per share
less than the Exercise Price per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
A
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (c) does not apply to (i) any of the transactions
described in subsections (b) and (d), (ii) Common Stock issued pursuant to
options, warrants, convertible preferred stock and other rights to purchase
shares of Common Stock outstanding on October 4, 1999, (iii) Common Stock issued
to shareholders of any non-affiliated person which merges into or with the
Company, or any subsidiary of the Company, in proportion to their stock holdings
of such person immediately prior to such merger, upon such merger, or (iv)
Common Stock issued to directors or employees of, or consultants to, the Company
upon the exercise of warrants, rights or options which (A) are issued pursuant
to stock option plans, employee benefit plans, employment agreements or
consulting agreements, in each case approved by the Company's Board of Directors
or an appropriate committee of the Company's Board of Directors, and (B) have an
exercise price not less than 50% of the Market Price of the Company's Common
Stock at the time of issuance of such warrant, right or option.
(d) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. If at any time
after October 15, 1999, the Company issues for consideration any securities
convertible into or exchangeable or exercisable for Common Stock (other than
securities issued in transactions described in subsection 6(a) above) for
consideration per share of Common Stock initially deliverable upon conversion,
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<PAGE>
exchange or exercise of such securities less than the Exercise Price per share
on the date of issuance of such securities, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
O + D
where: E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
D = the maximum number of shares deliverable upon
conversion, exchange or exercise of such securities at
the initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion, exchange or exercise of such securities.
This subsection (d) does not apply to (i) any of the transactions
described in subsections (b) and (c) above, (ii) securities convertible into or
exchangeable or exercisable for Common Stock issued to shareholders of any
non-affiliated person which merges into or with the Company, or any subsidiary
of the Company, in proportion to their stock holdings of such person immediately
prior to such merger, upon such merger, or (iii) warrants, rights or options
which (A) are issued pursuant to stock option plans, employee benefit plans,
employment agreements or consulting agreements, in each case approved by the
Company's Board of Directors or an appropriate committee of the Company's Board
of Directors, and (B) have an exercise price of not less than 50% of the Market
Price of the Company's Common Stock at the time of issuance of such warrants,
right, warrant or option.
(e) DEFERRAL OF ISSUANCE OR PAYMENT. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
actual occurrence of such event (i) issuing to the Holder, if this Warrant is
exercised after such record date, the shares of Common Stock and other capital
stock of the Company, if any, issuable upon such exercise over and above the
shares of Common Stock or other capital stock of the Company, if any, issuable
upon such exercise on the
6
<PAGE>
basis of the Exercise Price in effect prior to such adjustment, and (ii) paying
to the Holder by check any amount in lieu of the issuance of fractional shares
pursuant to Section 3.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
change in the par value of the Common Stock.
(g) MARKET PRICE. The "Market Price" per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock for the 30
consecutive trading days commencing 45 trading days before the date in question.
The "Quoted Price" of the Common Stock is the average of the last reported bid
and ask price of the Common Stock as reported by Nasdaq, or the primary national
securities exchange on which the Common Stock is then quoted; PROVIDED, HOWEVER,
that if quotes for the Common Stock are not reported by Nasdaq and the Common
Stock is neither traded on the Nasdaq National Market, on a national securities
exchange, on the Nasdaq Small Cap Market nor on the OTC Electronic Bulletin
Board, the price referred to above shall be the price reflected in the
over-the-counter market as reported by the National Quotation Bureau, Inc. or
any organization performing a similar function, and PROVIDED, FURTHER, that if
the Common Stock is not then publicly traded, the Market Price shall equal the
Conversion Price.
(h) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Shares
upon exercise or exchange of the Warrants.
(i) COMMON STOCK DEFINED. Whenever reference is made in Section 6(a)
to the issue of shares of Common Stock, the term "Common Stock" shall include
any equity securities of any class of the Company hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the right of the
thereof to participate in dividends or distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
Subject to the provisions of Section 8 hereof, however, shares issuable upon
exercise or exchange hereof shall include only shares of the class designated as
Common Stock of the Company as of the date hereof or shares of any class or
classes resulting from any reclassification or reclassifications thereof or as a
result of any corporate reorganization as provided for in Section 8 hereof.
Section 7. OFFICERS' CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of Section 6, the Company shall
forthwith file in the custody of its secretary or an assistant secretary at its
principal office an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officers' certificate shall be signed by the chairman, president or chief
financial officer of the Company and by the secretary or any assistant secretary
of the Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 4 hereof.
Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the event of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other than a
subdivision or combination of the outstanding
7
<PAGE>
Common Stock and other than a change in the par value of the Common Stock) or in
the event of any consolidation or merger of the Company with or into another
corporation (other than a merger in which merger the Company is the continuing
corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise or exchange of this Warrant) or in the event of any
sale, lease, transfer or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety, the
Company shall use its best efforts to cause effective provisions to be made so
that the Holder shall have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that would have been received
upon exercise or exchange of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of stock and other securities and property that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 8 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
Section 9. COMPANY'S RIGHT TO REPURCHASE WARRANT; NOTICE TO HOLDER.
Notwithstanding any other term or provision hereof, so long as the shares
underlying this Warrant have been registered, and such registration has been
declared effective, the Company, in its sole discretion, shall have the right to
repurchase all or a portion of the Warrants from Holder, at a price of $0.05 per
Warrant, payable by cash or certified funds, at any time after one hundred
eighty (180) days from the date hereof, if the Quoted Price of the Company's
Common Stock is equal to or exceeds $12.00 for a period of twenty (20)
consecutive days upon which the Company's Common Stock is available for purchase
and sale upon any recognized exchange or quote system, provided, however, that
the Company shall have provided the Holder thirty (30) days' written notice (the
"Notice Period") of its intent to exercise its rights hereunder, during which
Notice Period the Holder may elect to exercise this Warrant in accordance with
the terms provided herein.
Section 10. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933;
REGISTRATION RIGHTS.
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or of the Warrant Shares shall be made unless any
such transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Act including such Shares is currently in
effect, or (ii) in the written opinion of counsel, which counsel and which
opinion shall be reasonably satisfactory to the Company, a current Registration
Statement is not required for such disposition of the shares. Each stock
certificate representing Warrant Shares issued upon exercise or exchange of this
Warrant shall bear a legend in substantially the following form (unless, in the
opinion of counsel, which counsel and which opinion shall be reasonably
satisfactory to the Company, such legend is not required):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
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REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
10.2 The Company agrees that during the term of this Warrant, the
Holder shall have the right, pursuant to the terms of the Registration Rights
Agreement among the Company and certain purchasers of the Company's Common
Stock, to require the Company to register the Warrant Shares under the
circumstances and in the manner set forth in the Registration Rights Agreement.
