SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BILLSERV.COM, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
__________________________________________________________________
2. Aggregate number of securities to which transaction applies:
__________________________________________________________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which
the filing fee is calculated and state how it was determined)
__________________________________________________________________
4. Proposed maximum aggregate value of transaction:
__________________________________________________________________
5. Total fee paid:
__________________________________________________________________
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MICHAEL R. LONG
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
June 2, 2000
Dear billserv.com Stockholder:
I am pleased to invite you to billserv.com, Inc.'s Annual Meeting of
Stockholders. The meeting will be held at 10:00 a.m. on Thursday, July 13, 2000
at the Airport Hilton Hotel, 611 N.W. Loop 410, San Antonio, Texas 78216.
At the meeting, you and the other stockholders will be asked to (1) elect
two directors to the billserv.com Board of Directors; (2) approve an amendment
to the 1999 Employee Comprehensive Stock Plan; and (3) ratify the appointment of
Ernst & Young LLP as the Company's independent auditors for the current fiscal
year. You will also have the opportunity to hear what has happened in our
business in the past year and to ask questions. You will find other detailed
information about billserv.com and its operations, including its unaudited
financial statements, as of March 31, 2000, in the enclosed Proxy Statement.
We hope you can join us on July 13. Whether or not you can attend, please
read the enclosed Proxy Statement. When you have done so, please MARK your votes
on the enclosed proxy, SIGN AND DATE THE PROXY, and RETURN it to us in the
enclosed envelope. Your vote is important, so please return your proxy promptly.
Thank you for your investment in our company. We look forward to seeing you
at the meeting.
Yours truly,
Michael R. Long
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14607 SAN PEDRO AVE., SUITE 100
SAN ANTONIO, TEXAS 78232
June 2, 2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 13, 2000
billserv.com, Inc. will hold its Annual Meeting of Stockholders at the
Airport Hilton Hotel, 611 N.W. Loop 410, San Antonio, Texas 78216 on Thursday,
July 13, 2000 at 10:00 a.m.
We are holding this meeting:
o To elect two Class II directors to serve until the 2003 Annual Meeting
of Stockholders;
o To approve an amendment to the 1999 Employee Comprehensive Stock Plan of
billserv.com, Inc.;
o To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the year ending December 31, 2000; and
o To transact any other business that properly comes before the meeting.
Your Board of Directors has selected MAY 25, 2000 as the record date for
determining stockholders entitled to vote at the meeting. A list of stockholders
on that date will be available for inspection at billserv.com, Inc., 14607 San
Pedro Ave., Suite 100, San Antonio, Texas 78232, for ten days before the
meeting.
This Notice of Annual Meeting, Proxy Statement and proxy card are being
distributed on or about June 2, 2000.
By Order of the Board of Directors,
Marshall Millard
SENIOR VICE-PRESIDENT AND GENERAL COUNSEL
SECRETARY
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BILLSERV.COM, INC.
PROXY STATEMENT
FOR MEETING TO BE HELD
JULY 13, 2000
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TABLE OF CONTENTS
PAGE
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GENERAL INFORMATION.................. 7
ITEM 1. ELECTION OF DIRECTORS....... 9
Nominees for Election to a Three
Year Term Ending with the 2003
Annual Meeting................. 9
Directors Continuing in Office
Until the 2001 Annual Meeting
of Stockholders................ 10
Directors Continuing in Office
Until the 2002 Annual Meeting
of Stockholders................ 11
Compensation of Directors....... 11
Committees of the Board of
Directors; Meetings............ 12
STOCK OWNERSHIP...................... 13
Beneficial Ownership of Certain
Stockholders, Directors and
Executive Officers............. 13
Section 16(a) Beneficial
Ownership Reporting
Compliance..................... 14
MANAGEMENT........................... 14
Executive Officers.............. 14
BOARD REPORT ON EXECUTIVE
COMPENSATION........................ 15
Compensation Policy............. 15
Compensation of Executive
Officers....................... 15
Employment Contracts and Change
in Control Arrangements........ 17
Compensation Committee
Interlocks and Insider
Participation.................. 17
1999 Company Performance........ 18
Results of Operation From
Inception through year ended
December 31, 1999.............. 18
Results of Operation From
January 1, 2000 to March 31,
2000........................... 19
ITEM 2. APPROVAL OF AMENDMENT TO THE
1999 EMPLOYEE COMPREHENSIVE STOCK
PLAN............................... 22
General......................... 22
Terms and Conditions............ 22
Termination of Comprehensive
Plan........................... 23
Restricted Stock................ 24
Federal Income Tax
Consequences................... 24
ITEM 3. RATIFICATION OF ERNST &
YOUNG LLP AS INDEPENDENT
AUDITORS........................... 25
ANNUAL MEETING ADVANCE NOTICE
REQUIREMENTS........................ 25
RELATIONSHIP WITH INDEPENDENT PUBLIC
ACCOUNTANTS........................ 26
FINANCIAL STATEMENTS................. 26
OTHER MATTERS........................ 26
SOLICITATION......................... 26
ATTACHMENTS.......................... A-1
ANNEX A AMENDMENT TO 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN
ANNEX B BILLSERV.COM AUDIT COMMITTEE CHARTER
ANNEX C FORM 10-Q AS OF MARCH 31, 2000
Shareholders may receive a copy of any report filed by the Company with the
Securities and Exchange Commission by sending a written request to:
Mr. Marshall Millard
Secretary of billserv.com, Inc.
14607 San Pedro, Suite 100
San Antonio, TX 78232
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GENERAL INFORMATION
Q: WHO IS SOLICITING MY PROXY?
A: We, the Board of Directors of billserv.com, are sending you this Proxy
Statement in connection with our solicitation of proxies for use at
billserv.com, Inc.'s 2000 Annual Meeting of Stockholders. Certain directors,
officers and employees of billserv.com also may solicit proxies on our behalf by
mail, phone, fax or in person.
Q: WHO IS PAYING FOR THIS SOLICITATION?
A: billserv.com will pay for the solicitation of proxies. billserv.com
will also reimburse banks, brokers, custodians, nominees and fiduciaries for
their reasonable charges and expenses in forwarding our proxy materials to the
beneficial owners of billserv.com common stock.
Q: WHAT AM I VOTING ON?
A: Three items: (1) the election of Louis Hoch and Roger Hemminghaus to the
Board of Directors; (2) the approval of an amendment to the 1999 Employee
Comprehensive Stock Plan increasing the number of shares available under that
Plan to 3,000,000; (3) the ratification of ERNST & YOUNG LLP as the Company's
independent auditors for the current fiscal year.
Q: WHO CAN VOTE?
A: Only those who owned common stock at the close of business on MAY 25,
2000, the record date for the Annual Meeting, can vote. If you owned common
stock on the record date, you have one vote per share for each matter presented
at the Annual Meeting.
Q: HOW DO I VOTE?
A: You may vote your shares either in person or by proxy. To vote by proxy,
you should mark, date, sign and mail the enclosed proxy in the enclosed prepaid
envelope. Giving a proxy will not affect your right to vote your shares if you
attend the Annual Meeting and want to vote in person by voting you automatically
revoke your proxy. You also may revoke your proxy at any time before the voting
by giving the Secretary of billserv.com written notice of your revocation or by
submitting a later-dated proxy. If you execute, date and return your proxy but
do not mark your voting preference, the individuals named as proxies will vote
your shares FOR the election of both nominees for director; FOR the approval of
the amendment to the 1999 Employee Comprehensive Stock Plan; and FOR
ratification of ERNST & YOUNG LLP as the Company's independent auditors.
Q: WHAT CONSTITUTES A QUORUM?
A: Voting can take place at the Annual Meeting only if stockholders owning
a majority of the voting power of the common stock (that is a majority of the
total number of votes entitled to be cast) are present in person or represented
by effective proxies. Both abstentions and broker non-votes (situations in which
a broker holding your shares in 'street' or 'nominee' name indicates to us on a
proxy that you have not voted and it lacks discretionary authority to vote your
shares) are counted as present for purposes of establishing the quorum necessary
for the meeting to proceed.
Q: WHAT VOTE OF THE STOCKHOLDERS WILL RESULT IN THE MATTERS BEING PASSED?
A: ELECTION OF DIRECTORS. Directors need the affirmative vote of holders of
a plurality of the voting power present to be elected. At this year's meeting,
the two nominees receiving the greatest number of votes will be deemed to have
received a plurality of the voting power present. Neither abstentions nor broker
non-votes will have any effect on the election of directors.
APPROVAL OF THE AMENDMENT TO THE 1999 EMPLOYEE COMPREHENSIVE STOCK PLAN. To
approve the amendment to the 1999 Employee Comprehensive Stock Plan,
stockholders holding a majority of the shares represented in person or by proxy
at the meeting must affirmatively vote to approve the matter. In this case,
abstentions have the same effect as a vote 'against' the proposal, while broker
non-votes have no effect at all.
RATIFICATION OF ERNST & YOUNG LLP. Like the vote required to approve the
Plan Amendment, as described above, stockholders holding a majority of the
shares represented in person or by proxy at the upcoming Annual Meeting must
affirmatively vote to ratify ERNST & YOUNG LLP as the Company's independent
auditors for the current fiscal year. Abstentions continue to have the same
effect as votes 'against' the proposal and broker non-votes continue to have no
effect at all.
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Q: HOW DOES THE BOARD RECOMMEND THAT WE VOTE ON THE MATTERS PROPOSED?
A: The Board of Directors of billserv.com, Inc. unanimously recommends
that stockholders vote FOR each of the proposals submitted at the upcoming
Annual Meeting.
Q: WILL THERE BE OTHER MATTERS PROPOSED AT THE 2000 ANNUAL MEETING?
A: billserv.com, Inc.'s Bylaws limit the matters presented at the upcoming
Annual Meeting to those in the notice of the meeting, those otherwise properly
presented by the Board of Directors and those presented by stockholders so long
as the stockholder gives the Secretary written notice of the matter on or before
July 1, 2000. We do not expect any other matter to come before the meeting. If
any other matter is presented at the Annual Meeting, your signed proxy gives the
individuals named as proxies authority to vote your shares in their discretion.
Q: WHEN ARE 2001 STOCKHOLDER PROPOSALS DUE IF THEY ARE TO BE INCLUDED IN
THE COMPANY'S PROXY MATERIALS?
A: To be considered for presentation at billserv.com, Inc.'s 2001 Annual
Meeting of Stockholders and included in the Company's proxy statement, a
stockholder proposal must be received at billserv.com, Inc.'s offices no later
than December 31, 2000. To curtail controversy as to the date on which a
proposal was received by the Company, we suggest that proponents submit their
proposals by certified mail, return receipt requested.
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ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors of billserv.com has currently set the number of
directors constituting the whole board at five. As established by the Company's
Bylaws, these directors are divided into three classes serving staggered
three-year terms. At the upcoming Annual Meeting, you and the other stockholders
will elect two individuals to serve as Class II directors whose term expires at
the 2003 Annual Meeting. Mr. Hoch and Mr. Hemminghaus are nominees and are
currently members of the Board of Directors.
The individuals named as proxies will vote the enclosed proxy for the
election of both nominees unless you direct them to withhold your votes. If
either nominee becomes unable to serve as a director before the meeting (or
decides not to serve), the individuals named as proxies may vote for a
substitute or we may reduce the number of members of the Board. We recommend a
vote FOR both nominees.
Below are the names and ages of the nominees for Class II director, the
Class III and Class I directors, the years they became directors, their
principal occupations or employment for at least the past five years and certain
of their other directorships, if any.
NOMINEES FOR ELECTION TO A THREE-YEAR TERM ENDING WITH THE 2003 ANNUAL MEETING
CLASS II DIRECTORS
<TABLE>
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o Louis A. Hoch............... Age 34, a director since 1998.
Mr. Hoch joined the Company as President and
Chief Operating Officer in November 1998.
Mr. Hoch's background has been primarily in the
telecommunications industry in which he has over
10 years of experience. From April to November
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 U.S. Long Distance Inc. and its
spin-off company, 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).
Mr. Hoch is a cofounder of billserv.com.
o Roger R. Hemminghaus........ Age 63, a director since April 1999.
Mr. Hemminghaus has served as chief executive or
director of various public companies throughout
his career. Mr. Hemminghaus currently serves as
Chairman of the Federal Reserve Bank of Dallas.
He also serves as a director for Luby's
Cafeterias, Inc., New Centuries Energies, Inc.,
CTS Corporation and The Nature
</TABLE>
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<TABLE>
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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 nonprofit boards in Texas.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS
CLASS III DIRECTORS
o Michael R. Long............. Age 55, a director since 1998.
Mr. Long became Chairman and Chief Executive
Officer of the Company as of November 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 Inc., 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 November 1998. Andersen Consulting is a
worldwide consulting firm and affiliate of Arthur
Andersen accounting firm. He is a cofounder of
billserv.com and our Chairman of the Board and
Chief Executive Officer.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING OF STOCKHOLDERS
CLASS I DIRECTORS
o David S. Jones.............. Age 26, a director since 1998.
While employed at Billing Concepts, Inc., from
1997-98, Mr. Jones was responsible for defining
strategic direction involving Internet
technology. In 1998, Mr. Jones left Billing
Concepts, Inc. and cofounded billserv.com, Inc.
As Executive Vice-President of billserv.com,
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.
o E. Scott Crist.............. Age 36, a director since 1999.
Mr. Crist is the President and Chief Executive
Officer of Telescape International, one of the
world's fastest growing multinational carriers of
voice, video and data services. Prior to joining
Telescape, Mr. Crist was a founder of Orion
Communications, a long distance company, where he
served as President. He also previously served as
President
</TABLE>
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<TABLE>
<S> <C>
and Chief Executive Officer of Matrix Telecom.
