<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[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
[ ] 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: 0-17995
ZIXIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-2216818
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE GALLERIA TOWER
13355 NOEL ROAD
SUITE 1555
DALLAS, TEXAS 75240-6604
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(972) 702-7055
(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 THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT MAY 3, 2000
- -------------------------------------- ---------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE 16,553,363
<PAGE> 2
INDEX
PART I-FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Number
ITEM 1. FINANCIAL STATEMENTS ------
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 2000
and December 31, 1999 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2000 and 1999 and for the
cumulative period from January 1, 1999 through March 31, 2000 4
Condensed Consolidated Statement of Stockholders' Equity and
Comprehensive Net Loss for the three months ended March 31, 2000 5
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 and for the
cumulative period from January 1, 1999 through March 31, 2000 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
</TABLE>
2
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ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,133 $ 6,598
Marketable securities 20,119 33,186
Due from sale of discontinued operations -- 581
Other current assets 6,686 3,030
---------- ----------
Total current assets 42,938 43,395
Property and equipment, net 20,645 21,006
Goodwill, net 1,816 2,122
---------- ----------
$ 65,399 $ 66,523
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,239 $ 2,481
Liabilities related to discontinued operations 1,253 1,148
---------- ----------
Total current liabilities 3,492 3,629
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares
authorized; none outstanding -- --
Common stock, $.01 par value, 175,000,000 shares 179 176
authorized; 17,903,596 issued, 15,611,696
outstanding in 2000 and 17,629,929 issued,
15,338,029 outstanding in 1999
Additional capital 110,422 104,244
Treasury stock, at cost (11,314) (11,314)
Accumulated other comprehensive income 3,968 --
Accumulated deficit (net of deficit accumulated during
the development stage of $45,488 at March 31, 2000 and
$34,352 at December 31, 1999) (41,348) (30,212)
---------- ----------
Total stockholders' equity 61,907 62,894
---------- ----------
$ 65,399 $ 66,523
========== ==========
</TABLE>
See accompanying notes.
3
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ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative During
Three Months Development Stage
Ended March 31 (From January 1, 1999
----------------------------- Through
2000 1999 March 31, 2000)
---------- ---------- ----------------------
<S> <C> <C> <C>
Revenues $ 96 $ -- $ 195
Research and development expenses (2,211) (2,731) (25,759)
Operating costs and general corporate expenses (9,595) (775) (26,291)
Investment income 574 1,061 4,107
---------- ---------- ----------
Loss from continuing operations before income taxes (11,136) (2,445) (47,748)
Income tax benefit -- 30 807
---------- ---------- ----------
Loss from continuing operations (11,136) (2,415) (46,941)
Discontinued operations -- -- 1,453
---------- ---------- ----------
Net loss $ (11,136) $ (2,415) $ (45,488)
========== ========== ==========
Basic and diluted loss per common share $ (0.72) $ (0.16)
========== ==========
Weighted average shares outstanding 15,436 15,124
========== ==========
</TABLE>
See accompanying notes.