Section 11. MODIFICATION AND WAIVER. Except as otherwise provided
herein, any term of this Warrant may be amended, and the observance of any term
of this Warrant may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Holder of this
Warrant. Any amendment or waiver effected in accordance with this section shall
be binding upon each future Holder of this Warrant and the Company.
Section 12. NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company at the
address indicated therefor in the first paragraph of this Warrant and the Holder
at its address as shown on the books of the Company; PROVIDED, HOWEVER, that
presentation of a Purchase Form and payment of any Exercise Price shall be
effective only upon receipt by the Company.
Section 13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The titles of
the paragraphs and subparagraphs of this Warrant are for convenience of
reference only and are not to be considered in construing this Warrant. This
Warrant shall be governed by and construed under the laws of the State of
Delaware without regard to any otherwise applicable principles of conflicts of
laws.
Section 14. ENTIRE AGREEMENT. This Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein or therein. Nothing in this Warrant, express or implied, is
intended to confer upon any party, other
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than the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Warrant, except
as expressly provided herein.
Section 15. SEVERABILITY. In the event that any provision of this
Warrant shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. To the extent permitted by law, the parties hereto
waive the benefit of any provision of law that renders any provision of this
Warrant invalid or unenforceable in any respect.
Section 16. NO WAIVER. No waiver by any party to this Warrant of any
one or more defaults by any other party or parties in the performance of any of
the provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different nature. Except as expressly
provided herein, no failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed by its duly authorized officer and to be dated as of this __ day of
_______________,1999.
billserv.com, Inc.
By:_______________________________________
NAME:
TITLE:
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PURCHASE FORM
Dated_______________,
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ______ shares of Common Stock and hereby makes payment of
___________________ in payment of the exercise price thereof.
Signature___________________________
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<PAGE>
ASSIGNMENT FORM
Dated_______________,
FOR VALUE RECEIVED,__________________hereby sells, assigns and
transfers unto _____________________________(the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature___________________________
12
EXHIBIT 5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
BILLSERV.COM, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1999-23 153,846 Shares
FOR VALUE RECEIVED, billserv.com, Inc., a Nevada corporation (the
"Company"), with its principal office at 14607 San Pedro, Suite 100, San
Antonio, Texas 78232, hereby certifies that Kingship Limited, Room 5 Business
Centre Victory House, Douglas, Isle of Man IM1 1EQ U.K. (the "Holder") is
entitled, subject to the provisions of this Warrant, to purchase from the
Company, at any time after the date hereof and continuing until 5:00 p.m. EST on
the third anniversary of the date hereof (the "Expiration Date"), up to the
number of fully paid and nonassessable shares of Common Stock of the Company set
forth above, subject to adjustment as hereinafter provided.
The Holder may purchase such number of shares of Common Stock at a
purchase price per share (as appropriately adjusted pursuant to Section 6
hereof) of $3.75 (the "Exercise Price") (which represents the reported closing
sale price per share of the Common Stock on the date hereof). The term "Common
Stock" shall mean the aforementioned Common Stock of the Company, together with
any other equity securities that may be issued by the Company in addition
thereto or in substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the
exercise or exchange of this Warrant and the price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise or exchange, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares."
Section 1. EXERCISE OF WARRANT. This Warrant may be exercised in
whole or in part on any business day on or before the Expiration Date by
presentation and surrender hereof to the Company at its principal office at the
address set forth in the initial paragraph hereof (or at such other address as
the Company may hereafter notify the Holder in writing) with the Purchase Form
annexed hereto duly executed and accompanied by proper payment of the Exercise
Price in lawful money of the United States of America in the form of a check,
subject to collection, for the number
<PAGE>
of Warrant Shares specified in the Purchase Form. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt
by the Company of this Warrant and such Purchase Form, together with proper
payment of the Exercise Price, at such office, the Holder shall be deemed to be
the holder of record of the Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder. The Company shall pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of the Warrant
Shares.
Section 2. RESERVATION OF SHARES. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise or
exchange of this Warrant all shares of its Common Stock or other shares of
capital stock of the Company from time to time issuable upon exercise or
exchange of this Warrant. All such shares shall be duly authorized and, when
issued upon the exercise or exchange of the Warrant in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, security interests, charges and other encumbrances or restrictions on
sale (other than any restrictions on sale pursuant to applicable federal and
state securities laws) and free and clear of all preemptive rights.
Section 3. FRACTIONAL INTEREST; MARKET PRICE.
(a) The Company will not issue a fractional share of Common Stock
upon exercise or exchange of this Warrant. Instead, the Company will deliver its
check for the current market value of the fractional share. The current market
value of a fraction of a share is determined as follows: multiply the Market
Price of a full share by the fraction of a share and round the result to the
nearest cent.
(b) For purposes of this Section 3(b), the Market Price of a share
of Common Stock is, if the Common Stock is then publicly traded, the Quoted
Price (as defined in Section 6(g) below) of the Common Stock on the last trading
day prior to the date of exercise or exchange, and otherwise shall be equal to
the Exercise Price.
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<PAGE>
Section 4. ASSIGNMENT OR LOSS OF WARRANT.
(a) Except as provided in Section 9, the Holder of this Warrant
shall be entitled, without obtaining the consent of the Company, to assign its
interest in this Warrant, or any of the Warrant Shares, in whole or in part to
any bona fide officer, director or partner of Holder, PROVIDED, HOWEVER, that
the transferee, prior to any such transfer, agrees in writing, in form and
substance satisfactory to the Company, to be bound by the terms of this
Agreement as if originally a party hereto and provides the Company with an
opinion of counsel in such form reasonably acceptable to the Company and its
counsel, that such transfer would not be in violation of the Act or any
applicable state securities or blue sky laws. Subject to the provisions hereof
and of Section 9, upon surrender of this Warrant to the Company or at the office
of its stock transfer agent or warrant agent, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer or other tax
payable in respect thereof, the Company shall, without charge, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees named
in such instrument of assignment and, if the Holder's entire interest is not
being assigned, in the name of the Holder, and this Warrant shall promptly be
canceled.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
Section 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those set forth in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company on any matters or with respect to any rights
whatsoever as a shareholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the Warrant Shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised or exchanged in accordance with its
terms.
Section 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise or exchange of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any time
after October 4, 1999, the Company:
(A) pays a dividend or makes a distribution on its Common
Stock, in either case in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
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<PAGE>
(C) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(D) makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) ADJUSTMENT FOR OTHER DISTRIBUTIONS. If at any time after October
4, 1999, the Company distributes to all of its Common Stock holders any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E' = E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
M = the Market Price (as defined in (g) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively
determined by the Board of Directors of the Company) on
the record date of the assets or debt securities to be
distributed divided by the number of outstanding shares
of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
In the event that such distribution is not actually made, the Exercise Price
shall again be adjusted to the Exercise Price as determined without giving
effect to the calculation provided hereby. In no event shall the Exercise Price
be adjusted to an amount less than zero.