Mr. Crist was named Entrepreneur of the Year by
CNN/ NASDAQ/Ernst & Young in 1999. He is a
director of several early-stage technology
companies including SalvageSale.com,
LinuxAlianza, Realuse.com and Bynari.
</TABLE>
COMPENSATION OF DIRECTORS
In 1999, billserv.com provided $1,000 in compensation to directors and
reimbursed its directors for reasonable expenses incurred in traveling to and
from board meetings (or a committee thereof). The Company has adopted, and the
stockholders have approved, the 1999 Non-Employee Director Plan which authorizes
the discretionary issuance of up to 500,000 shares of common stock to the
non-employee directors of billserv.com.
Upon joining the Board of Directors, both Mr. Crist and Mr. Hemminghaus
were issued options to purchase shares of the Company's common stock. On January
4, 1999, Mr. Crist was issued options for 40,000 shares at an exercise price of
$2.81 per share. Mr. Hemminghaus was issued options to purchase 80,000 shares at
an exercise price of $5.18 on April 6, 1999. On April 17, 2000, Mr. Crist and
Mr. Hemminghaus were each issued additional options to purchase 35,000 shares of
common stock, at an exercise price of $11.25 per share.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
billserv.com has the following two standing committees:
THE AUDIT COMMITTEE
o Meets periodically with billserv.com, Inc.'s independent auditors to
review the general scope of audit coverage, including consideration of
the Company's accounting practices and procedures, its system of
internal accounting controls and financial reporting.
o Makes recommendations to the Board of Directors with respect to
appointment of the Committee's independent auditors.
The Audit Committee was established in April of 1999 and met one (1) time
during the 1999 fiscal year. The current members of this committee are Mr.
Crist and Mr. Hemminghaus.
The Board of Directors has approved an Audit Committee Charter which
outlines the responsibilities of the Audit Committee and the appropriate
procedures necessary to meet those responsibilities. A copy of the Audit
Committee Charter is attached to this Proxy Statement as Annex B.
COMPENSATION COMMITTEE
o Recommends to the Board of Directors annual salaries for senior
management.
o Recommends to the Board of Directors the administration and grant of
incentive awards.
On April 6, 1999, the Board of Directors created the Compensation
Committee. The initial members of this Committee were Mr. Crist and Mr.
Long. In October of 1999, Mr. Hemminghaus replaced Mr. Long on this
Committee. During 1999, the Compensation Committee had no formal meetings.
ENTIRE BOARD
o During the year ended December 31, 1999, the entire Board of Directors
of billserv.com met five (5) times for regular and special meetings.
During this period, each director attended all meetings of the Board of
Directors and any committee on which he served.
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STOCK OWNERSHIP
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000 by:
o each of our named executive officers and directors;
o all of our executive officers and directors as a group; and
o each person, or group of affiliated persons, known to us to own
beneficially more than 5% of our common stock.
In accordance with the rules of the SEC, the table gives effect to the shares of
common stock that could be issued upon the exercise of outstanding options and
common stock purchase warrants within 60 days of March 31, 2000. Unless
otherwise noted in the footnotes to the table and subject to community property
laws where applicable, the following individuals have sole voting and investment
control with respect to the shares beneficially owned by them. The address of
each executive officer and director is c/o billserv.com, Inc., 14607 San Pedro,
Suite 100, San Antonio, Texas 78232.
SHARES
BENEFICIALLY OWNED (1)
----------------------------
NAME NUMBER PERCENTAGE
---- ------ ----------
RS Investment Mgmt. Co. (2).......... 1,917,998 16.4%
Michael R. Long (3).................. 1,216,667 8.5%
Louis A. Hoch (3).................... 1,224,668 8.6%
David S. Jones (3)................... 1,216,667 8.5%
Lori A. Turner (4)................... 113,334 0.8%
Marshall N. Millard (4).............. 163,334 1.1%
All officers and directors as a
group, eleven (11) persons,
including the executive officers
and directors listed above (5)..... 4,204,018 29.4%
------------
(1) Based on a total of 14,301,140 shares issued and outstanding as of March
31, 2000.
(2) As of January 31, 2000; includes the following additional investors: RS
Investment Management, L.P.; RS Growth Group, LLC; RS Diversified Growth
Fund; and RS Paisley Pacific Fund, L.P.
(3) Includes 33,334 shares issuable upon the exercise of options to purchase
common stock.
(4) Includes 13,334 shares issuable upon the exercise of options to purchase
common stock.
(5) Includes 193,338 shares issuable upon the exercise of options to purchase
common stock.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 5% of billserv.com, Inc.'s common stock must report
their initial ownership of the common stock, and any changes in that ownership,
to the Securities and Exchange Commission. The Securities and Exchange
Commission has designated specific due dates for these reports. Based solely on
its review of copies of the reports filed with the Securities and Exchange
Commission and written representations of its directors and executive officers,
billserv.com believes all persons subject to reporting timely filed the required
reports in 1999.
MANAGEMENT
EXECUTIVE OFFICERS
Below are the names and ages of the Executive Officers of billserv.com and
a brief description of their prior experience and qualifications.
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o Michael R. Long See biography of Mr. Long under Item
1 above.
o Louis A. Hoch See biography of Mr. Hoch under Item
1 above.
o David S. Jones See biography of Mr. Jones under Item
1 above.
o Terri A. Hunter Age 37, Sr. Vice-President, Treasurer
and Chief Financial Officer
Ms. Hunter joined the Company in
April 2000. She brings over fifteen
(15) years of analytical and
management experience in finance,
accounting, and investor relations
for public companies. Most recently,
from October 1999 to May 2000,
Ms. Hunter was Vice-President,
Finance and Investor Relations for
Clear Channel Communications, Inc., a
global leader in the out-of-home
advertising industry with radio,
television, and outdoor displays in
37 countries around the world.
Ms. Hunter was also employed with
U.S. Long Distance, Inc. and its
spin-off company, Billing Concepts,
Inc., from February 1993 to October
1999, where she lead their financial
planning and analysis functions, as
well as investor relations. In
addition, Ms. Hunter has held various
finance and accounting roles with
Electronic Data Systems, and
Cullen/Frost Bankers, since her
graduation in May 1985 from the
University of Texas at Austin. She
also serves on the Board of the San
Antonio, National Investor Relations
Institute.
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o Marshall N. Millard Age 38, Sr. Vice-President, Secretary
and General Counsel
Mr. Millard joined the Company in
November 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,
other business contracts, and also
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 1988, 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 Inc. (now owned by Qwest
Communications International),
1993-1996; and Billing Concepts,
1996-1998.
</TABLE>
BOARD REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICY
Compensation decisions for the executive officers of billserv.com for
compensation paid during the year ended December 31, 1999, were generally made
by the members of the Board of Directors.
The Company's goal is to attract, retain and reward a highly competent and
productive employee group. To do so, the Board of Directors has determined that
it is in the best interest of the Company to provide a total compensation
package that competes favorably with those offered within the electronic
commerce industry, general industry and the geographic areas in which
billserv.com operates. The Company's current compensation package includes a mix
of base salary, short-term and long-term incentive opportunities and other
employee benefits. Changes in compensation are based on the individual's
performance, the Company's financial performance and the competitive
marketplace. The Board considered the median level of the market as competitive.
BASE SALARY. The base salary policy provides for compensation at
competitive levels. Increases in executive base salary are awarded for
individual performance based on the executive's performance plan. These
performance plans contain specific measures, both quantitative and qualitative,
related to financial achievements of the Company. Increases generally reflect
established merit increase guidelines applicable to all salaried employees.
OPTION PLANS. In addition to the foregoing, directors, officers and
employees of billserv.com, Inc. may be compensated through awards under the
Company's Stock Plans.
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COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth summary information as
to compensation received by the Chief Executive Officer and each of the four
other most highly compensated persons who were serving as executive officers as
of December 31, 1999 (collectively, the 'named executive officers'), for
services rendered to billserv.com in all capacities during fiscal years ended
1999 and 1998:
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<CAPTION>
LONG-TERM COMPENSATION AWARDS
ANNUAL ------------------------------------------------
COMPENSATION RESTRICTED SECURITIES
NAME & PRINCIPAL ----------------------- STOCK UNDERLYING ALL
(1) POSITION FISCAL YEAR SALARY AWARDS(2) OPTIONS (#) OTHER COMPENSATION
---------------- ----------- -------- ---------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Michael R. Long...................... 1999 $140,000 - 100,000 -
Chairman and CEO 1998 $ 14,835 1,183,333 - -
Louis A. Hoch........................ 1999 $134,615 - 100,000 -
President and COO 1998 $ 11,868 1,183,334 - -
David S. Jones....................... 1999 $115,615 - 100,000 -
Executive Vice-President 1998 $ 14,840 1,183,333 - -
Lori A. Turner....................... 1999 $ 96,154 - 40,000 -
Treasurer, Vice-President 1998 - 100,000 -
and CFO
Marshall Millard..................... 1999 $ 94,000 - 40,000 -
Secretary, Sr. Vice- 1998 $ 7,318 150,000 - -
President, and General
Counsel
</TABLE>
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(1) Each of the named executives has entered into employment agreements
carrying three (3)-year terms providing an annual salary and bonuses at
the discretion of the Board of Directors, as well as health benefits. In
2000, each of the named officers is to receive compensation as follows:
Mr. Long, $190,000; Mr. Hoch, $175,000; Mr. Jones, $160,000; and Mr.
Millard, $120,000. On April 17, 2000, each of the named officers was
granted additional options to purchase shares of common stock, at an
exercise price of $11.25 per share, as follows: Mr. Long, 15,000; Mr.
Hoch, 15,000; Mr. Jones, 15,000; and Mr. Millard, 30,000. Also on April
17, 2000, Ms. Terri A. Hunter joined the Company as Treasurer, Sr.
Vice-President and Chief Financial Officer. She succeeded Ms. Turner in
this position. Her annual salary is $120,000; she also was granted options
to purchase 50,000 shares of common stock at the price of $11.25 per
share.
(2) This table reflects only common stock ownership granted in connection with
the executive's employment arrangement.
The following table provides information regarding the grant of stock
options during fiscal year 1999 to the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
NUMBER % OF TOTAL RATES OF STOCK
OF OPTIONS EXERCISE PRICE APPRECIATION
SECURITIES GRANTED TO OR FOR
UNDERLYING EMPLOYEES BASE OPTION TERM(1)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------
NAME GRANTED 1999 ($/SHARE) DATE 5%($) 10%($)
---- ----------- ----------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael R. Long...................... 100,000 11% $2.81 01/03/09 $176,845 $448,160
Louis A. Hoch........................ 100,000 11% $2.81 01/03/09 $176,845 $448,160
David S. Jones....................... 100,000 11% $2.81 01/03/09 $176,845 $448,160
Lori Turner.......................... 40,000 4% $2.81 01/03/09 $ 70,738 $179,264
Marshall Millard..................... 40,000 4% $2.81 01/03/09 $ 70,738 $179,264
</TABLE>
------------
(1) The potential realizable value is calculated based on the term of the
option and is calculated by assuming that the fair market value of common
stock on the date of the grant as determined by the Board appreciates at
the indicated annual rate compounded annually for the entire term of the
option and that the option is exercised and the common stock received
therefore is sold on the last day of the
13
<PAGE>
term of the option for the appreciated price. The 5% and 10% rates of
appreciation are derived from the rules of the SEC and do not reflect our
estimate of future stock price appreciation. The actual value realized may
be greater or less than the potential realizable values set forth in the
table.
On April 17, 2000, each of the named officers was granted additional
options to purchase shares of common stock, at an exercise price of $11.25 per
share, as follows: Mr. Long, 15,000; Mr. Hoch, 15,000; Mr. Jones, 15,000; and
Mr. Millard, 30,000. Also on April 17, 2000, Ms. Terri A. Hunter joined the
Company as Treasurer, Sr. Vice-President and Chief Financial Officer. She
succeeded Ms. Turner in this position. Her annual salary is $120,000; she also
was granted options to purchase 50,000 shares of common stock at the price of
$11.25 per share.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
billserv.com has entered into, or intends to enter into, an employment
contract with each of its executive officers. 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. In 2000, each of the named officers are
to receive 2000 salary compensation as follows: Mr. Long, $190,000; Mr. Hoch,
$175,000; Mr. Jones, $160,000; and Mr. Millard, $120,000. On April 17, 2000,
each of the named officers was granted additional options to purchase shares of
common stock, at an exercise price of $11.25 per share, as follows: Mr. Long,
15,000; Mr. Hoch, 15,000; Mr. Jones, 15,000; and Mr. Millard, 30,000. Also on
April 17, 2000, Ms. Terri A. Hunter joined the Company as Treasurer, Sr.
Vice-President and Chief Financial Officer. She succeeded Ms. Turner in this
position. Her annual salary is $120,000; she also was granted options to
purchase 50,000 shares of common stock at the price of $11.25 per share.
Ms. Turner will receive an annual salary of $100,000 through December 31, 2000,
in consideration of continued service to the Company through that date.