4
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ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE NET LOSS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other Total
Common Stock Additional Treasury comprehensive Accumulated stockholders'
Shares Amount capital stock income deficit equity
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 17,629,929 $ 176 $ 104,244 $ (11,314) $ -- $ (30,212) $ 62,894
Exercise of stock options
for cash 273,667 3 1,908 -- -- -- 1,911
Stock option compensation -- -- 1,753 -- -- -- 1,753
Stock issuable from purchase of
Anacom Communications -- -- 2,521 -- -- 2,521
Other -- -- (4) -- -- -- (4)
Comprehensive net loss:
Net loss -- -- -- -- -- (11,136) (11,136)
Unrealized gain on
marketable securities -- -- -- -- 3,968 -- 3,968
----------
Comprehensive net loss -- -- -- -- -- -- (7,168)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 2000 17,903,596 $ 179 $ 110,422 $ (11,314) $ 3,968 $ (41,348) $ 61,907
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
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ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative During
Three Months Development Stage
Ended March 31 (From January 1, 1999
------------------------- Through
2000 1999 March 31, 2000)
--------- --------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (11,136) $ (2,415) $ (46,941)
Adjustments to reconcile loss from continuing operations
to net cash used by operating activities:
Depreciation and amortization 2,222 15 5,698
Stock-based compensation 4,274 749 16,589
Changes in assets and liabilities, excluding divestiture of
businesses:
Other current assets 312 (27) (631)
Current liabilities (242) 252 (116)
--------- --------- ---------
Net cash used by continuing operations (4,570) (1,426) (25,401)
Net cash provided by discontinued operations 105 3,139 (1,750)
--------- --------- ---------
Net cash provided (used) by operating activities (4,465) 1,713 (27,151)
Cash flows from investing activities:
Purchases of property and equipment, net (1,555) (970) (24,720)
Purchases of marketable securities (2,933) (47,587) (122,083)
Sales and maturities of marketable securities 16,000 19,984 128,893
Purchase of Anacom Communications -- -- (2,500)
Investing activities of discontinued operations 581 -- 5,885
--------- --------- ---------
Net cash provided (used) by investing activities 12,093 (28,573) (14,525)
Cash flows from financing activities:
Proceeds from exercise of stock options 1,911 417 3,532
--------- --------- ---------
Net cash provided by financing activities 1,911 417 3,532
Effect of exchange rate changes on cash and cash equivalents (4) (7) (15)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 9,535 (26,450) (38,159)
Cash and cash equivalents, beginning of period 6,598 54,292 54,292
--------- --------- ---------
Cash and cash equivalents, end of period $ 16,133 $ 27,842 $ 16,133
========= ========= =========
</TABLE>
See accompanying notes.
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ZIXIT CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements, which should be read in conjunction
with the audited consolidated financial statements included in the Company's
1999 Annual Report to Shareholders on Form 10-K, are unaudited but have been
prepared in the ordinary course of business for the purpose of providing
information with respect to the interim periods. The Condensed Consolidated
Balance Sheet at December 31, 1999 was derived from the audited Consolidated
Balance Sheet at that date which is not presented herein. Management of the
Company believes that all adjustments necessary for a fair presentation for such
periods have been included and are of a normal recurring nature except the
accounting for the equity securities as explained in Note 2. The results of
operations for the three-month period ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full year.
During 1998, the Company sold all of its operating businesses and,
accordingly, the assets and liabilities, operating results and cash flows of
these businesses have been classified as discontinued operations in the
accompanying financial statements.
Since January 1, 1999, the Company has been developing digital signature
and encryption technology and is planning a series of products that enhance
privacy, security and convenience over the Internet. To date, the Company has
not earned any revenues from these products. ZixMail(TM), which was commercially
released in March 2000, is a secure document delivery, private email and message
tracking service that enables Internet users worldwide to easily send and
receive encrypted and digitally signed communications without changing their
existing email systems or addresses. ZixCharge(TM), which has not been
commercially released, is a shopping portal and payment authorization system
that enables consumers to purchase goods and services over the Internet without
being required to provide personal and charge card information to Internet
merchants.
Successful development of a development stage enterprise, particularly
Internet related businesses, is costly and highly competitive. The Company's
growth depends on the timely development and market acceptance of new products.
A development stage enterprise involves risks and uncertainties and there are no
assurances that the Company will be successful in its efforts. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
accompanying statements of operations and cash flows include cumulative totals
of the Company's results during the development stage.
The amount presented for basic and diluted loss per common share has been
computed based upon the weighted average number of common shares outstanding for
the period. The two presentations are equal in amounts because the assumed
exercise of common stock equivalents would be antidilutive, since a net loss was
reported for each period presented.
2. STOCKHOLDERS' EQUITY
Purchase of Anacom Communications
In October 1999, the Company purchased all of the outstanding shares of
Anacom Communications, Inc., a privately-held provider of Internet transaction
processing and real-time credit processing services to Internet merchants.