This subsection does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company and paid in the
4
<PAGE>
ordinary course of business.
(c) ADJUSTMENT FOR COMMON STOCK ISSUE. If at any time after October
4, 1999, the Company issues shares of Common Stock for consideration per share
less than the Exercise Price per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
A
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (c) does not apply to (i) any of the transactions
described in subsections (b) and (d), (ii) Common Stock issued pursuant to
options, warrants, convertible preferred stock and other rights to purchase
shares of Common Stock outstanding on October 4, 1999, (iii) Common Stock issued
to shareholders of any non-affiliated person which merges into or with the
Company, or any subsidiary of the Company, in proportion to their stock holdings
of such person immediately prior to such merger, upon such merger, or (iv)
Common Stock issued to directors or employees of, or consultants to, the Company
upon the exercise of warrants, rights or options which (A) are issued pursuant
to stock option plans, employee benefit plans, employment agreements or
consulting agreements, in each case approved by the Company's Board of Directors
or an appropriate committee of the Company's Board of Directors, and (B) have an
exercise price not less than 50% of the Market Price of the Company's Common
Stock at the time of issuance of such warrant, right or option.
(d) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. If at any time
after October 4, 1999, the Company issues for consideration any securities
convertible into or exchangeable or exercisable for Common Stock (other than
securities issued in transactions described in subsection 6(a) above) for
consideration per share of Common Stock initially deliverable upon conversion,
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<PAGE>
exchange or exercise of such securities less than the Exercise Price per share
on the date of issuance of such securities, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
O + D
where: E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
D = the maximum number of shares deliverable upon
conversion, exchange or exercise of such securities at
the initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion, exchange or exercise of such securities.
This subsection (d) does not apply to (i) any of the transactions
described in subsections (b) and (c) above, (ii) securities convertible into or
exchangeable or exercisable for Common Stock issued to shareholders of any
non-affiliated person which merges into or with the Company, or any subsidiary
of the Company, in proportion to their stock holdings of such person immediately
prior to such merger, upon such merger, or (iii) warrants, rights or options
which (A) are issued pursuant to stock option plans, employee benefit plans,
employment agreements or consulting agreements, in each case approved by the
Company's Board of Directors or an appropriate committee of the Company's Board
of Directors, and (B) have an exercise price of not less than 50% of the Market
Price of the Company's Common Stock at the time of issuance of such warrants,
right, warrant or option.
(e) DEFERRAL OF ISSUANCE OR PAYMENT. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
actual occurrence of such event (i) issuing to the Holder, if this Warrant is
exercised after such record date, the shares of Common Stock and other capital
stock of the Company, if any, issuable upon such exercise over and above the
shares of Common Stock or other capital stock of the Company, if any, issuable
upon such exercise on the
6
<PAGE>
basis of the Exercise Price in effect prior to such adjustment, and (ii) paying
to the Holder by check any amount in lieu of the issuance of fractional shares
pursuant to Section 3.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
change in the par value of the Common Stock.
(g) MARKET PRICE. The "Market Price" per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock for the 30
consecutive trading days commencing 45 trading days before the date in question.
The "Quoted Price" of the Common Stock is the average of the last reported bid
and ask price of the Common Stock as reported by Nasdaq, or the primary national
securities exchange on which the Common Stock is then quoted; PROVIDED, HOWEVER,
that if quotes for the Common Stock are not reported by Nasdaq and the Common
Stock is neither traded on the Nasdaq National Market, on a national securities
exchange, on the Nasdaq Small Cap Market nor on the OTC Electronic Bulletin
Board, the price referred to above shall be the price reflected in the
over-the-counter market as reported by the National Quotation Bureau, Inc. or
any organization performing a similar function, and PROVIDED, FURTHER, that if
the Common Stock is not then publicly traded, the Market Price shall equal the
Conversion Price.
(h) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Shares
upon exercise or exchange of the Warrants.
(i) COMMON STOCK DEFINED. Whenever reference is made in Section 6(a)
to the issue of shares of Common Stock, the term "Common Stock" shall include
any equity securities of any class of the Company hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the right of the
thereof to participate in dividends or distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
Subject to the provisions of Section 8 hereof, however, shares issuable upon
exercise or exchange hereof shall include only shares of the class designated as
Common Stock of the Company as of the date hereof or shares of any class or
classes resulting from any reclassification or reclassifications thereof or as a
result of any corporate reorganization as provided for in Section 8 hereof.
Section 7. OFFICERS' CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of Section 6, the Company shall
forthwith file in the custody of its secretary or an assistant secretary at its
principal office an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officers' certificate shall be signed by the chairman, president or chief
financial officer of the Company and by the secretary or any assistant secretary
of the Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 4 hereof.
Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the event of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other than a
subdivision or combination of the outstanding
7
<PAGE>
Common Stock and other than a change in the par value of the Common Stock) or in
the event of any consolidation or merger of the Company with or into another
corporation (other than a merger in which merger the Company is the continuing
corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise or exchange of this Warrant) or in the event of any
sale, lease, transfer or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety, the
Company shall use its best efforts to cause effective provisions to be made so
that the Holder shall have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that would have been received
upon exercise or exchange of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of stock and other securities and property that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 8 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
Section 9. COMPANY'S RIGHT TO REPURCHASE WARRANT; NOTICE TO HOLDER.
Notwithstanding any other term or provision hereof, so long as the shares
underlying this Warrant have been registered, and such registration has been
declared effective, the Company, in its sole discretion, shall have the right to
repurchase all or a portion of the Warrants from Holder, at a price of $0.05 per
Warrant, payable by cash or certified funds, at any time after one hundred
eighty (180) days from the date hereof, if the Quoted Price of the Company's
Common Stock is equal to or exceeds $12.00 for a period of twenty (20)
consecutive days upon which the Company's Common Stock is available for purchase
and sale upon any recognized exchange or quote system, provided, however, that
the Company shall have provided the Holder thirty (30) days' written notice (the
"Notice Period") of its intent to exercise its rights hereunder, during which
Notice Period the Holder may elect to exercise this Warrant in accordance with
the terms provided herein.
Section 10. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933;
REGISTRATION RIGHTS.