The Company's agreements with its various executive officers provide for
change in control protection for the employee, as the employee may terminate the
agreement within six (6) months of any 'change in control' and be entitled to
all earned, deferred compensation. 'Deferred Compensation' is calculated as the
greater of (A) the Base Salary payments the employee would have received had his
employment continued for the remaining term of the agreement (including yearly
increases calculated at the maximum increase for the prior two years); or (B) an
amount equal to 150% of the higher annual compensation earned by the employee in
the past two years (including both Base Salary and bonus compensation). In
addition, the employee is entitled to all of the benefits and personal
perquisites otherwise provided in the agreement (such as automobile expenses)
during a certain period of time defined in the agreement as the greater of the
remaining term of the agreement, or one year. The employee may also be entitled
to an amount equal to the pro rata portion of the bonus compensation for the
year in which the executive's employment is terminated determined on the basis
of the number of days elapsed in such year prior to such termination. Upon
termination of employment, each employee is prohibited from competing with
billserv.com for two (2) years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 6, 1999, billserv.com did not have a Compensation Committee
or other committee of the Board of Directors performing similar functions. Prior
to this time, decisions concerning compensation of the executive officers were
generally made by the members of the Board of Directors. Currently, the
Compensation Committee consists of Mr. Crist and Mr. Hemminghaus.
14
<PAGE>
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
billserv.com, Inc.................... 100.0 243.7 157.9 173.7 282.0
Nasdaq (U.S.)........................ 100.0 112.2 122.5 125.2 185.5
Nasdaq COMPUTER...................... 100.0 115.1 122.2 132.5 204.2
</TABLE>
15
<PAGE>
1999 COMPANY PERFORMANCE
RESULTS OF OPERATIONS FROM INCEPTION THROUGH YEAR ENDED DECEMBER 31, 1999
Our activities for the year ended December 31, 1999 resulted in a net
operating loss of $5,472,948 as compared to $289,770 from inception on June 4,
1998 through December 31, 1998. No significant or material operations occurred
prior to November 1998; thus, for comparison purposes, the 1998 and 1999 periods
are not comparable.
We generated our first revenues totaling $55,438 during the fourth quarter
of 1999, comprised principally of design and implementation fees related to our
EBPP solution. While small in size, or less than 1% of total revenue, included
in fourth-quarter revenue are transaction fees for the first electronic bills
presented for live customers. We anticipate that we will continue to generate
revenues related to design and implementation fees which will be recognized over
the term of the service contract. However, we expect fees earned from EBPP
transactions to become a more significant portion of our revenues in future
periods as the consumer adoption rate increases. No revenues were generated
during the 1998 period.
We did not incur any cost of sales until the fourth quarter of 1999 when we
began production efforts for our customers. Cost of sales totaled $127,345 for
this period. Our cost of sales included the cost of technical and support
personnel who design specific EBPP components for customers, process data and
perform customer care. Cost of sales also included fees paid to third parties or
payment processors for the presentation of electronic bills on web sites owned
by those parties and payment processors.
We began research and development efforts in 1999, and accordingly, we
reported no research and development expenses for the 1998 period. Such expenses
totaled $906,532 for the year ended December 31, 1999. Research and development
efforts included the development of our bill presentment technology, the design
and construction of our infrastructure and operating systems and the development
of customer care tools. We will continue to devote significant resources to
research and development, particularly for the development and expansion of our
infrastructure and operating systems in anticipation of revenue growth. Our
research and development efforts will also be targeted toward maintaining
quality service, opportunities to enhance efficiency and augmenting our customer
care capabilities.
Selling expenses totaled $1,750,615 in 1999 and $88,298 in 1998. Selling
expenses in 1999 consisted primarily of payroll and related expenses for
personnel engaged in marketing and selling activities. Selling expense also
included advertising services under an agreement with a consulting group located
in Vancouver, Canada. These services totaled approximately $400,000 and $50,000
for the 1999 and 1998 periods, respectively. Selling expenses in 1998 were
limited to advertising and printing efforts led by the consulting group. We
built our sales and marketing teams during 1999, opening sales offices in
Arizona, California, Colorado, Massachusetts, New Jersey, North Carolina,
Pennsylvania, and Texas. Our marketing team was formed in mid-1999 and has
developed an aggressive marketing campaign that includes advertising in trade
and consumer publications, promotional activities and aggressive trade show
attendance. We anticipate that selling expenses will increase in dollar value
and as a percentage of total costs as we execute our plans and increase our
advertising and promotion efforts.
General and administrative expenses totaled $2,343,890 for the year ended
December 31, 1999, and $200,913 for the 1998 period. These 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. Financial and investor relations services provided
under a consulting agreement totaled $650,000 and $100,000 in the 1999 and 1998
periods, respectively. The consulting agreement expired on October 31, 1999.
Additionally, we paid a consulting group approximately $41,000 for services
rendered during November and December, the transition period in which all
investor relations functions were no longer outsourced. We expect general and
administrative expenses to increase as we expand our staff and incur additional
costs related to the growth of our business.
RESULTS OF OPERATION FROM JANUARY 1, 2000 TO MARCH 31, 2000
Our activities for the quarter ended March 31, 2000, resulted in a net loss
of $2,071,213, or $.16 per share, as compared to $800,860, or $.08 per share,
for the quarter ended March 31, 1999. We earned
16
<PAGE>
revenues totaling $6,426 during the first quarter of 2000. During the first
quarter of 1999, we were not yet in a production phase and therefore did not
generate any revenues.
Prior to December 31, 1999, we recognized revenue generated from up-front
fees upon completion of an implementation project. In December 1999, the SEC
issued SAB 101, which requires recognition of revenue generated from up-front
implementation fees over the term of the related service contract. We
voluntarily adopted SAB 101 on January 1, 2000, and accordingly, revised our
implementation fee revenue recognition policy. The cumulative effect of this
accounting change totals $52,272. This amount has been recognized as a non-cash
after tax charge during the first quarter of 2000. The cumulative effect has
been recorded as deferred revenue and will be recognized as revenue over the
remaining contractual service periods. We recognized the applicable portion of
this deferred revenue during the first quarter of 2000.
Although revenue from transaction fees increased as compared to the fourth
quarter of 1999, total transaction fee revenue remains an immaterial amount.
Consumer adoption rates remained low, less than a hundredth of a percent, during
the first quarter of 2000. Each of our customers who have completed the
implementation period have not yet begun consumer education and marketing
programs, and thus, we would not expect adoption rates to be significant at this
point. Transaction fees will become a significant dollar amount only when
consumer adoption rates approach double digits. While we cannot control these
adoption rates, we are working with our customers to promote EBPP to consumers.
Cost of sales for the first quarter in 2000 totaled $470,691. We were not
in live production for customers during the first quarter of 1999, and
accordingly, we incurred no cost of sales during that period. Cost of sales
includes the cost of technical and support personnel who design specific EBPP
components for customers, process data and perform customer care. Cost of sales
also 15 includes fees paid to third parties or payment processors for the
presentation of electronic bills on web sites owned by those parties and payment
processors.
Research and development expenses totaled $124,912 and $172,191 for the
quarters ending March 31, 2000 and 1999, respectively. During the first quarter
of 1999, our bill presentation systems were under development and accordingly,
all expenses related to our operating systems during that period are classified
as research and development. The 28% decrease in expense for the March 2000
quarter reflects the reallocation of resources to production efforts, which were
formerly devoted to research and development. All research and development costs
are expensed as incurred. These costs include the cost of personnel devoted to
development of new and enhanced solutions for bill presentment, payment,
customer care, and Internet direct marketing.
Selling expenses increased 170%, totaling $775,364 for the quarter ending
March 31, 2000, as compared to $287,172 for the 1999 quarter. The increase in
expenses is a result of the full-scale efforts of our marketing and sales teams
that were being developed during the 1999 quarter. As of March 31, 2000, we
employed nineteen sales and marketing personnel as compared to three such
personnel at March 31, 1999. Selling expenses include the cost of these
personnel, commissions, expenses for trade shows, advertising in trade
publications, sales collateral, and other selling and marketing expenses. We
will continue to expand our marketing and sales efforts, increasing the size of
our sales force and broadening our reach with even more marketing activities.
General and administrative expenses increased 72%, totaling $570,205 for
the quarter ending March 31, 2000, as compared to $331,507 for the 1999 quarter.
The increase in expenses is principally due to the increased compensation costs
and additional general and administrative personnel, as well as increased
travel, insurance and professional fee expenses.
Depreciation and amortization increased to $150,671 for the quarter ending
March 31, 2000, as compared to $12,694 for the 1999 quarter. The increase is due
to the growth in our infrastructure and operating systems. We have purchased
over $2.0 million of property and equipment from March 31, 1999 to March 31,
2000.
Net interest income increased to $65,277 for the quarter ending March 31,
2000, as compared to $2,704 for the 1999 quarter from interest earned from the
investment of the proceeds from our equity offerings in 1999 and the exercise of
warrants during the first quarter of 2000. We incurred interest expense on
capital leases during the 2000 quarter. We entered into these leases subsequent
to March 31, 1999.
17
<PAGE>
ITEM 2.
APPROVAL OF AMENDMENT TO THE 1999 EMPLOYEE COMPREHENSIVE
STOCK PLAN
GENERAL
On December 16, 1999, the stockholders approved the 1999 Employee
Comprehensive Stock Plan of billserv.com, Inc. (the 'Comprehensive Plan'or
'Plan'), a copy of which was attached to the Company's 1999 Proxy Statement. The
Board of Directors now proposes to increase the number of shares available under
the plan by 1.0 million for a total of 3.0 million, as described in the copy
attached as Annex A. The material features of the Comprehensive Plan are
discussed below, but the description is subject to and is qualified in its
entirety by the full text of the Comprehensive Plan.
The purpose of the Comprehensive Plan is to advance the interests of the
Company by providing additional incentives to attract and retain qualified and
competent officers and employees, upon whose efforts and judgment the success of
the Company (including its subsidiary) is largely dependent. In furtherance of
this purpose, the Comprehensive Plan authorizes the granting of nonqualified
stock options ('Comprehensive Options') to purchase common stock to such
officers and employees. In addition, the Comprehensive Plan authorizes the
issuance of restricted common stock ('Restricted Shares') to officers and
employees. Currently, a total of 2.0 million shares of common stock are reserved
for issuance upon the exercise of Comprehensive Options. However, the Board of
Directors proposes to amend the Comprehensive Plan to increase the number of
shares available to 3.0 million shares.
TERMS AND CONDITIONS
The Comprehensive Plan provides that the Company's Board of Directors shall
appoint a committee of two or more directors appointed to administer the
Comprehensive Plan (the 'Committee'). The Committee may, at any time during the
term of the Comprehensive Plan, grant any officer or employee an option
exercisable for such number of shares of common stock as it shall deem to be in
the best interest of billserv.com and which will serve to further the purposes
of the Comprehensive Plan. By Board resolution, the Board indicated its present
intent that no officer or employee receive, as his or her initial grant of
options under the Comprehensive Plan, an option exercisable for more than
250,000 shares of common stock during one fiscal year of the Company. Options
granted to the officers and employees under the Comprehensive Plan will vest
according to the vesting schedule provided in the applicable option agreement
executed between the Company and the employee.
Under the Comprehensive Plan, options must be granted at an exercise price
per share that is no less than the fair market value of the common stock at the
date of grant. The exercise price of an option may be paid in cash, certified or
cashier's check, money order, or by delivery of already owned shares of common
stock having a fair market value equal to the exercise price (to the extent such
shares have been owned by the optionee for at least six months and only if
permitted by the applicable option agreement), or by delivery of a combination
of such methods.
The options are not assignable or transferable other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic relations
order. During the lifetime of an optionee, the Comprehensive Option is
exercisable only by him, his guardian or legal representative.
The expiration date of each option shall be fixed by the Committee, but
such expiration date shall not exceed ten (10) years from the date of the grant.
TERMINATION OF COMPREHENSIVE PLAN
The Comprehensive Plan will automatically terminate on January 4, 2009, and
any option outstanding on such date will remain outstanding until it has either
expired or been exercised. The Board may terminate, amend or suspend the
Comprehensive Plan from time to time as the Board deems advisable.
18
<PAGE>
RESTRICTED STOCK
The Committee, in its sole discretion, may make awards of restricted stock
to selected participants, which awards shall be evidenced by an award agreement
that contains such terms and conditions, including vesting, as the Committee may
determine. As a condition to any award of restricted stock, the Committee may
require a participant to pay to the Company the amount (such as the par value of
such shares) required to be received by the Company in order to assure
compliance with applicable state law. Any award of restricted stock for which
such requirement is established shall automatically expire if not purchased in
accordance with the Committee's requirements within sixty (60) days after the
date of grant.
Subject to the terms and conditions of the respective award agreement, the
participant, as the owner of the common stock issued as restricted stock and any
retained distributions with respect thereto, shall have the rights of a
stockholder, including, but not limited to, voting rights as to such common
stock and the right to receive cash dividends or distributions thereon when, as
and if paid.
Within the limits set forth in the Comprehensive Plan, an award of
restricted stock may be subject to such vesting requirements as may be fixed by
the Committee. Vesting may be accelerated by a change of control. Vesting may
also be accelerated upon death, permanent disability or retirement.
Restricted stock and any retained distributions with respect thereto may
not be sold, assigned, transferred, pledged, or otherwise encumbered during the
restricted period, which shall be determined by the Committee and shall not be
less than one year nor more than two years from the date such restricted stock
was awarded. The Committee may, at any time, reduce the restricted period with
respect to any outstanding shares of restricted stock and any retained
distributions with respect thereto awarded under the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences summarized below are based upon current
tax laws and thus are subject to change. Moreover, this summary is not intended
to be a complete description of all federal, state and local tax consequences of
the Comprehensive Plan.
The Comprehensive Plan permits officers and employees to receive grants of
non-qualified stock options and qualified stock options. billserv.com has been
advised that under the Internal Revenue Code, an optionee will not recognize any
income for federal income tax purposes at the time a stock option is granted,
nor will the Company be entitled to a tax deduction at that time. At the time of
exercise, however, the optionee will recognize ordinary income in an amount
equal to the excess of the fair market value of the shares at the time of
exercise over the option price of such shares. billserv.com generally will be
entitled to a federal income tax deduction in an amount equal to the ordinary
income recognized by the optionee upon exercise of a stock option.