10.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or of the Warrant Shares shall be made unless any
such transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Act including such Shares is currently in
effect, or (ii) in the written opinion of counsel, which counsel and which
opinion shall be reasonably satisfactory to the Company, a current Registration
Statement is not required for such disposition of the shares. Each stock
certificate representing Warrant Shares issued upon exercise or exchange of this
Warrant shall bear a legend in substantially the following form (unless, in the
opinion of counsel, which counsel and which opinion shall be reasonably
satisfactory to the Company, such legend is not required):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
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<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY
NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
10.2 The Company agrees that during the term of this Warrant, the
Holder shall have the right, pursuant to the terms of the Registration Rights
Agreement among the Company and certain purchasers of the Company's Common
Stock, to require the Company to register the Warrant Shares under the
circumstances and in the manner set forth in the Registration Rights Agreement.
Section 11. MODIFICATION AND WAIVER. Except as otherwise provided
herein, any term of this Warrant may be amended, and the observance of any term
of this Warrant may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Holder of this
Warrant. Any amendment or waiver effected in accordance with this section shall
be binding upon each future Holder of this Warrant and the Company.
Section 12. NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company at the
address indicated therefor in the first paragraph of this Warrant and the Holder
at its address as shown on the books of the Company; PROVIDED, HOWEVER, that
presentation of a Purchase Form and payment of any Exercise Price shall be
effective only upon receipt by the Company.
Section 13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The titles of
the paragraphs and subparagraphs of this Warrant are for convenience of
reference only and are not to be considered in construing this Warrant. This
Warrant shall be governed by and construed under the laws of the State of
Delaware without regard to any otherwise applicable principles of conflicts of
laws.
Section 14. ENTIRE AGREEMENT. This Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein or therein. Nothing in this Warrant, express or implied, is
intended to confer upon any party, other
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<PAGE>
than the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Warrant, except
as expressly provided herein.
Section 15. SEVERABILITY. In the event that any provision of this
Warrant shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. To the extent permitted by law, the parties hereto
waive the benefit of any provision of law that renders any provision of this
Warrant invalid or unenforceable in any respect.
Section 16. NO WAIVER. No waiver by any party to this Warrant of any
one or more defaults by any other party or parties in the performance of any of
the provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different nature. Except as expressly
provided herein, no failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed by its duly authorized officer and to be dated as of this __ day of
_______________,1999.
billserv.com, Inc.
By:_______________________________________
NAME:
TITLE:
10
<PAGE>
PURCHASE FORM
Dated_______________,
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ______ shares of Common Stock and hereby makes payment of
___________________ in payment of the exercise price thereof.
Signature___________________________
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<PAGE>
ASSIGNMENT FORM
Dated_______________,
FOR VALUE RECEIVED,__________________hereby sells, assigns and
transfers unto _____________________________(the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature___________________________
12
EXHIBIT 6
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
BILLSERV.COM, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1999-________ 111,085 Shares
FOR VALUE RECEIVED, billserv.com, Inc., a Nevada corporation (the
"Company"), with its principal office at 14607 San Pedro, Suite 100, San
Antonio, Texas 78232, hereby certifies that ________________________(the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company, at any time after the date hereof and continuing for a period
of five (5) years (the "Expiration Date"), up to the number of fully paid and
nonassessable shares of Common Stock of the Company set forth above, subject to
adjustment as hereinafter provided.
The Holder may purchase such number of shares of Common Stock at a
purchase price per share (as appropriately adjusted pursuant to Section 6
hereof) of $6.75 (the "Exercise Price"). The term "Common Stock" shall mean the
aforementioned Common Stock of the Company, together with any other equity
securities that may be issued by the Company in addition thereto or in
substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the
exercise or exchange of this Warrant and the price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise or exchange, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares."
<PAGE>
Section 1. EXERCISE OF WARRANT; CASHLESS EXERCISE.
(a) This Warrant may be exercised in whole or in part on any
business day on or before the Expiration Date by presentation and surrender
hereof to the Company at its principal office at the address set forth in the
initial paragraph hereof (or at such other address as the Company may hereafter
notify the Holder in writing) with the Purchase Form annexed hereto duly
executed and accompanied by proper payment of the Exercise Price in lawful money
of the United States of America in the form of a check, subject to collection,
for the number of Warrant Shares specified in the Purchase Form. If this Warrant
should be exercised in part only, the Company shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of the Holder
thereof to purchase the balance of the Warrant Shares purchasable hereunder.
Upon receipt by the Company of this Warrant and such Purchase Form, together
with proper payment of the Exercise Price, at such office, the Holder shall be
deemed to be the holder of record of the Warrant Shares, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be actually
delivered to the Holder. The Company shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
the Warrant Shares.
(b) In addition to the rights of the Holder under paragraph (a)
above, the Holder shall have the right to exercise this Warrant, in whole or in
part, in lieu of paying the Exercise Price in cash, by instructing the Company
to issue that number of Warrant Shares determined by multiplying the number of
Warrant Shares in respect of which this Warrant is being exercised by a
fraction, the numerator of which shall be the difference between the Market
Price (as defined in Section 6(g) below) per share of Common Stock on the date
of exercise and the Exercise Price, and the denominator of which shall be such
Market Price per share of Common Stock.
Section 2. RESERVATION OF SHARES. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise or
exchange of this Warrant all shares of its Common Stock or other shares of
capital stock of the Company from time to time issuable upon exercise or
exchange of this Warrant. All such shares shall be duly authorized and, when
issued upon the exercise or exchange of the Warrant in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, security interests, charges and other encumbrances or restrictions on
sale (other than any restrictions on sale pursuant to applicable federal and
state securities laws) and free and clear of all preemptive rights.
Section 3. FRACTIONAL INTEREST; MARKET PRICE.
(a) The Company will not issue a fractional share of Common Stock
upon exercise or exchange of this Warrant. Instead, the Company will deliver its
check for the current market value of the fractional share. The current market
value of a fraction of a share is determined as follows: multiply the Market
Price of a full share by the fraction of a share and round the result to the
nearest cent.
(b) For purposes of this Section 3(b), the Market Price of a share
of Common Stock is, if the Common Stock is then publicly traded, the Quoted
Price (as defined in Section 6(g) below) of the Common Stock on the last trading
day prior to the date of exercise or exchange, and
2
<PAGE>
otherwise shall be equal to the Exercise Price.
Section 4. ASSIGNMENT OR LOSS OF WARRANT.
(a) Except as provided in Section 9, the Holder of this Warrant
shall be entitled, without obtaining the consent of the Company, to assign its
interest in this Warrant, or any of the Warrant Shares, in whole or in part to
any bona fide officer, director or partner of Holder, PROVIDED, HOWEVER, that
the transferee, prior to any such transfer, agrees in writing, in form and
substance satisfactory to the Company, to be bound by the terms of this
Agreement as if originally a party hereto and provides the Company with an
opinion of counsel in such form reasonably acceptable to the Company and its
counsel, that such transfer would not be in violation of the Act or any
applicable state securities or blue sky laws. Subject to the provisions hereof
and of Section 9, upon surrender of this Warrant to the Company or at the office
of its stock transfer agent or warrant agent, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer or other tax
payable in respect thereof, the Company shall, without charge, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees named
in such instrument of assignment and, if the Holder's entire interest is not
being assigned, in the name of the Holder, and this Warrant shall promptly be
canceled.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
Section 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those set forth in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company on any matters or with respect to any rights
whatsoever as a shareholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the Warrant Shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised or exchanged in accordance with its
terms.
Section 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise or exchange of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any time
after April 15, 1998, the Company:
(A) pays a dividend or makes a distribution on its Common
Stock, in either case in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
3
<PAGE>
(C) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(D) makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) ADJUSTMENT FOR OTHER DISTRIBUTIONS. If at any time after April
15, 1998, the Company distributes to all of its Common Stock holders any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E' = E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
M = the Market Price (as defined in (g) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively
determined by the Board of Directors of the Company) on
the record date of the assets or debt securities to be
distributed divided by the number of outstanding shares
of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
In the event that such distribution is not actually made, the Exercise Price
shall again be adjusted to the Exercise Price as determined without giving
effect to the calculation provided hereby. In no event shall the Exercise Price
be adjusted to an amount less than zero.
This subsection does not apply to cash dividends or cash
distributions paid out of
4
<PAGE>
consolidated current or retained earnings as shown on the books of the Company
and paid in the ordinary course of business.
(c) ADJUSTMENT FOR COMMON STOCK ISSUE. If at any time after April
15, 1998, the Company issues shares of Common Stock for consideration per share
less than the Exercise Price per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
A
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (c) does not apply to (i) any of the transactions
described in subsections (b) and (d), (ii) Common Stock issued pursuant to
options, warrants, convertible preferred stock and other rights to purchase
shares of Common Stock outstanding on April 15, 1998, (iii) Common Stock issued
to shareholders of any non-affiliated person which merges into or with the
Company, or any subsidiary of the Company, in proportion to their stock holdings
of such person immediately prior to such merger, upon such merger, or (iv)
Common Stock issued to directors or employees of, or consultants to, the Company
upon the exercise of warrants, rights or options which (A) are issued pursuant
to stock option plans, employee benefit plans, employment agreements or
consulting agreements, in each case approved by the Company's Board of Directors
or an appropriate committee of the Company's Board of Directors, and (B) have an
exercise price not less than 70% of the Market Price of the Company's Common
Stock at the time of issuance of such warrant, right or option.
(d) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. If at any time
after April 15, 1998, the Company issues for consideration any securities
convertible into or exchangeable or exercisable for Common Stock (other than
securities issued in transactions described in subsection 6(a) above) for
consideration per share of Common Stock initially deliverable upon conversion,
exchange or exercise of such securities less than the Exercise Price per share
on the date of issuance
5
<PAGE>
of such securities, the Exercise Price shall be adjusted in accordance with the
following formula:
O + P/E
E' = E x -------
O + D
where: E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
D = the maximum number of shares deliverable upon
conversion, exchange or exercise of such securities at
the initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion, exchange or exercise of such securities.
This subsection (d) does not apply to (i) any of the transactions
described in subsections (b) and (c) above, (ii) securities convertible into or
exchangeable or exercisable for Common Stock issued to shareholders of any
non-affiliated person which merges into or with the Company, or any subsidiary
of the Company, in proportion to their stock holdings of such person immediately
prior to such merger, upon such merger, or (iii) warrants, rights or options
which (A) are issued pursuant to stock option plans, employee benefit plans,
employment agreements or consulting agreements, in each case approved by the
Company's Board of Directors or an appropriate committee of the Company's Board
of Directors, and (B) have an exercise price of not less than 70% of the Market
Price of the Company's Common Stock at the time of issuance of such warrants,
right, warrant or option.
(e) DEFERRAL OF ISSUANCE OR PAYMENT. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
actual occurrence of such event (i) issuing to the Holder, if this Warrant is
exercised after such record date, the shares of Common Stock and other capital
stock of the Company, if any, issuable upon such exercise over and above the
shares of Common Stock or other capital stock of the Company, if any, issuable
upon such exercise on the
6
<PAGE>
basis of the Exercise Price in effect prior to such adjustment, and (ii) paying
to the Holder by check any amount in lieu of the issuance of fractional shares
pursuant to Section 3.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
change in the par value of the Common Stock.
(g) MARKET PRICE. The "Market Price" per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock holders for the
30 consecutive trading days commencing 45 trading days before the date in
question. The "Quoted Price" of the Common Stock is the last reported sales
price of the Common Stock as reported by Nasdaq, or the primary national
securities exchange on which the Common Stock is then quoted; PROVIDED, HOWEVER,
that if quotes for the Common Stock are not reported by Nasdaq and the Common
Stock is neither traded on the Nasdaq National Market, on a national securities
exchange, on the Nasdaq Small Cap Market nor on the OTC Electronic Bulletin
Board, the price referred to above shall be the price reflected in the
over-the-counter market as reported by the National Quotation Bureau, Inc. or
any organization performing a similar function, and PROVIDED, FURTHER, that if
the Common Stock is not then publicly traded, the Market Price shall equal the
Conversion Price.
(h) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Shares
upon exercise or exchange of the Warrants.
(i) COMMON STOCK DEFINED. Whenever reference is made in Section 6(a)
to the issue of shares of Common Stock, the term "Common Stock" shall include
any equity securities of any class of the Company hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the right of the
thereof to participate in dividends or distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
Subject to the provisions of Section 8 hereof, however, shares issuable upon
exercise or exchange hereof shall include only shares of the class designated as
Common Stock of the Company as of the date hereof or shares of any class or
classes resulting from any reclassification or reclassifications thereof or as a
result of any corporate reorganization as provided for in Section 8 hereof.
Section 7. OFFICERS' CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of Section 6, the Company shall
forthwith file in the custody of its secretary or an assistant secretary at its
principal office an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officers' certificate shall be signed by the chairman, president or chief
financial officer of the Company and by the secretary or any assistant secretary
of the Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 4 hereof.
Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the event of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other than a
subdivision or combination of the outstanding Common Stock and other than a
change in the par value of the Common Stock) or in the event of
7
<PAGE>
any consolidation or merger of the Company with or into another corporation
(other than a merger in which merger the Company is the continuing corporation
and that does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the class issuable upon
exercise or exchange of this Warrant) or in the event of any sale, lease,
transfer or conveyance to another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, the Company shall use
its best efforts to cause effective provisions to be made so that the Holder
shall have the right thereafter, by exercising this Warrant, to purchase the
kind and amount of shares of stock and other securities and property (including
cash) receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock that would have been received upon exercise or exchange
of this Warrant immediately prior to such reclassification, capital
reorganization, change, consolidation, merger, sale or conveyance. Any such
provision shall include provisions for adjustments in respect of such shares of
stock and other securities and property that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Warrant. The
foregoing provisions of this Section 8 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
Section 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933;
REGISTRATION RIGHTS.