The Board of Directors believes that the Comprehensive Plan assists in
attracting and retaining qualified employees and officers and has the effect of
more significantly aligning the interests of the officers and directors with the
billserv.com stockholders. The Board of Directors believes that increasing the
number of shares under the Comprehensive Plan to 3.0 million will also increase
this effect.
We recommend a vote FOR the approval of the amendment to the 1999 Employee
Comprehensive Stock Plan of billserv.com, Inc.
ITEM 3.
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Board of Directors of the Company, upon recommendation of its Audit
Committee, has appointed ERNST & YOUNG LLP as independent auditors to examine
the Company's consolidated financial statements for the fiscal year ending
December 31, 2000 and to render other professional services as required.
19
<PAGE>
The Company is submitting the appointment of ERNST & YOUNG LLP to
stockholders to obtain your ratification. Representatives of ERNST & YOUNG LLP
will be present at the meeting, will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to questions.
We recommend a vote FOR the ratification of ERNST & YOUNG LLP as the
independent auditors for the current fiscal year.
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS
A stockholder may recommend a nominee to become a director of billserv.com
by giving the secretary of the Company (at the address set forth above) a
written notice setting forth certain information, including: (1) the name, age,
business and residence address of the person intended to be nominated, (2) a
representation that the nominating stockholder is in fact a holder of record of
billserv.com common stock entitled to vote at the meeting and that he or she
intends to be present at the meeting to nominate the person specified, (3) a
description of all arrangements between the nominating stockholder, the nominee
and other persons concerning the nomination, (4) any other information about the
nominee that must be disclosed in proxy solicitations under Rule 14(a) of the
Securities Exchange Act of 1934 and (5) the nominee's written consent to serve,
if elected. Such nominations must be made pursuant to the Company's advance
notice requirements for stockholder proposals.
The Company's 2001 annual meeting of stockholders is currently scheduled
for May, 2001. Copies of the Company's Bylaws are available upon written request
made to the secretary of billserv.com at the above address. The requirements
described above do not supersede the requirements or conditions established by
the Securities and Exchange Commission for stockholder proposals to be included
in billserv.com, Inc.'s proxy materials for a meeting of stockholders. The
Chairman of the meeting may refuse to bring before a meeting any business not
brought in compliance with applicable law and the Company's Bylaws.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP was engaged by the Board of Directors of the Company as
independent public accountants for the Company for 1999.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1999 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated herein by reference to
Company's 1999 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission which is being mailed to stockholders with this Proxy
Statement.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any business which will be presented for consideration
at the Annual Meeting other than that specified herein and in the Notice of
Annual Meeting of Stockholders, but if other matters are presented it is the
intention of the persons designated as proxies to vote in accordance with their
judgment on such matters.
SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. In addition to the solicitation of Proxies by the use of the mails,
certain officers and associates (who will receive no compensation therefor in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone and telegraph. In addition, banks, brokers and other
custodians, nominees and fiduciaries will be requested to forward copies of the
Proxy materials to their principals and to request authority for the execution
of Proxies. The Company will reimburse such persons for their expenses in so
doing.
20
<PAGE>
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1999, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS
SOLICITED BY THIS PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON
ADDRESSED TO MR. MARSHALL MILLARD, SECRETARY, BILLSERV.COM, INC., 14607 SAN
PEDRO, SUITE 100, SAN ANTONIO, TEXAS 78232. SUCH A REQUEST FROM A BENEFICIAL
OWNER OF THE COMPANY'S COMMON STOCK MUST CONTAIN A GOOD FAITH REPRESENTATION BY
SUCH PERSON THAT, AS OF MAY 25, 2000, HE WAS A BENEFICIAL OWNER OF THE COMPANY'S
COMMON STOCK.
Please SIGN and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors:
MARSHALL MILLARD
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
21
<PAGE>
ANNEX A
BILLSERV.COM INC.
1999 EMPLOYEE COMPREHENSIVE STOCK PLAN
(as amended by the Board of Directors on May 25, 2000)
1. PURPOSE. The purpose of this 1999 Employee Comprehensive Stock Plan
(the "Plan") is to further the success of billserv.com, a Nevada corporation
(the "Company"), and certain of its affiliates by making available Common Stock
of the Company to certain officers and employees of the Company and its
affiliates, and thus to provide an additional incentive to such individuals to
continue in the service of the Company or its affiliates and to give them a
greater interest as stockholders in the success of the Company. Subject to
compliance with the provisions of the Plan and the Code, Incentive Stock Options
as authorized by Section 422 of the Code and stock options which do not qualify
under Section 422 of the Code are authorized and may be granted under the Plan.
Further, the Company may grant Restricted Stock, as defined below.
2. DEFINITIONS. As used in this Plan the following terms shall have the
meanings indicated:
(a) "Award" means an award of stock options (including Incentive Stock
Options) or Restricted Stock, on a stand alone, combination or tandem basis, as
described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the
terms of an Award, in the form prescribed by the Committee.
(c) "Board" means the Board of Directors of the Company.
(d) "Cause" shall mean, in the context of the termination of a
Participant, as determined by the Board, in the reasonable exercise of its
business judgment the occurrence of one of the following events: (i) conviction
of or a plea of nolo contendere to a charge of a felony (which, through lapse of
time or otherwise, is not subject to appeal); (ii) willful refusal without
proper legal cause to perform, or gross negligence in performing, Participant"s
duties and responsibilities; (iii) material breach of fiduciary duty to the
Company through the misappropriation of Company funds or property or otherwise;
or (iv) the unauthorized absence of Participant from work (other than for sick
leave or disability) for a period of thirty working days or more during any
period of forty-five working days; provided, further, within one year following
a Change of Control, "Cause" shall be limited to the conviction of or a plea of
nolo contendere to the charge of a felony (which, through lapse of time or
otherwise, is not subject to an appeal), or a material breach of fiduciary duty
to the Company through the misappropriation of Company funds or property or
otherwise.
(e) "Change of Control" shall be deemed to have occurred if (i) any
"Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing more
than 40% of the combined voting power of the Company"s then outstanding voting
securities, or (ii) at any time during the 24-month period after a tender offer,
merger, consolidation, sale of assets or contested election, or any combination
of such transactions, at least a majority of the Board shall cease to consist of
"continuing directors" (meaning directors of the Company who either were
directors prior to such transaction or who subsequently became directors and
whose election, or nomination for election by the Company"s stockholders, was
approved by a vote of at least two thirds of the directors then still in office
who were directors prior to such transaction), or (iii) the stockholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 40% of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement of sale or disposition by the Company of all or
substantially all of the Company"s assets.
A-1
<PAGE>
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Committee administering the Plan described
in Section 3 hereof.
(h) "Common Stock" means the Company"s common stock, par value $.001
per share.
(i) "Continuous Status as an Employee" means that the employment
relationship with any one or more of (i) the Company, (ii) any Parent, (iii) any
Subsidiary has not been terminated or interrupted.
(j) "Date of Grant" means the date on which an Award is granted under
an Award Agreement executed by the Company and a Participant pursuant to the
Plan.
(k) "Disinterested Person" means a "disinterested person" as such term
is defined in Rule 16b-3 promulgated under the Exchange Act or any successor
provision.
(l) "Effective Date" means the effective date of this Plan specified
in Section 14 hereof.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as it
may be amended from time to time.
(n) "Good Reason" shall mean the occurrence of any of the following
events: (a) removal from the principal office held by the Participant on the
date of the most recent Award, or a material reduction in the Participant"s
authority or responsibility, including, without limitation, involuntary removal
from the Board, but not including termination of the Participant for Cause; or
(b) the Company otherwise commits a material breach of this Plan, or the
Participant"s employment agreement, if applicable; provided, however, that
within one year following a Change of Control, "Good Reason" shall mean (i)
removal from the principal office held by the Participant on the date of the
most recent Award, (ii) a material reduction in the Participant"s authority or
responsibility, including, without limitation, involuntary removal from the
Board, but not including termination of the Participant for cause; (iii)
relocation of the Company"s headquarters from the San Antonio, Texas
metropolitan area, (iv) a material reduction of participant"s compensation, or
(v) the Company otherwise commits a material breach of this plan, or the
Participant"s employment agreement, if applicable.
(o) "Incentive Stock Option" means an option qualifying under Section
422 of the Code.
(p) "Parent" means a parent corporation of the Company as defined in
Section 424(e) of the Code.
(q) "Participants" means the employees and officers of the Company,
its Subsidiaries and its Parent (including those directors of the Company who
are also employees of the Company, its Parent or one or more of its
Subsidiaries).
(r) "Restricted Period" shall mean the period designated by the
Committee during which Restricted Stock may not be sold, assigned, transferred,
pledged, or otherwise encumbered, which period shall not be less than one year
nor more than two years from the Date of Grant.
(s) "Restricted Stock" shall mean those shares of Common Stock issued
pursuant to an Award that remain subject to the Restricted Period.
(t) "Retained Distributions" shall mean any securities or other
property (other than cash dividends) distributed by the Company or otherwise
received by the holder in respect of Restricted Stock during any Restricted
Period.
(u) "Retirement" shall mean retirement of a Participant from the
employ of the Company, its Parent, or its Subsidiaries, as the case may be, in
accordance with the then existing employment policies of any such employer.
(v) "Subsidiary" means a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.
3. ADMINISTRATION OF THE PLAN. The Board shall appoint a committee (the
"Committee") comprised of two or more directors to administer the Plan. Only
directors who are Disinterested Persons shall be eligible to serve as members of
the Committee. The Committee shall report all action taken by it to the
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Board, which shall review and ratify or approve those actions that are by law
required to be so reviewed and ratified or approved by the Board. The Committee
shall have full and final authority in its discretion, subject to the provisions
of the Plan, to make determinations with respect to the participation of
Participants in this Plan, to prescribe the form of Award Agreements embodying
Awards made under the Plan, and, except as otherwise required by law or this
Plan, to set the size and terms of Awards (which need not be identical or
consistent with respect to each Participant) including vesting schedules, price,
whether stock options granted hereunder shall constitute an Incentive Stock
Option, restriction or option period, post-retirement and termination rights,
payment alternatives such as cash, stock or other means of payment consistent
with the purposes of this Plan, and such other terms and conditions as the
Committee deems appropriate. Except as otherwise required by this Plan, the
Committee shall have authority to interpret and construe the provisions of this
Plan and the Award Agreements, to correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Award Agreement in the manner
the Committee deems advisable for the administration of the Plan and make
determinations pursuant to any Plan provision or Award Agreement, which shall be
final and binding on all persons. The Committee may authorize any one or more of
their number or any officer of the Company to execute and deliver documents on
behalf of the Committee.
4. COMMON STOCK SUBJECT TO PROVISIONS OF THIS PLAN. Upon approval of this
Plan by the directors and shareholders of the Company, the total number of
shares to be subject to options under this Plan shall be 3,000,000 of the
authorized and unissued common shares of the Company. Thereafter, an amount of
additional shares to be subject to options shall automatically be available for
award under this Plan, such that at no time shall the total number of shares
subject to options under this Plan be less than five percent (5%) of the then
issued and outstanding common shares of the Company. In all events, the total
number of shares shall be subject to appropriate increase or decrease in the
event of a stock dividend, split or eclassification of shares subject to this
Plan.
5. ELIGIBILITY. Except as hereinafter provided, Awards may be granted to
any Participant as the Committee shall determine from time to time. In
determining the Participants to whom Awards shall be granted and the number of
shares to be covered by each such Award, the Committee may take into account the
nature of the services rendered by the respective articipants, their present and
potential contributions to the Company"s success and such other factors as the
Committee in its sole discretion shall deem relevant. A Participant who has been
granted an Award under the Plan may be granted an additional Award or Awards
under the Plan, in the Committee"s sole discretion.
6. AWARDS UNDER THIS PLAN. The Committee, in its sole discretion, may make
Awards of stock options (including Incentive Stock Options and stock options
that do not qualify as Incentive Stock Options) as described in Sections 7 and 8
hereof, and of Restrictive Stock, as described in Section 10 hereof.
7. OPTIONS AUTHORIZED. The options subject to Award under this Plan may be
Incentive Stock Options or stock options that do not qualify as Incentive Stock
Options (sometimes referred to herein as "nonqualified options" or "nonqualified
stock options"). The Committee shall have the full power and authority to (i)
determine which options shall be nonqualified stock options and which shall be
Incentive Stock Options, (ii) grant only Incentive Stock Options or,
alternatively, only nonqualified stock options, and (iii) in its sole
discretion, grant to the holder of an outstanding option, in exchange for the
surrender and cancellation of such option, a new option having a purchase price
lower than that provided in the option so surrendered and canceled and/or
containing such other terms and conditions as the Committee may prescribe in
accordance with the provisions of the Plan. Under no circumstances may
nonqualified stock options be granted where the exercise of such nonqualified
stock options may affect the exercise of Incentive Stock Options granted
pursuant to the Plan. In addition to any other limitations set forth herein, (1)
no Participant shall receive any grant of options, whether Incentive Stock
Options or nonqualified stock options, exercisable for more than two hundred
fifty thousand (250,000) shares of Common Stock during any one fiscal year of
the Company and (2) the aggregate fair market value (determined in accordance
with Paragraph 8(a) of the Plan as of the time the option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable for
the first time by a Participant in any calendar year (under all
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plans of the Company and of any Parent or Subsidiary) shall not exceed one
hundred thousand dollars ($100,000.00).