9.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or of the Warrant Shares shall be made unless any
such transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Act including such Shares is currently in
effect, or (ii) in the written opinion of counsel, which counsel and which
opinion shall be reasonably satisfactory to the Company, a current registration
Statement is not required for such disposition of the shares. Each stock
certificate representing Warrant Shares issued upon exercise or exchange of this
Warrant shall bear a legend in substantially the following form (unless, in the
opinion of counsel, which counsel and which opinion shall be reasonably
satisfactory to the Company, such legend is not required):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
8
<PAGE>
9.2 The Company agrees that during the term of this Warrant, the
Holder shall have the right, pursuant to the terms of the Registration Rights
Agreement among the Company and certain purchasers of the Company's Common
Stock, to require the Company to register the Warrant Shares under the
circumstances and in the manner set forth in the Registration Rights Agreement.
Section 10. MODIFICATION AND WAIVER. Except as otherwise provided
herein, any term of this Warrant may be amended, and the observance of any term
of this Warrant may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Holder of this
Warrant. Any amendment or waiver effected in accordance with this section shall
be binding upon each future Holder of this Warrant and the Company.
Section 11. NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company at the
address indicated therefor in the first paragraph of this Warrant and the Holder
at its address as shown on the books of the Company; PROVIDED, HOWEVER, that
presentation of a Purchase Form and payment of any Exercise Price shall be
effective only upon receipt by the Company.
Section 12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The titles of
the paragraphs and subparagraphs of this Warrant are for convenience of
reference only and are not to be considered in construing this Warrant. This
Warrant shall be governed by and construed under the laws of the Commonwealth of
Pennsylvania without regard to any otherwise applicable principles of conflicts
of laws.
Section 13. ENTIRE AGREEMENT. This Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein or therein. Nothing in this Warrant, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Warrant, except as expressly provided
herein.
Section 14. SEVERABILITY. In the event that any provision of this
Warrant shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. To the extent permitted by law, the parties hereto
waive the benefit of any provision of law that renders any provision of this
Warrant invalid or unenforceable in any respect.
Section 15. NO WAIVER. No waiver by any party to this Warrant of any
one or more defaults by any other party or parties in the performance of any of
the provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different
9
<PAGE>
nature. Except as expressly provided herein, no failure or delay on the part of
any party in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed by its
duly authorized officer and to be dated as of this ______ day of October, 1999.
billserv.com, Inc.
By:_____________________________________________
NAME:
TITLE:
10
<PAGE>
PURCHASE FORM
Dated_______________,
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ______ shares of Common Stock and hereby makes payment of
___________________ in payment of the exercise price thereof.
Signature___________________________
11
<PAGE>
ASSIGNMENT FORM
Dated_______________,
FOR VALUE RECEIVED,__________________hereby sells, assigns and
transfers unto _____________________________(the "Assignee"),
(please type or print in block letters)
________________________________________________________________________________
(insert address)
its right to purchase up to _____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature___________________________
12
EXHIBIT 7
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
BILLSERV.COM, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1999-________ ______ Shares
FOR VALUE RECEIVED, billserv.com, Inc., a Nevada corporation (the
"Company"), with its principal office at 14607 San Pedro, Suite 100, San
Antonio, Texas 78232, hereby certifies that ________________________(the
"Holder") is entitled, subject to the provisions of this Warrant, to purchase
from the Company, at any time after the date hereof and continuing until 5:00
p.m. EST of the third anniversary date hereof (the "Expiration Date"), up to the
number of fully paid and nonassessable shares of Common Stock of the Company set
forth above, subject to adjustment as hereinafter provided.
The Holder may purchase such number of shares of Common Stock at a
purchase price per share (as appropriately adjusted pursuant to Section 6
hereof) of $____ (the "Exercise Price"). The term "Common Stock" shall mean the
aforementioned Common Stock of the Company, together with any other equity
securities that may be issued by the Company in addition thereto or in
substitution therefor as provided herein.
The number of shares of Common Stock to be received upon the
exercise or exchange of this Warrant and the price to be paid for a share of
Common Stock are subject to adjustment from time to time as hereinafter set
forth. The shares of Common Stock deliverable upon such exercise or exchange, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares."
Section 1. EXERCISE OF WARRANT; CASHLESS EXERCISE.
(a) This Warrant may be exercised in whole or in part on any
business day on or
<PAGE>
before the Expiration Date by presentation and surrender hereof to the Company
at its principal office at the address set forth in the initial paragraph hereof
(or at such other address as the Company may hereafter notify the Holder in
writing) with the Purchase Form annexed hereto duly executed and accompanied by
proper payment of the Exercise Price in lawful money of the United States of
America in the form of a check, subject to collection, for the number of Warrant
Shares specified in the Purchase Form. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder. Upon receipt by the
Company of this Warrant and such Purchase Form, together with proper payment of
the Exercise Price, at such office, the Holder shall be deemed to be the holder
of record of the Warrant Shares, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be actually delivered to the Holder. The Company
shall pay any and all documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant Shares.
(b) In addition to the rights of the Holder under paragraph (a)
above, the Holder shall have the right to exercise this Warrant, in whole or in
part, in lieu of paying the Exercise Price in cash, by instructing the Company
to issue that number of Warrant Shares determined by multiplying the number of
Warrant Shares in respect of which this Warrant is being exercised by a
fraction, the numerator of which shall be the difference between the Market
Price (as defined in Section 6(g) below) per share of Common Stock on the date
of exercise and the Exercise Price, and the denominator of which shall be such
Market Price per share of Common Stock.
Section 2. RESERVATION OF SHARES. The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise or
exchange of this Warrant all shares of its Common Stock or other shares of
capital stock of the Company from time to time issuable upon exercise or
exchange of this Warrant. All such shares shall be duly authorized and, when
issued upon the exercise or exchange of the Warrant in accordance with the terms
hereof, shall be validly issued, fully paid and nonassessable, free and clear of
all liens, security interests, charges and other encumbrances or restrictions on
sale (other than any restrictions on sale pursuant to applicable federal and
state securities laws) and free and clear of all preemptive rights.
Section 3. FRACTIONAL INTEREST; MARKET PRICE.
(a) The Company will not issue a fractional share of Common Stock
upon exercise or exchange of this Warrant. Instead, the Company will deliver its
check for the current market value of the fractional share. The current market
value of a fraction of a share is determined as follows: multiply the Market
Price of a full share by the fraction of a share and round the result to the
nearest cent.
(b) For purposes of this Section 3(b), the Market Price of a share
of Common Stock is, if the Common Stock is then publicly traded, the Quoted
Price (as defined in Section 6(g) below) of the Common Stock on the last trading
day prior to the date of exercise or exchange, and otherwise shall be equal to
the Exercise Price.
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Section 4. ASSIGNMENT OR LOSS OF WARRANT.
(a) Except as provided in Section 9, the Holder of this Warrant
shall be entitled, without obtaining the consent of the Company, to assign its
interest in this Warrant, or any of the Warrant Shares, in whole or in part to
any bona fide officer, director or partner of Holder, PROVIDED, HOWEVER, that
the transferee, prior to any such transfer, agrees in writing, in form and
substance satisfactory to the Company, to be bound by the terms of this
Agreement as if originally a party hereto and provides the Company with an
opinion of counsel in such form reasonably acceptable to the Company and its
counsel, that such transfer would not be in violation of the Act or any
applicable state securities or blue sky laws. Subject to the provisions hereof
and of Section 9, upon surrender of this Warrant to the Company or at the office
of its stock transfer agent or warrant agent, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer or other tax
payable in respect thereof, the Company shall, without charge, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees named
in such instrument of assignment and, if the Holder's entire interest is not
being assigned, in the name of the Holder, and this Warrant shall promptly be
canceled.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of indemnification satisfactory to the Company, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
Section 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those set forth in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company on any matters or with respect to any rights
whatsoever as a shareholder of the Company. No dividends or interest shall be
payable or accrued in respect of this Warrant or the interest represented hereby
or the Warrant Shares purchasable hereunder until, and only to the extent that,
this Warrant shall have been exercised or exchanged in accordance with its
terms.
Section 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise or exchange of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any time
after October 15, 1999, the Company:
(A) pays a dividend or makes a distribution on its Common
Stock, in either case in shares of its Common Stock;
(B) subdivides its outstanding shares of Common Stock into a
greater number of shares;
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(C) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(D) makes a distribution on its Common Stock in shares of
its capital stock other than Common Stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive, upon exercise or exchange of this
Warrant and payment of the same aggregate consideration, the number of shares of
capital stock of the Company which the Holder would have owned immediately
following such action if the Holder had exercised or exchanged the Warrant
immediately prior to such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
(b) ADJUSTMENT FOR OTHER DISTRIBUTIONS. If at any time after April
15, 1998, the Company distributes to all of its Common Stock holder any of its
assets or debt securities, the Exercise Price following the record date shall be
adjusted in accordance with the following formula:
E' = E x M-F
---
M
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
M = the Market Price (as defined in (g) below) per share
of Common Stock on the record date of the distribution.
F = the aggregate fair market value (as conclusively
determined by the Board of Directors of the Company) on
the record date of the assets or debt securities to be
distributed divided by the number of outstanding shares
of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive the distribution.
In the event that such distribution is not actually made, the Exercise Price
shall again be adjusted to the Exercise Price as determined without giving
effect to the calculation provided hereby. In no event shall the Exercise Price
be adjusted to an amount less than zero.
This subsection does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company and paid in the
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ordinary course of business.
(c) ADJUSTMENT FOR COMMON STOCK ISSUE. If at any time after April
15, 1998, the Company issues shares of Common Stock for consideration per share
less than the Exercise Price per share on the date the Company fixes the
offering price of such additional shares, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
A
where: E' = the adjusted Exercise Price.
E = the Exercise Price immediately prior to the
adjustment.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance.
This subsection (c) does not apply to (i) any of the transactions
described in subsections (b) and (d), (ii) Common Stock issued pursuant to
options, warrants, convertible preferred stock and other rights to purchase
shares of Common Stock outstanding on April 15, 1998, (iii) Common Stock issued
to shareholders of any non-affiliated person which merges into or with the
Company, or any subsidiary of the Company, in proportion to their stock holdings
of such person immediately prior to such merger, upon such merger, or (iv)
Common Stock issued to directors or employees of, or consultants to, the Company
upon the exercise of warrants, rights or options which (A) are issued pursuant
to stock option plans, employee benefit plans, employment agreements or
consulting agreements, in each case approved by the Company's Board of Directors
or an appropriate committee of the Company's Board of Directors, and (B) have an
exercise price not less than 70% of the Market Price of the Company's Common
Stock at the time of issuance of such warrant, right or option.
(d) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE. If at any time
after April 15, 1998, the Company issues for consideration any securities
convertible into or exchangeable or exercisable for Common Stock (other than
securities issued in transactions described in subsection 6(a) above) for
consideration per share of Common Stock initially deliverable upon conversion,
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exchange or exercise of such securities less than the Exercise Price per share
on the date of issuance of such securities, the Exercise Price shall be adjusted
in accordance with the following formula:
O + P/E
E' = E x -------
O + D
where: E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
D = the maximum number of shares deliverable upon
conversion, exchange or exercise of such securities at
the initial conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such issuance is
made, and shall become effective immediately after such issuance. If all of the
Common Stock deliverable upon conversion, exchange or exercise of such
securities has not been issued when such securities are no longer outstanding,
then the Exercise Price shall promptly be readjusted to the Exercise Price which
would then be in effect had the adjustment upon the issuance of such securities
been made on the basis of the actual number of shares of Common Stock issued
upon conversion, exchange or exercise of such securities.
This subsection (d) does not apply to (i) any of the transactions
described in subsections (b) and (c) above, (ii) securities convertible into or
exchangeable or exercisable for Common Stock issued to shareholders of any
non-affiliated person which merges into or with the Company, or any subsidiary
of the Company, in proportion to their stock holdings of such person immediately
prior to such merger, upon such merger, or (iii) warrants, rights or options
which (A) are issued pursuant to stock option plans, employee benefit plans,
employment agreements or consulting agreements, in each case approved by the
Company's Board of Directors or an appropriate committee of the Company's Board
of Directors, and (B) have an exercise price of not less than 70% of the Market
Price of the Company's Common Stock at the time of issuance of such warrants,
right, warrant or option.
(e) DEFERRAL OF ISSUANCE OR PAYMENT. In any case in which an event covered by
this Section 6 shall require that an adjustment in the Exercise Price be made
effective as of a record date, the Company may elect to defer until the actual
occurrence of such event (i) issuing to the Holder, if this Warrant is exercised
after such record date, the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the shares of
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Common Stock or other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment,
and (ii) paying to the Holder by check any amount in lieu of the issuance of
fractional shares pursuant to Section 3.