8. TERMS AND CONDITIONS OF OPTIONS. The grant of an option under the Plan
shall be evidenced by an award Agreement executed by the Company and the
applicable Participant and shall contain such terms and be in such form as the
Committee may from time to time approve, subject to the following limitations
and conditions:
(a) OPTION PRICE. The option exercise price per share with respect to
each option shall be determined by the Committee, but shall in no instance be
less than the par value of the shares subject to the option. In addition, the
option exercise price per share with respect to Incentive Stock Options granted
hereunder shall in no instance be less than the fair market value of the shares
subject to the option as determined by the Committee. For the purposes of this
Paragraph 8(a), fair market value shall be, where applicable, the closing price
of the Common Stock on the Date of Grant of such option as reported on any
national securities exchange on which the Common Stock may be listed. If the
Common Stock is not listed on a national securities exchange but is publicly
traded on the Nasdaq Stock Market"s National Market or on another automated
quotation system, the fair market value shall be the closing price of the Common
Stock on the Date of Grant, or if traded on the Nasdaq Small Cap or Nasdaq
Over-The-Counter market, the fair market value shall be the mean between the
closing bid and ask prices on any such system or market. If the Common Stock was
not traded on the Date of Grant of such option, the nearest preceding date on
which there was a trade shall be substituted. Notwithstanding the foregoing,
however, fair market value shall be determined consistent with Code Section
422(b)(4) or any successor provisions. The Committee may permit the option
exercise price to be payable by transfer to the Company of Common Stock owned by
the option holder with a fair market value at the time of the exercise equal to
the option exercise price.
(b) PERIOD OF OPTION. The expiration date of each option shall be
fixed by the Committee, but notwithstanding any provision of the Plan to the
contrary, such expiration date shall not be more than ten (10) years from the
Date of Grant of the option.
(c) VESTING OF STOCKHOLDER RIGHTS. Neither the optionee nor his
successor in interest shall have any of the rights of a stockholder of the
Company until the shares relating to the option hereunder are issued by the
Company and are properly delivered to such optionee, or successor.
(d) EXERCISE OF OPTION. Each option shall be exercisable from time to
time (but not less than six (6) months after the Date of Grant) over such period
and upon such terms and conditions as the Committee shall determine, but not at
any time as to less than one hundred (100) shares unless the remaining shares
that have become so purchasable are less than twenty five (25) shares. After the
death of the optionee, an option may be exercised as provided in Section 9(c)
hereof.
(e) DISQUALIFYING DISPOSITION. The Award Agreement evidencing any
Incentive Stock Options granted under this Plan shall provide that if the
optionee makes a disposition, within the meaning of Section 424(c) of the Code
and regulations promulgated thereunder, of any share or shares of Common Stock
issued to him pursuant to exercise of the option within the two-year period
commencing on the day after the Date of Grant of such option or within the
one-year period commencing on the day after the date of issuance of the share or
shares to him pursuant to the exercise of such option, he shall, within ten (10)
days of such disposition date, notify the Company of the sales price or other
value ascribed to or used to measure the disposition of the share or shares
thereof and immediately deliver to the Company any amount of federal income tax
withholding required by law.
(f) LIMITATION ON GRANTS TO CERTAIN STOCKHOLDERS. An Incentive Stock
Option may be granted to a Participant only if such Participant, at the time the
option is granted, does not own, after application of the attribution rules of
Code Section 424, stock possessing more than ten percent (10%) of the total
combined voting power of all classes of Common Stock of the Company or of its
Parent or Subsidiary. The preceding restrictions shall not apply if at the time
the option is granted the option price is at least one hundred ten percent
(110%) of the fair market value (as defined in Section 8(a) above) of the Common
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Stock subject to the option and such option by its terms is not exercisable
after the expiration of five (5) years from the Date of Grant.
(g) RESTRICTION ON ISSUING SHARES. The exercise of each option shall
be subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares pursuant thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
(h) CONSISTENCY WITH CODE. Notwithstanding any other provision in this
Plan to the contrary, the provisions of all Award Agreements relating to
Incentive Stock Options pursuant to the Plan shall not violate the requirements
of the Code applicable to the Incentive Stock Options authorized hereunder.
9. EXERCISE OF OPTION.
(a) Any option granted hereunder shall be exercisable according to the
terms of the Plan and at such times and under such conditions as determined by
the Committee and set forth in the Award Agreement. An option shall be deemed
exercised when (i) the Company has received written notice of such exercise in
accordance with the terms of the Award Agreement, (ii) full payment of the
aggregate option exercise price of the shares as to which the option is
exercised has been made and (iii) arrangements that are satisfactory to the
Committee in its sole discretion have been made for the Participant"s payment to
the Company of the amount, if any, that the Committee determines to be necessary
for the Company to withhold in accordance with applicable federal or state
income tax withholding requirements.
(b) Upon Retirement or other termination of the Participant"s
Continuous Status as an Employee, other than (a) a termination that is either
(i) for Cause or (ii) voluntary on the part of a Participant and without the
written consent of the Company, a Parent, or any Subsidiary (b) a termination by
reason of death, the Participant may (unless otherwise provided in his Award
Agreement) exercise his option at any time within three (3) months after such
termination of the Participant"s Continuous Status as an Employee (or within one
(1) year after termination of the Participant"s Continuous Status as an Employee
due to permanent and total disability within the meaning of Code Section
22(e)(3)), or within such other time as the Committee shall authorize, but in no
event may the Participant exercise his Option after ten (10) years from the Date
of Grant thereof (or such lesser period as may be specified in the Award
Agreement), and only to the extent of the number of shares for which his options
were exercisable by him at the date of the termination of the Participant"s
Continuous Status as an Employee. In the event of the termination of the
Continuous Status as an Employee of a Participant to whom an option has been
granted under the Plan that is either (i) for Cause or (ii) voluntary on the
part of the Participant and without written consent, any option held by him
under the Plan, to the extent not previously exercised, shall forthwith
terminate on the date of such termination of the Participant"s Continuous Status
as an Employee. Options granted under the Plan shall not be affected by any
change of employment so long as the holder continues to be an employee of the
Company, a Subsidiary or a Parent. The Award Agreement may contain such
provisions as the Committee shall approve with respect to the effect of approved
leaves of absence.
(c) In the event a Participant to whom an option has been granted
under the Plan dies during, or within three (3) months after the Retirement or
other termination of, the Participant"s Continuous Status as an Employee, such
option (unless it shall have been previously terminated pursuant to the
provisions of the Plan or unless otherwise provided in his Award Agreement) may
be exercised (to the extent of the entire number of shares covered by the option
whether or not purchasable by the Participant at the date of his death) by the
executor or administrator of the optionee"s estate or by the person or persons
to whom the optionee shall have transferred such option by will or by the laws
of descent and distribution, at any time within a period of one (1) year after
his death, but not after the exercise termination date set forth in the relevant
Award Agreement.
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(d) If as of the date of termination of the Participant"s Continuous
Status as an Employee (other than as a result of the Participant"s death) the
Participant is not entitled to exercise his or her entire options, the shares of
Common Stock covered by the unexercisable portion of the option shall revert to
the Plan. If the Participant (or his or her designee or estate as provided in
Section 9(c) above) does not exercise his or her options within the time
specified in the Plan and the Award Agreement, the unexercised options shall
terminate and the shares of Common Stock covered by such options shall revert to
the Plan.
10. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
(a) GENERAL. The Committee, in its sole discretion, may make Awards of
Restricted Stock to selected Participants, which Awards shall be evidenced by an
Award Agreement that contains such terms and conditions, including vesting, as
the Committee may determine. As a condition to any Award of Restricted Stock
hereunder, the Committee may require a Participant to pay to the Company the
amount (such as the par value of such shares) required to be received by the
Company in order to assure compliance with applicable state law. Any Award of
Restricted Stock for which such requirement is established shall automatically
expire if not purchased in accordance with the Committee"s requirements within
sixty (60) days after the Date of Grant.
Subject to the terms and conditions of the respective Award Agreement, the
Participant, as the owner of the Common Stock issued as Restricted Stock and any
Retained Distributions with respect thereto, shall have the rights of a
stockholder, including, but not limited to, voting rights as to such Common
Stock and the right to receive cash dividends or distributions thereon when, as
and if paid.
Within the limits set forth in the Plan, an Award of Restricted Stock may
be subject to such vesting requirements as may be fixed by the Committee.
Vesting may be accelerated by a Change of Control. Vesting may also be
accelerated upon death, permanent disability or Retirement.
Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant whose employment or service
is subsequently terminated by reason of death, permanent disability or
Retirement or for such other reason as the Committee may provide, such
Participant (or his estate or beneficiary) will be entitled to receive such
additional portion of his Restricted Stock and any Retained Distributions with
respect thereto that the Participant would have received had the Participant
remained in the employment of the Company, Parent, or Subsidiary, as applicable,
through the date on which the next portion of the shares of non-vested
Restricted Stock subject to the Award of Restricted Shares would have vested.
Unless otherwise provided in the Award Agreement, in the event an Award of
Restricted Stock is made to a Participant whose employment with the Company,
Parent, or Subsidiary, as applicable, is subsequently terminated by the
Participant for Good Reason or by the Company, Parent or Subsidiary as
applicable, other than for Cause, then in any such event, the Participant will
be entitled to receive such additional portion of his or her shares of
Restricted Stock and any Retained Distributions with respect thereto that the
Participant would have received had the Participant remained in the employment
of the Company, Parent, or Subsidiary, as applicable, through the date on which
the next portion of the shares of unvested Restricted Stock subject to the Award
of Restricted Stock would have vested.
Unless otherwise provided in the Award Agreement, in the event that an
Award of Restricted Stock is made to a Participant who subsequently voluntarily
resigns or whose employment is terminated for Cause, then all such Restricted
Stock and any Retained Distributions with respect thereto as to which the
Restricted Period still applies shall be forfeited by such Participant and shall
again become available for grant under the Plan.
(b) TRANSFERABILITY. Restricted Stock and any Retained Distributions
with respect thereto may not be sold, assigned, transferred, pledged, or
otherwise encumbered during the Restricted Period, which shall be determined by
the Committee and shall not be less than one year nor more than two years from
the date such Restricted Stock was awarded. The Committee may, at any time,
reduce the Restricted Period with respect to any outstanding shares of
Restricted Stock and any Retained Distributions with respect thereto awarded
under the Plan.
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Shares of Restricted Stock, when issued, will be represented by a stock
certificate or certificates registered in the name of the Participant to whom
such Restricted Stock shall have been granted and shall bear a restrictive
legend to the effect that ownership of such Restricted Stock (and any related
Retained Distributions) and the enjoyment of all rights appurtenant thereto are
subject to the restrictions, terms and conditions provided in the Plan and the
applicable Award Agreement. Each certificate shall be deposited by the
Participant with the Company, together with stock powers or other instruments of
assignment, each endorsed in blank, which will permit transfer to the Company of
all or any portion of the Restricted Stock and any securities constituting
Retained Distributions that shall be forfeited or that shall not become vested
in accordance with the respective Award Agreement. The certificate or
certificates issued for the Restricted Stock may bear such legend or legends as
the Committee may, from time to time, deem appropriate to reflect the
restrictions under the Plan for such Restricted Stock.
(c) STOCK CERTIFICATES; ADDITIONAL RESTRICTIONS. Shares of Restricted
Stock shall constitute issued and outstanding shares of Common Stock for all
corporate purposes. Each Participant will have the right to vote the Restricted
Stock held by such Participant, to receive and retain all cash dividends and
distributions thereon and exercise all other rights, powers and privileges of a
holder of Common Stock with respect to such Restricted Stock, with the exception
that:
(i) the Participant will not be entitled to delivery of the stock
certificate or certificates representing such Restricted Stock until the
Restricted Period applicable to such shares or portion thereof shall
have expired and unless all other vesting requirements with respect
thereto shall have been fulfilled;
(ii) other than cash dividends and distributions and rights to
purchase stock which might be distributed to stockholders of the
Company, the Company will retain custody of all Retained Distributions
made, paid, declared or otherwise received by the holder thereof with
respect to Restricted Stock (and such Retained Distributions will be
subject to the same restrictions, terms and conditions as are applicable
to the Restricted Stock with respect to which they were made, paid or
declared) until such time, if ever, as the Restricted Period applicable
to the shares with respect to which such Retained Distributions shall
have been made, paid, declared or received shall have expired, and such
Retained Distributions shall not bear interest or be segregated in
separate accounts; and
(iii) upon the breach of any restrictions, terms or conditions
provided in the Plan or the respective Award Agreement or otherwise
established by the Committee with respect to any Restricted Stock or
Retained Distributions, such Restricted Stock and any related Retained
Distributions shall thereupon be automatically forfeited.
(d) MERGERS AND OTHER CORPORATE CHANGES. Unless otherwise provided in
the Award Agreement, upon the occurrence of a Change of Control, all
restrictions imposed on the Participant"s Restricted Stock and any Retained
Distributions shall automatically terminate and lapse and the Restricted Period
shall automatically terminate; provided, however, that if the Change of Control
occurs within six months of the Date of Grant the restrictions and Restricted
Period shall terminate on the six month anniversary of the Date of Grant.
11. ADJUSTMENTS. The Committee, in its discretion, may make such
adjustments in the option price, the number or kind of shares and other
appropriate provisions covered by outstanding Awards that are required to
prevent any dilution or enlargement of the rights of the holders of such options
that would otherwise result from any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, issuance of
rights or any other change in the capital structure of the Company. The
Committee, in its discretion, may also make such adjustments in the aggregate
number and class of shares that may be the subject of Awards which are
appropriate to reflect any transaction or event described in the preceding
sentence.
12. AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN. The Board may at
any time suspend or terminate the Plan or may amend it from time to time in such
respects as the Board may deem advisable in
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order that the Awards granted thereunder may conform to any changes in the law
or in any other respect that the Board may deem to be in the best interests of
the Company; provided, however, that without approval by the stockholders of the
Company voting the proper percentage of its voting power, no such amendment
shall make any change in the Plan for which stockholder approval is required in
order to comply with (i) Rule 16b-3, as amended, promulgated under the Exchange
Act, (ii) the Code or regulatory provisions dealing with Incentive Stock
Options, (iii) any rules for listed companies promulgated by any national stock
exchange on which the Company"s Common Stock is traded or (iv) any other
applicable rule or law. Unless sooner terminated hereunder, the Plan shall
terminate ten (10) years after the Effective Date. No amendment, suspension, or
termination of the Plan shall, without a Participant"s consent, impair or negate
any of the rights or obligations under any Award theretofore granted to such
Participant under the Plan.
13. TAX WITHHOLDING. The Company shall have the right to withhold from any
payments made under this Plan, or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when a Participant is required
to pay to the Company an amount required to be withheld under applicable income
tax laws in connection with a distribution of shares of Common Stock pursuant to
this Plan, the Participant may satisfy this obligation in whole or in part by
electing to have the Company withhold from such distribution shares of Common
Stock having a value equal to the amount required to be withheld. The value of
the shares of Common Stock to be withheld shall be based on the fair market
value, as determined pursuant to Section 8(a) hereof, of the Common Stock on the
date that the amount of tax to be withheld shall be determined (the "Tax Date").
Any such election is subject to the following restrictions: (i) the election
must be made on or prior to the Tax Date; (ii) the election must be irrevocable;
and (iii) the election must be subject to the disapproval of the Committee. To
the extent required to comply with rules promulgated under Section 16 of the
Exchange Act, elections by Participants who are subject to Section 16 of the
Exchange Act are subject to the following additional restrictions: (i) no
election shall be effective for a Tax Date which occurs within six (6) months of
the grant of the Award; and (ii) the election must be made either (a) six (6)
months or more prior to the Tax Date or (b) during the period beginning on the
third business day following the date of release for publication for the
Company"s quarterly or annual summary statements of sales and earnings and
ending on the twelfth business day following such date.
14. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective on the
date (the "Effective Date") of the last to occur of (i) the adoption of the Plan
by the Board and (ii) the approval, within twelve (12) months of such adoption,
by a majority (or such other proportion as may be required by state law) of the
outstanding voting shares of the Company, voted either in person or by proxy, at
a duly held stockholders meeting or by written stockholder consent but in any
event not before the effectiveness of the Company"s Form 10 Registration
Statement filed under the Exchange Act.
15. SPECIAL PROVISIONS REGARDING CHANGE OF CONTROL. The Board or the
Committee may, from time to time, make special provisions for one or more
Participants respecting a possible Change of Control of the Company, a
Subsidiary, or Parent, and, to the extent that any such special provisions made
with the consent of the affected employee may have the effect of accelerating
vesting of stock options granted under the Plan or removal of restrictions on
Restricted Stock allotted under the Plan or the effect of preventing a
termination or dilution of benefits, such special provisions shall be
controlling over and shall be deemed to be an amendment of any inconsistent
terms of the applicable Award Agreement.
16. MISCELLANEOUS PROVISIONS.
(a) If approved by the Board, the Company or any Parent or Subsidiary
may lend money or guarantee loans by third parties to an individual to finance
the exercise of any option granted under the Plan to continue to hold Common
Stock thereby acquired. No such loans to finance the exercise of an Incentive
Stock Option shall have an interest rate or other terms that would cause any
part of the principal amount to be characterized as interest for purposes of the
Code.
(b) This Plan is intended and has been drafted to comply in all
respects with Rule 16b-3, as amended, under the Exchange Act ("Rule 16b-3"). If
any provision of this Plan does not comply with Rule 16b-3, this Plan shall be
automatically amended to comply with Rule 16b-3.
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(c) No person shall have any claim or right to be granted an Award,
and the grant of an Award shall not be construed as giving a Participant the
right to be retained in the employ of the Company, a Parent, or a Subsidiary.
Nothing in this Plan shall interfere with or limit in any way the right of the
Company, a Parent, any Subsidiary to terminate any Participant"s employment at
any time, nor confer upon any Participant any right to continue in the employ of
the Company, a Parent, or any Subsidiary.
(d) To the extent that federal laws do not otherwise control, this
Plan shall be construed in accordance with and governed by the laws of the State
of Nevada or the property laws of any particular state.
(e) In case any one or more of the provisions of this Plan shall be
held invalid, illegal or unenforceable in any respect under applicable law and
regulation (including Rule 16b-3), the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provisions shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan.
Notwithstanding anything in this Plan to the contrary, the Committee, in its
sole and absolute discretion, may bifurcate this Plan so as to restrict, limit
or condition the use of any provision of this Plan to Participants who are
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning this Plan with respect to other Participants.
(f) None of a Participant"s rights or interests under the Plan may be
assigned or transferred in whole or in part, either directly or by operation of
law or otherwise (except pursuant to a qualified domestic relations order or, in
the event of a Participant"s death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner, and no such
right or interest of any Participant in the Plan shall be subject to any
obligation or liability of such individual.
(g) No Restricted Stock or any Retained Distributions shall be issued
hereunder unless counsel for the Company shall be satisfied that such issuance
will be in compliance with applicable federal, state, or other securities laws.
(h) The expenses of the Plan shall be borne by the Company.
(i) By accepting any Award under the Plan, each Participant or
beneficiary claiming under or through him shall be conclusively deemed to have
indicated his acceptance ratification of, and consent to, any action taken under
the Plan by the Company, the Committee or the Board.
(j) Awards granted under the Plan shall be binding upon the Company,
its successors and assigns.
(k) The appropriate officers of the Company shall cause to be filed
any reports, returns, or other information regarding Awards hereunder or any
Common Stock issued pursuant hereto as may be required by Section 13 or 15(d) of
the Exchange Act, or any other applicable statute, rule or regulation.
(l) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required.
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ANNEX B
BILLSERV.COM, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
The Audit Committee (the "Committee") of the board of directors (the
"Board") shall be comprised of at least two (2) directors who are independent of
management and billserv.com, Inc. (the "Company"). The Board shall appoint the
members of the Committee. Members of the Committee shall be considered
independent if they have no relationship to the Company that may interfere with
the exercise of their independence from management and the Company. All
Committee members will be financially literate, and at lease one member will
have accounting or related financial management expertise, as determined in the
business judgment of the Board.
STATEMENT OF POLICY
The Committee shall provide assistance to the Board in fulfilling its
responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the Company,
and the quality and integrity of financial reports of the Company. In so doing,
it is the responsibility of the Committee to maintain free and open
communication between the Board, the independent auditors, and the financial
management of the Company.
Consistent with the duties and function of the Board, generally, the
Committee has oversight, not managerial duties and authorities in discharging
its responsibilities. The Committee has only the responsibilities specified
below. Accordingly, it is not the responsibility of the Committee to plan or
conduct audits or to determine whether the Company"s financial statements are
complete and accurate or are in compliance with generally accepted accounting
principles; rather, those matters are the responsibility of management and the
outside auditor. Similarly, it is not the responsibility of the Committee to
conduct investigations, to assure compliance by the Company with the federal
securities laws or other legal requirements or to assure compliance with laws or
the Company"s corporate compliance program or any code of ethics.
The Committee will, of necessity, rely upon management and the outside
auditors in carrying out the responsibilities specified in this Charter.
Accordingly, there can be no assurance that the Company"s financial statements
will necessarily be in accordance with generally accepted accounting principles,
and not contain any material inaccuracies, whether or not the Committee
discharges the responsibilities specified in this Charter.
RESPONSIBILITIES
In carrying out its responsibilities, the Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to oversee for the Board and shareholders that the corporate
accounting and reporting practices of the Company are in accordance with all
requirements and are of the highest quality.
In carrying out these responsibilities, the Committee shall:
o Obtain the full Board"s approval of this Charter and review and reassess
this Charter as conditions dictate (at least annually).
o Review and recommend to the Board the independent auditors to be
selected to audit the financial statements of the Company and its
subsidiaries.
o Have a clear understanding with the independent auditors that they are
ultimately accountable to the Board and the Committee, as the
shareholders" representatives, and that these shareholder
representatives have the ultimate authority in deciding to engage,
evaluate, and if appropriate, terminate their services.
B-1
<PAGE>
o Review and concur with management"s appointment, termination, or
replacement of the chief financial officer of the Company.
o Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit and timely quarterly
reviews for the current year and the procedures to be utilized, the
adequacy of the independent auditor"s compensation, and at the
conclusion thereof, review such audit or review, including any comments
or recommendations of the independent auditors.
o Review with the independent auditors, the Company"s chief financial
officer, and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the Company,
and elicit any recommendations for the improvement of such internal
controls or particular areas where new or more detailed controls or
procedures are desirable. Particular emphasis should be given to the
adequacy of internal controls to expose any payments, transactions, or
procedures that might be deemed illegal or otherwise improper.
o Review reports received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements or
related Company compliance policies.
o Retain internal audit services to investigate or review matters that in
its judgment require independent investigation.
o Inquire of management, the chief financial officer, and the independent
auditors about significant risk or exposures and assess the steps
management has taken to minimize such risks to the Company.
o Review the quarterly financial statements with financial management and
the independent auditors to determine that the independent auditors do
not take exception to the disclosure and content of the financial
statements, and discuss any other matters required to be communicated to
the Committee by the auditors. The chair of the Committee may represent
the entire Committee for purposes of this review.
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Review with financial management and the independent auditors the
results of their timely analysis of significant financial reporting
issues and practices, including changes in, or adoptions of, accounting
principles and disclosure practices, and discuss any other matters
required to be communicated to the Committee by the auditors. Also
review with financial management and the independent auditors their
judgments about the quality, not just acceptability, of accounting
principles and the clarity of the financial disclosure practices used or
proposed to be used, and particularly, the degree of aggressiveness or
conservatism of the Company"s accounting principles and underlying
estimates, and other significant decisions made in preparing the
financial statements.
o Provide sufficient opportunity for the independent auditors to meet with
the members of the Committee without members of management present.
Among the items to be discussed in these meetings are the independent
auditors" evaluation of the Company"s financial and accounting
personnel, and the cooperation that the independent auditors received
during the course of audit.
o Review accounting and financial human resources and succession planning
within the Company.
o Report the results of the annual audit to the Board. If requested by the
Board, invite the independent auditors to attend the full Board meeting
to assist in reporting the results of the annual audit or to answer
other directors" questions (alternatively, the other directors,
particularly any other independent directors, may be invited to attend
the Committee meeting during which the results of the annual audit are
reviewed).
o On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independence Standards Board Standard
B-2
<PAGE>
No. 1, Independence Discussions with Audit Committees. In addition,
review with the independent auditors the nature and scope of any
disclosed relationship or professional services and take, or recommend
that the Board take appropriate action to ensure the continuing
independence of the auditors.
o Review the report of the Committee in the annual report to shareholders
and the Annual Report on Form 10-K disclosing whether or not the
Committee had reviewed and discussed with management and the independent
auditors, as well as discussed within the Committee (without management
or the independent auditors present), the financial statements and the
quality of accounting principles and significant judgments affecting the
financial statements. In addition, disclose the Committee's conclusion
on the fairness of presentation of the financial statements in
conformity with GAAP based on those discussions.
o Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each committee meeting with, the Board.
o Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
o Review the Company's disclosure in any proxy statement for its annual
meeting of shareholders that describes that the Committee has satisfied
its responsibilities under this Charter for the prior year. In addition,
include a copy of this Charter in the annual report to shareholders or
the proxy statement at least triennially or the year after any
significant amendment to the Charter.
B-3
<PAGE>
ANNEX C
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-30152
BILLSERV.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 74-2418590
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
14607 SAN PEDRO AVENUE, SUITE 100,
SAN ANTONIO, TX 78232
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(210) 402-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENT FOR
THE PAST 90 DAYS. YES [X] NO [ ]
AT MAY 10, 2000, 16,428,101 SHARES OF COMMON STOCK, $.001 PAR VALUE, OF THE
REGISTRANT WERE OUTSTANDING.
================================================================================
<PAGE>
billserv.com, Inc.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Part I - Financial Information PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets ................................... 3
Consolidated Statements of Operations ......................... 4
Consolidated Statement of Changes in Shareholder's
Equity (Deficit) ........................................... 5
Consolidated Statements of Cash Flows ......................... 7
Notes to Consolidated Financial Statements .................... 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 14
Part II - Other Information
Item 1. Legal Proceedings ............................................. 19
Signatures .............................................................. 20
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets:
Cash and cash equivalents ....................................... $ 9,036,538 $ 7,069,423
Accounts receivable ............................................. 71,274 10,227
Related party accounts receivable ............................... 13,083 30,222
Prepaid expenses ................................................ 315,471 166,820
Deposits ........................................................ 20,619 25,420
Other current assets ............................................ 190,630 188,536
------------ ------------
9,647,615 7,490,648
Property and equipment, net of accumulated
depreciation and amortization of $402,443 and $258,055
for March 31, 2000 and December 31, 1999, respectively ....... 2,124,470 1,513,510
Other assets .................................................... 819,305 394,010
------------ ------------
Total assets .................................................... $ 12,591,390 $ 9,398,168
============ ============
Liabilities & shareholders' equity (deficit):
Current liabilities:
Accounts payable .............................................. $ 919,481 $ 589,480
Accrued expenses .............................................. 254,755 296,452
Current portion of obligations under capital leases ........... 321,634 309,313
Current portion of deferred revenue ........................... 18,506 --
Other current liabilities ..................................... 70,323 2,186
------------ ------------
Total current liabilities ....................................... 1,584,699 1,197,431
Obligations under capital leases, less current portion ........ 169,212 254,394
Deferred revenue, less current portion ........................ 102,889 5,000
Equity subject to potential redemption ........................ 5,300 5,300
Shareholders' equity (deficit):
Common stock, $.001 par value, 200,000,000 shares
authorized; 14,301,140 issued and outstanding
at March 31, 2000, 13,113,065 issued and outstanding
at December 31, 1999 ....................................... 14,301 13,113
Paid-in capital ............................................... 18,558,856 13,695,584
Deficit accumulated during the development stage .............. (7,843,867) (5,772,654)
------------ ------------
Total shareholders' equity (deficit) ............................ 10,729,290 7,936,043
------------ ------------
Total liabilities and shareholders' equity (deficit) ............ $ 12,591,390 $ 9,393,168
============ ============
</TABLE>
See notes to consolidated financial statements
C-3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONT.)