(f) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made
for a change in the par value of the Common Stock.
(g) MARKET PRICE. The "Market Price" per share of Common Stock on
any date is the average of the Quoted Prices of the Common Stock for the 30
consecutive trading days commencing 45 trading days before the date in question.
The "Quoted Price" of the Common Stock is the average of the last reported bid
and ask price of the Common Stock as reported by Nasdaq, or the primary national
securities exchange on which the Common Stock is then quoted; PROVIDED, HOWEVER,
that if quotes for the Common Stock are not reported by Nasdaq and the Common
Stock is neither traded on the Nasdaq National Market, on a national securities
exchange, on the Nasdaq Small Cap Market nor on the OTC Electronic Bulletin
Board, the price referred to above shall be the price reflected in the
over-the-counter market as reported by the National Quotation Bureau, Inc. or
any organization performing a similar function, and PROVIDED, FURTHER, that if
the Common Stock is not then publicly traded, the Market Price shall equal the
Conversion Price.
(h) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Shares
upon exercise or exchange of the Warrants.
(i) COMMON STOCK DEFINED. Whenever reference is made in Section 6(a)
to the issue of shares of Common Stock, the term "Common Stock" shall include
any equity securities of any class of the Company hereinafter authorized which
shall not be limited to a fixed sum or percentage in respect of the right of the
thereof to participate in dividends or distributions of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company.
Subject to the provisions of Section 8 hereof, however, shares issuable upon
exercise or exchange hereof shall include only shares of the class designated as
Common Stock of the Company as of the date hereof or shares of any class or
classes resulting from any reclassification or reclassifications thereof or as a
result of any corporate reorganization as provided for in Section 8 hereof.
Section 7. OFFICERS' CERTIFICATE. Whenever the Exercise Price shall
be adjusted as required by the provisions of Section 6, the Company shall
forthwith file in the custody of its secretary or an assistant secretary at its
principal office an officers' certificate showing the adjusted Exercise Price
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment and the manner of computing such adjustment. Each such
officers' certificate shall be signed by the chairman, president or chief
financial officer of the Company and by the secretary or any assistant secretary
of the Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 4 hereof.
Section 8. RECLASSIFICATION, REORGANIZATION, CONSOLIDATION OR
MERGER. In the event of any reclassification, capital reorganization or other
change of outstanding shares of
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Common Stock of the Company (other than a subdivision or combination of the
outstanding Common Stock and other than a change in the par value of the Common
Stock) or in the event of any consolidation or merger of the Company with or
into another corporation (other than a merger in which merger the Company is the
continuing corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise or exchange of this Warrant) or in the event of any
sale, lease, transfer or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety, the
Company shall use its best efforts to cause effective provisions to be made so
that the Holder shall have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that would have been received
upon exercise or exchange of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of stock and other securities and property that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 8 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
Section 9. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933;
REGISTRATION RIGHTS.
9.1 No sale, transfer, assignment, hypothecation or other
disposition of this Warrant or of the Warrant Shares shall be made unless any
such transfer, assignment or other disposition will comply with the rules and
statutes administered by the Securities and Exchange Commission and (i) a
Registration Statement under the Act including such Shares is currently in
effect, or (ii) in the written opinion of counsel, which counsel and which
opinion shall be reasonably satisfactory to the Company, a current registration
Statement is not required for such disposition of the shares. Each stock
certificate representing Warrant Shares issued upon exercise or exchange of this
Warrant shall bear a legend in substantially the following form (unless, in the
opinion of counsel, which counsel and which opinion shall be reasonably
satisfactory to the Company, such legend is not required):
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE
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ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
9.2 The Company agrees that during the term of this Warrant, the
Holder shall have the right, pursuant to the terms of the Registration Rights
Agreement among the Company and certain purchasers of the Company's Common
Stock, to require the Company to register the Warrant Shares under the
circumstances and in the manner set forth in the Registration Rights Agreement.
Section 10. MODIFICATION AND WAIVER. Except as otherwise provided
herein, any term of this Warrant may be amended, and the observance of any term
of this Warrant may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), with the written consent of the Company and the Holder of this
Warrant. Any amendment or waiver effected in accordance with this section shall
be binding upon each future Holder of this Warrant and the Company.
Section 11. NOTICES. All notices and other communications required
or permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company at the
address indicated therefor in the first paragraph of this Warrant and the Holder
at its address as shown on the books of the Company; PROVIDED, HOWEVER, that
presentation of a Purchase Form and payment of any Exercise Price shall be
effective only upon receipt by the Company.
Section 12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The titles of
the paragraphs and subparagraphs of this Warrant are for convenience of
reference only and are not to be considered in construing this Warrant. This
Warrant shall be governed by and construed under the laws of the Commonwealth of
Pennsylvania without regard to any otherwise applicable principles of conflicts
of laws.
Section 13. ENTIRE AGREEMENT. This Warrant and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and no party
shall be liable or bound to any other party in any manner by any
representations, warranties, covenants or agreements except as specifically set
forth herein or therein. Nothing in this Warrant, express or implied, is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Warrant, except as expressly provided
herein.
Section 14. SEVERABILITY. In the event that any provision of this
Warrant shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. To the extent permitted by law, the parties hereto
waive the benefit of any provision of law that renders any provision of this
Warrant invalid or unenforceable in any respect.
Section 14. NO WAIVER. No waiver by any party to this Warrant of any
one or
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more defaults by any other party or parties in the performance of any of the
provisions hereof shall operate or be construed as a waiver of any future
default or defaults, whether of a like or different nature. Except as expressly
provided herein, no failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed
by its duly authorized officer and to be dated as of this _____ day of October,
1999.
billserv.com, Inc.
By:_____________________________________________
NAME:
TITLE:
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PURCHASE FORM
Dated ______________,
The undersigned hereby irrevocably elects to exercise the within
Warrant to purchase ______ shares of Common Stock and hereby makes payment of
___________________ in payment of the exercise price thereof.
Signature___________________________
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ASSIGNMENT FORM
Dated_______________,
FOR VALUE RECEIVED,__________________hereby sells, assigns and
transfers unto _____________________________(the "Assignee"),
(please type or print in block letters)
(insert address)
its right to purchase up to _____ shares of Common Stock represented by this
Warrant and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the same on the books of
the Company, with full power of substitution in the premises.
Signature___________________________
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EXHIBIT 9
Consent of Independent Auditors
We consent to use of our report dated June 1, 1999 (except Note 7, as to which
the date is November 19, 1999) in the Registration Statement (Form SB-2) and
related Prospectus of billserv.com, Inc. dated November 22, 1999 for the
registration of 2,999,120 shares of its common stock.
ERNST & YOUNG LLP
San Antonio, Texas
December 27, 1999