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30,
THREE MONTHS THREE MONTHS 1998
ENDED ENDED (INCEPTION)
MARCH 31, MARCH 31, TO MARCH 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ............................................................ $ 6,426 $ -- $ 61,864
Cost of sales ....................................................... 470,691 -- 598,036
------------ ------------ ------------
Gross margin ........................................................ (464,265) -- (536,172)
Operating expenses
Research and development .......................................... 124,912 172,191 1,031,444
Selling expenses .................................................. 775,364 287,172 2,614,277
General and administrative ........................................ 570,205 331,507 3,115,008
Depreciation & amortization ....................................... 150,671 12,694 422,138
------------ ------------ ------------
Total operating expenses ............................................ 1,621,152 803,564 7,182,867
------------ ------------ ------------
Operating loss ...................................................... (2,085,417) (803,564) (7,719,039)
Other income (expense):
Interest income ................................................... 85,755 2,704 174,416
Interest expense .................................................. (20,478) -- (222,844)
Other income (expense) ............................................ 1,200 -- (14,191)
------------ ------------ ------------
Total other income (expense) ........................................ 66,477 2,704 (62,619)
------------ ------------ ------------
Loss before income taxes and cumulative effect of accounting change . (2,018,940) (800,860) (7,781,658)
Income taxes ........................................................ -- -- --
------------ ------------ ------------
Net loss before cumulative effect of accounting change .............. (2,018,940) (800,860) (7,781,658)
Cumulative effect of a change in accounting principle, net of taxes . (52,273) -- (52,273)
------------ ------------ ------------
Net loss ............................................................ $ (2,071,213) $ (800,860) $ (7,833,931)
============ ============ ============
Net loss before cumulative effect of accounting change - basic and
diluted ............................................................. $ (0.15) $ (0.08) $ (0.71)
Cumulative effect of accounting change - basic and diluted .......... $ (0.01) $ -- $ (0.01)
------------ ------------ ------------
Net loss per common share - basic and diluted ....................... $ (0.16) $ (0.08) $ (0.72)
Weighted average common shares ...................................... ------------ ------------ ------------
outstanding - basic and diluted ................................... 13,230,142 10,030,000 11,013,663
============ ============ ============
</TABLE>
C-4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONT.)
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<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
Issuance of Common Stock,
October 15, 1999 ....................... 1,230,791 1,231 3,665,608 -- 3,666,839
Issuance of Common Stock,
October 22, 1999 ....................... 20,000 20 59,565 -- 59,585
Issuance of Common Stock,
October 22, 1999, in
exchange for debt ...................... 153,846 154 490,057 -- 490,211
Issuance of Common Stock,
December 16, 1999 ...................... 270,000 270 1,361,019 -- 1,361,289
Issuance of Common Stock,
December 17, 1999 ...................... 285,000 285 1,436,629 -- 1,436,914
Issuance of Common Stock,
December 21, 1999 ...................... 127,000 127 640,184 -- 640,311
Issuance of Common Stock,
December 22, 1999 ...................... 50,000 50 252,040 -- 252,090
Net loss for the
twelve-months ending
December 31, 1999 ...................... -- -- -- (5,472,948) (5,472,948)
----------------------------------------------------------------------------------------
Balance at December 31, 1999 ........... 13,113,065 $ 13,113 $ 13,695,584 $ (5,772,654) $ 7,936,043
Stock Option Exercise .................. 900 1 2,530 -- 2,531
Equity issuance costs .................. -- -- (8,465) -- (8,465)
Exercise of Warrants,
January 20, 2000 ....................... 15,400 15 57,735 -- 57,750
Exercise of Warrants,
February 16, 2000 ...................... 126,969 127 476,007 -- 476,134
Exercise of Warrants,
February 24, 2000 ...................... 52,426 53 232,984 -- 233,037
Exercise of Warrants,
March 7, 2000 .......................... 22,515 23 73,147 -- 73,170
Exercise of Warrants,
March 9, 2000 .......................... 11,032 11 75,648 -- 75,659
Exercise of Warrants,
March 10, 2000 ......................... 145,054 145 895,911 -- 896,056
Exercise of Warrants,
March 20, 2000 ......................... 2,318 2 15,607 -- 15,609
Exercise of Warrants,
March 28, 2000.......................... 138,385 138 518,806 -- 518,944
Exercise of Warrants,
March 30, 2000 ......................... 673,076 673 2,523,362 -- 2,524,035
Net loss for the
three-months ending
March 31, 2000 ......................... -- -- -- (2,071,213) (2,071,213)
----------------------------------------------------------------------------------------
Balance at March 31, 2000 .............. 14,301,140 $ 14,301 $18,558,856 $ (7,843,867) $ 10,729,290
========================================================================================
See notes to consolidated financial statements
</TABLE>
C-5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONT.)
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 30, 1998
THREE MONTHS THREE MONTHS (INCEPTION)
ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31,
2000 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) .............................................................. $ (2,071,213) $ (800,860) $ (7,833,931)
Adjustments to reconcile net income (loss) to net
cash used in operating activities-
Issuance of common stock warrants ....................................... -- -- 491,428
Depreciation and amortization ........................................... 150,671 12,694 422,138
Cumulative effect of change in accounting principle ..................... 52,273 -- 52,273
Changes in current assets and current liabilities-
(Increase) decrease in accounts receivable .............................. (61,047) -- (71,274)
(Increase) decrease in related party receivables 17,139 24,000 (13,083)
(Increase) decrease in prepaid expenses and other current assets ........ (15,654) (59,256) (396,430)
Increase (decrease) in accounts payable and accrued liabilities ......... 288,304 570,220 1,324,236
Increase (decrease) in accounts payable related party ................... -- -- (150,000)
Increase (decrease) in deferred revenue ................................. 64,122 -- 69,122
Increase (decrease) in other current liabilities ........................ 68,137 -- 70,323
------------ ------------ ------------
Net cash used in operating activities ................................... (1,507,268) (253,202) (6,035,198)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ...................................... (755,348) (223,024) (1,827,916)
Purchase of long term investments ....................................... -- -- (275,496)
Purchase of intangible assets ........................................... -- -- (75,000)
Capital lease set up fee ................................................ -- -- (11,884)
Deposits - long term .................................................... (561,868) -- (606,909)
Proceeds of acquisition/merger .......................................... -- -- 5,394
------------ ------------ ------------
Net cash used in investing activities ................................... (1,317,216) (223,024) (2,791,811)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from shareholders ............................................... -- 500,000 2,000,000
Repayment to shareholders ............................................... -- -- (2,000,000)
Proceeds from notes payable ............................................. -- -- 1,000,000
Principal payments for notes payable .................................... -- -- (500,000)
Exercise of warrants .................................................... 4,864,460 -- 4,864,460
Issuance of common stock ................................................ -- -- 12,707,239
Principal payments for capital lease obligations ........................ (72,861) -- (208,152)
------------ ------------ ------------
Net cash used by financing activities ................................... 4,791,599 500,000 17,863,547
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 1,967,115 23,774 9,036,538
CASH AND CASH EQUIVALENTS, beginning of year .............................. 7,069,423 -- --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period .................................. $ 9,036,538 $ 23,774 $ 9,036,538
============ ============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of equipment under capital leases ............................. $ -- $ -- $ 563,707
============ ============ ============
Conversion of debt to equity ............................................ $ -- $ -- $ 500,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements
C-6
<PAGE>
billserv.com, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 2000
1. 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 continue to incur losses
during its second year of operations and may incur losses in subsequent years as
development efforts continue. 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 SEC rules and
regulations. The results for the interim periods are not necessarily indicative
of results for the full year. Certain prior period amounts have been
reclassified for comparative purposes. It is recommended that these interim
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto for the year ended December 31, 1999
included in the Company's annual report on Form 10-K filed with the SEC on
February 11, 2000.
2. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In December 1999, the SEC issued Staff Accounting Bulletin No. (SAB) 101,
"Revenue Recognition in Financial Statements", which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements.
The implementation of SAB 101 requires the Company's revenue generated from
up-front implementation fees be recognized over the term of the related service
contract. Prior to December 31, 1999, the Company recognized revenue generated
from such up-front fees upon completion of an implementation project. The
Company adopted SAB 101 as of January 1, 2000, and accordingly, changed its
revenue recognition policy on up-front design and implementation fees. The
cumulative effect of this accounting change totals $52,273. This amount has been
recognized as a non-cash after tax charge during the first quarter of 2000. The
cumulative effect has been recorded as deferred revenue and will be recognized
as revenue over the remaining contractual service periods.
3. PROPERTY AND EQUIPMENT, NET
The following is a summary of our property and equipment at March 31, 2000 and
December 31, 1999.
MARCH 31, DECEMBER 31,
2000 1999
----------- -----------
Furniture and fixtures ................. $ 280,301 $ 216,824
Equipment .............................. 1,227,697 954,123
Software ............................... 953,016 545,382
Leasehold improvements ................. 65,899 55,236
----------- -----------
2,526,913 1,771,565
Less: accumulated depreciation
and amortization ...................... (402,443) (258,055)
----------- -----------
Total - property and equipment, net .... $ 2,124,470 $ 1,513,510
=========== ===========
C-7
<PAGE>
billserv.com, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. OPERATING LEASES
During March 2000 the Company entered into a five-year operating lease for its
future corporate headquarters. The lease required a deposit of approximately
$516,000. Additionally the Company leases other office space and equipment under
noncancelable operating leases. Future minimum lease payments required under
these leases consist of the following as of March 31, 2000:
Year ending December 31,
2000 $ 488,245
2001 852,481
2002 807,998
2003 807,998
2004 805,404
Thereafter 468,044
----------
Total minimum lease payments $4,230,170
==========
5. STOCK WARRANTS
In connection with the private placement offering in October 1999, we issued
warrants to 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. We
have the right to call the exercise of the warrants at any time after March 14,
2000 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, the holders of
the warrants must exercise the warrants within thirty days, after which time we
may redeem each warrant for $0.05. As of March 31, 2000, warrants covering
1,000,245 shares of common stock had been exercised, resulting in net proceeds
totaling $3,750,919. The exercise of the remainder of the warrants would result
in net proceeds of $1,516,470.
As part of their compensation for acting as placement agent for the Offering, we
issued warrants to Pennsylvania Merchant Group ("PMG") for the purchase of
36,924, 600, 18,900, 19,950, 8,890 and 3,500 shares of common stock. The
warrants are immediately exercisable, carry a five year term, exercise prices of
$3.25, $3.25, $8.00, $7.44, $7.41 and $7.31, respectively, piggyback
registration rights and cashless exercise provision. As of March 31, 2000,
warrants to purchase 75,844 shares of common stock had been exercised, with net
proceeds to the Company totaling $418,529. The exercise of the remainder of the
warrants would result in net proceeds of $94,512.
At March 31, 1999, warrants outstanding were as follows:
WARRANT TO PURCHASE SHARES OF EXERCISE AGGREGATE EXPIRATION DATE
COMMON STOCK PRICE EXERCISE PRICE
--------------------------------------------------------------------------------
Common stock ...... 41,237 $ 6.06 $ 250,000 08/05/2004
Common stock ...... 250 $ 3.25 $ 813 10/14/2004
Common stock ...... 230,546 $ 3.75 $ 864,548 10/14/2002
Common stock ...... 20,000 $ 3.75 $ 75,000 10/25/2002
Common stock ...... 153,846 $ 3.75 $ 576,923 10/14/2002
Common stock ...... 240 $ 8.00 $ 2,240 12/15/2004
Common stock ...... 8,890 $ 7.41 $ 65,875 12/20/2004
Common stock ...... 3,500 $ 7.31 $ 25,585 12/22/2004
------- -----------
458,549 $ 1,860,982
======= ===========
C-8
<PAGE>
BILLSERV.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. STOCK WARRANTS (CONTINUED)
Warrants exercised through March 31, 2000, were as follows:
WARRANT TO PURCHASE SHARES OF EXERCISE AGGREGATE EXPIRATION DATE
COMMON STOCK PRICE EXERCISE PRICE
--------------------------------------------------------------------------------
Common stock ...... 111,085 $ 6.31 $ 700,946 05/17/2004
Common stock ...... 36,674 $ 3.25 $ 119,190 10/14/2004
Common stock ...... 1,000,245 $ 3.75 $ 3,750,919 10/14/2002
Common stock ...... 600 $ 3.25 $ 1,950 10/25/2004
Common stock ...... 18,620 $ 8.00 $ 148,960 12/15/2004
Common stock ...... 19,950 $ 7.44 $ 148,428 12/16/2004
--------- -----------
1,187,174 $ 4,870,394
========= ===========
Subsequent to March 31, 2000, an additional 326,961 warrants were exercised,
resulting in net proceeds of $1,226,103.
6. 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 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. Form D was filed with the SEC to timely report
the transaction, and an exemption under Rule 504 was claimed. The SEC has
challenged the validity of this claimed exemption.
We dispute 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 us 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. We dispute any such
liability.
Additionally, while we also dispute 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 us to repurchase their
shares, for the amount originally paid, plus interest. We dispute any such
liability.
Based upon the best information available at this time, we have calculated a
range of possible, but disputed, exposure that exists in light of the disputed
civil liabilities described above. Accordingly, in the event these disputed
civil liabilities were successfully asserted, we could be liable to the 15 new
shareholders, and to any shareholder that immediately purchased shares 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 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements based on current expectation,
estimates and projections about the Company's industry, management's beliefs and
certain assumptions made by management. All statements, trends, analyses and
other information contained in this report relative to trends in net sales,
gross margin, anticipated expense levels and liquidity and capital resources, as
well as other statements, including, but not limited to, words such as
"anticipate," "believe," "plan," "intend," "expect," and other similar
expressions constitute forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to certain
risks and uncertainties that are difficult to predict. Accordingly, actual
results may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others, those set
forth below. Particular attention should be paid to the cautionary statements
involving the Company's limited operating history, the unpredictability of its
future revenues, the unpredictable and evolving nature of its business model,
the intensely competitive online commerce industry and the risks associated with
capacity constraints, systems development, management of growth and business
expansion, as well as other risk factors.
OVERVIEW
We are a development stage enterprise with a limited operating history on which
to base an evaluation of our businesses and prospects. Our 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 include, but are not limited to, an evolving and unpredictable business
model and the management of growth. To address these risks, we must, among other
things, maintain and increase our customer base; implement and successfully
execute our business and marketing strategy; continue to develop and upgrade our
technology and transaction-processing systems; provide superior customer
service; respond to competitive developments; and attract, retain and motivate
qualified personnel. We cannot assure you that we will be successful in
addressing such risks, and the failure to do so could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
Since inception, we have incurred losses, and as of March 31, 2000, we have an
accumulated deficit of $7,843,867. We believe that our success will depend in
large part on our ability to (a) secure additional financing to meet capital and
operating requirements, (b) capture a significant number of customers as our
customer base, (c) drive the consumer adoption rate of Electronic Bill
Presentment and Payment ("EBPP"), and (d) meet changing customer requirements
and technological changes in an emerging market. Accordingly, we intend to
invest heavily in product development, technology and operating infrastructure
development as well as marketing and promotion. Because our services will
require a significant amount of investment in infrastructure and a substantial
level of fixed operating expenses, achieving profitability depends on our
ability to generate a high volume of revenues. As a result of our limited
operating history and the emerging nature of the markets in which we compete, we
are unable to precisely forecast our revenues. Our current and future expense
levels are based largely on our 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 our ability to fulfill a
customer's demands are difficult to forecast. We 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 our planned
expenditures could have an adverse effect on our business, prospects, financial
condition and results of operations. Further, we may from time to time make
certain pricing, service, marketing or acquisition decisions that could have a
material adverse effect on our business, prospects, financial condition and
results of operations.
In January 2000, we adopted Staff Accounting Bulletin (SAB) 101 and revised our
revenue policies so that in periods subsequent to December 31, 1999,
implementation fee revenue will be deferred over the life of the respective
contracts. We anticipate that transaction fees will become our major source of
revenue in future periods. However, the volume of transactions and amount of
revenue we will earn in future periods is
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dependent upon the rate at which consumers utilize EBPP. This rate is commonly
called the "consumer adoption rate."
RESULTS OF OPERATION - FOR THE QUARTERS ENDED MARCH 31, 2000 AND 1999
Our activities for the quarter ended March 31, 2000, resulted in a net loss of
$2,071,213, or $.16 per share, as compared to $800,860, or $.08 per share, for
the quarter ended March 31, 1999. We earned revenues totaling $6,426 during the
first quarter of 2000. During the first quarter of 1999, we were not yet in a
production phase and therefore did not generate any revenues.
Prior to December 31, 1999, we recognized revenue generated from up-front fees
upon completion of an implementation project. In December 1999, the SEC issued
SAB 101, which requires recognition of revenue generated from up-front
implementation fees over the term of the related service contract. We
voluntarily adopted SAB 101 on January 1, 2000, and accordingly, revised our
implementation fee revenue recognition policy. The cumulative effect of this
accounting change totals $52,272. This amount has been recognized as a non-cash
after tax charge during the first quarter of 2000. The cumulative effect has
been recorded as deferred revenue and will be recognized as revenue over the
remaining contractual service periods. We recognized the applicable portion of
this deferred revenue during the first quarter of 2000.
Although revenue from transaction fees increased as compared to the fourth
quarter of 1999, total transaction fee revenue remains an immaterial amount.
Consumer adoption rates remained low, less than a hundredth of a percent, during
the first quarter of 2000. Each of our customers who have completed the
implementation period have not yet begun consumer education and marketing
programs, and thus, we would not expect adoption rates to be significant at this
point. Transaction fees will become a significant dollar amount only when
consumer adoption rates approach double digits. While we cannot control these
adoption rates, we are working with our customers to promote EBPP to consumers.
Cost of sales for the first quarter in 2000 totaled $470,691. We were not in
live production for customers during the first quarter of 1999, and accordingly,
we incurred no cost of sales during that period. Cost of sales includes the cost
of technical and support personnel who design specific EBPP components for
customers, process data and perform customer care. Cost of sales also includes
fees paid to third parties or payment processors for the presentation of
electronic bills on web sites owned by those parties and payment processors.
Research and development expenses totaled $124,912 and $172,191 for the quarters
ending March 31, 2000 and 1999, respectively. During the first quarter of 1999,
our bill presentation systems were under development and accordingly, all
expenses related to our operating systems during that period are classified as
research and development. The 28% decrease in expense for the March 2000 quarter
reflects the reallocation of resources to production efforts, which were
formerly devoted to research and development. All research and development costs
are expensed as incurred. These costs include the cost of personnel devoted to
development of new and enhanced solutions for bill presentment, payment,
customer care, and Internet direct marketing.
Selling expenses increased 170%, totaling $775,364 for the quarter ending March
31, 2000, as compared to $287,172 for the 1999 quarter. The increase in expenses
is a result of the full-scale efforts of our marketing and sales teams that were
being developed during the 1999 quarter. As of March 31, 2000, we employed
nineteen sales and marketing personnel as compared to three such personnel at
March 31, 1999. Selling expenses include the cost of these personnel,
commissions, expenses for trade shows, advertising in trade publications, sales
collateral, and other selling and marketing expenses. We will continue to expand
our marketing and sales efforts, increasing the size of our sales force and
broadening our reach with even more marketing activities.
General and administrative expenses increased 72%, totaling $570,205 for the
quarter ending March 31, 2000, as compared to $331,507 for the 1999 quarter. The
increase in expenses is principally due to the increased compensation costs and
additional general and administrative personnel, as well as increased travel,
insurance and professional fee expenses.
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Depreciation and amortization increased to $150,671 for the quarter ending March
31, 2000, as compared to $12,694 for the 1999 quarter. The increase is due to
the growth in our infrastructure and operating systems. We have purchased over
$2.0 million of property and equipment from March 31, 1999 to March 31, 2000.
Net interest income increased to $65,277 for the quarter ending March 31, 2000,
as compared to $2,704 for the 1999 quarter from interest earned from the
investment of the proceeds from our equity offerings in 1999 and the exercise of
warrants during the first quarter of 2000. We incurred interest expense on
capital leases during the 2000 quarter. We entered into these leases subsequent
to March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
From inception to date, we have funded our operations through the issuance of
common stock, warrants to purchase shares of common stock and short-term bridge
loans. We issued 946,428 shares of common stock resulting in net proceeds of
$5.3 million in cash on June 11, 1999, in a private placement, pursuant to
Regulation S. Advances made to us prior to the private placement totaling $2.0
million were repaid from the proceeds of the private placement. Additionally,
$1.0 million due to a related party for investor and public relations services
was paid from the proceeds and $200,000 was reserved for future payments due
under a consulting agreement.
In October 1999 and December 1999, we issued 1,404,637 and 732,000 shares of
common stock, respectively, to accredited investors, in private placements. The
shares were issued at $3.25 and $5.50 per share, respectively, which represented
a discount upon the average reported closing sale price of our common stock for
the ten (10) business days immediately preceding the closing date. Aggregate net
proceeds totaled approximately $7,907,243.
In accordance with the terms of the October 1999 private placement, we issued
three-year warrants to twenty-one investors to purchase 1,404,637 shares of
common stock at $3.75 per share, or one warrant for each share issued. As of
March 31, 2000, warrants covering 1,000,245 shares of common stock had been
exercised, resulting in net proceeds totaling $3,750,919. The exercise of the
remainder of the warrants would result in net proceeds of $1,516,470. We have
the 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 our common stock
exceeds $12.00 for a period of twenty (20) consecutive trading days. Upon such
call notice, the holders of the warrants must exercise the warrants within
thirty days, after which time we may redeem each warrant for $0.05.
As part of their compensation for acting as placement agent for the October and
December 1999 private placements, we issued warrants to Pennsylvania Merchant
Group for the purchase of 36,924, 600, 18,900, 19,950, 8,890 and 3,500 shares of
common stock. The warrants are immediately exercisable and carry a five-year
term, exercise prices of $3.25, $3.25, $8.00, $7.44, $7.41 and $7.31,
respectively, piggyback registration rights and a cashless exercise provision.
As of March 31, 2000, warrants to purchase 75,844 shares of common stock had
been exercised, with net proceeds to the Company totaling $418,529. The exercise
of the remainder of the warrants would result in net proceeds of $94,512.
We issued a short-term note payable to an accredited investor for $1.0 million
in August 1999. The note was issued as bridge financing until such time that we
could obtain additional equity funding. One-half of the short-term note payable,
or $500,000, was converted into common stock pursuant to the October 1999
private placement. The remaining $500,000 plus interest was repaid on October
18, 1999.
At March 31, 2000, we had net working capital of approximately $8,062,916.
During 1999 we made significant expenditures and commitments for capital
improvements consistent with anticipated growth in operations, infrastructure
and personnel. We anticipate we will make capital expenditures of approximately
$3 million in the next twelve months. We will finance these expenditures through
the use of equipment leasing arrangements, borrowings or equity financing.
We purchased the domain name bills.com for $75,000 in April 1999, at which time
we announced the establishment of our own Internet portal at the web site
www.bills.com. We are amortizing the purchase
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price over a five-year period. The operations of the Internet portal have been
organized under "bills.com, Inc.," a Delaware corporation that operates as a
wholly owned subsidiary. The web site acts as a portal and is currently
available for consumer use and interaction. We will continue to develop the web
site and to enhance its design. We expect that bills.com will generate revenues
through Internet banner advertising on its web site, as well as through
sponsorship agreements with other Internet portals. We believe that companies
will purchase space on the bills.com web site 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. We currently invest only limited funds to
support and market the portal; however, we could at any time decide to devote
additional financial resources to the portal.
We have engaged Pennsylvania Merchant Group to provide certain strategic and
financial advisory services. In exchange for these advisory services, we issued
a warrant to purchase 111,085 shares of common stock at an exercise price of
$6.75 per share (which represents the average closing price of our stock over
the twenty (20)-day period preceding May 18, 1999). In accordance with the
warrant's anti-dilutive provision, the exercise price was adjusted to $6.31
after the issuance of shares in October and December. The warrant was exercised
in March 2000, resulting in net proceeds totaling $700,946. Using the fair-value
based method of accounting, we 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 Consolidated
Statement of Operations for the year ended December 31, 1999.
As of March 31, 2000, our headquarters were housed in approximately 14,000
square feet of leased office space in San Antonio, Texas. These headquarters are
no longer large enough to accommodate our anticipated growth. We entered into a
five-year lease for approximately 43,000 square feet in March 2000. We
anticipate the new headquarters will be ready for occupancy during the summer of
2000. We believe the new facility will provide adequate space to meet the needs
of our expanding operating, administrative and sales activities for at least the
next two years. The lease on the 14,000 square feet expires April 30, 2001. We
will utilize the facility for redundancy purposes until we arrange a sublease or
the lease expires. Additionally, we lease sales offices in Hollidaysburg,
Pennsylvania; Dallas, Texas; Phoenix, Arizona; Denver, Colorado; and Los
Angeles, California and plan to open additional sales offices throughout the
United States. Total rent expenses in 1999 were $130,000, and in 2000, we expect
to pay aggregate rent of approximately $600,000.
As of March 31, 2000, warrants to purchase 1,187,174 shares of common stock had
been exercised, as discussed in the previous paragraphs, resulting in total net
proceeds of $4,870,394. Of these warrants, 111,085 shares were related to the
advisory warrant in favor of Pennsylvania Merchant Group, 75,844 shares were
related to the placement agent warrants, and 1,000,246 shares were related to
investor warrants. Subsequent to March 31, 2000, additional warrants to purchase
326,921 shares of common stock were exercised, resulting in net proceeds of
$1,226,103.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it is,
the type of hedge transaction. In July 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The
Company does not use derivative instruments; therefore the adoption of this
statement will not have any effect on the Company's results of operations or its
financial position.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no litigation currently pending. Except as described in Footnote 6, we
are not aware of any disputes that may lead to litigation.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
billserv.com, Inc.
Date: May 15, 2000 /s/ LOUIS HOCH
PRESIDENT
Date: May 15, 2000 /s/ LORI TURNER
CHIEF FINANCIAL OFFICER
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