Consideration consisted of a cash payment of $2,500,000, primarily recorded as
goodwill, and common stock, valued at a minimum of $7,500,000, to be delivered
in two annual installments beginning October 2000, assuming continued employment
by the former owners. The minimum value of the common stock issuable pursuant to
the purchase agreement of $7,500,000 is treated as compensation for financial
accounting purposes and is being charged to operating costs and general
corporate expenses over two years with a corresponding increase in additional
7
<PAGE> 8
capital. Financial accounting rules require the minimum number of common shares
issuable be revalued on each subsequent reporting date until performance is
complete with a cumulative catch up adjustment recognized for any changes in
their intrinsic value in excess of $7,500,000. The Company's common stock price
has increased since the purchase date to $72.81 per share as of March 31, 2000.
Accordingly, the Company's results of operations for the three months ended
March 31, 2000 include a non-cash charge of $2,521,000 for amortization of the
current market value of the minimum number of common shares issuable. The
Company's results of operations for the remainder of 2000 and 2001 could be
materially impacted as a result of future increases or decreases in the price of
the Company's common stock; however, there would be no impact on the Company's
cash flows or total stockholder's equity. The number of shares to be delivered,
set at a minimum of 190,000 shares, may be increased should the market value of
the common stock be less than $39.48 at the time of delivery. However, if
additional consideration is required, the Company may elect to pay cash rather
than issue additional shares of common stock.
Third Party Stock Options
The Company has agreements with three service providers whereby the Company
granted options to purchase up to 200,000 shares of the Company's common stock
at a weighted average exercise price of $38.78. These options vest over periods
up to 42 months and have expiration dates ranging from four to eight years. On
the dates of grant, these options had an estimated fair value aggregating
$6,703,000 using the Black-Scholes option valuation model. Financial accounting
rules require these options to be revalued on each subsequent reporting date
until performance is complete with a cumulative catch up adjustment recognized
for any changes in their fair value. The Company's common stock price has
increased since the dates of grant to $72.81 per share at March 31, 2000,
thereby increasing the estimated fair value of these options to $11,479,000 as
of March 31, 2000. The revalued amount for these options is being amortized over
the respective vesting periods. Accordingly, the Company's results of operations
for the three months ended March 31, 2000 include a non-cash charge of
$1,288,000 for amortization of the fair value of these options. The Company's
future results of operations could be materially impacted by a change in
valuation of these stock options as a result of future increases or decreases in
the price of the Company's common stock. However, the required accounting
treatment has no impact on the Company's cash flows or total stockholders'
equity.
Reallocated Options to Employees and Director
In 2000, David P. Cook, the Company's chairman, president and chief
executive officer, reallocated options to acquire 404,627 shares of the
Company's common stock to certain of the Company's employees and a director.
These options have a five year term, vest from April 2001 to April 2003 and have
exercise prices ranging from $9.38 to $13.75 per share as compared to Mr. Cook's
exercise price of $7.00 per share. Non-cash compensation expense of $12,323,000
($448,000 for the three months ended March 31, 2000) will be recognized over the
vesting periods, representing the intrinsic value of the reallocated options
based upon the difference between the fair market value of the Company's common
stock on the dates the options were reallocated and the option exercise prices.
Lante Common Stock
In November 1999, the Company received a fully vested option to acquire up
to 400,000 shares of Lante Corporation's ("Lante") common stock at $7.00 per
share in accordance with a certain cashless exercise formula. The option was
valued at $1,872,000 on the date of grant, using the Black-Scholes option
valuation model, and was included in other current assets at December 31, 1999.
In 2000, the Company exercised its option to acquire shares of Lante common
stock. The Company and Lante are disputing the net number of Lante shares the
Company is to receive from this cashless exercise and have initiated arbitration
proceedings. Lante is disputing 128,532 of the 320,802 shares that the Company
believes it is entitled to receive. The fair market value of the Company's
undisputed shares of Lante common stock at March 31, 2000 is $5,840,000 ($30.38
per share) and is included in other current assets. An unrealized gain on these
shares of $3,968,000 is included in other comprehensive income as a component of
stockholders' equity; however, there are certain restrictions regarding the sale
or transfer of these shares. The closing price of Lante's common stock on May 3,
2000 was $23.94.
8
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3. LITIGATION
On December 30, 1999, the Company and ZixCharge.com, Inc. ("ZixCharge"), a
wholly-owned subsidiary of the Company, filed a lawsuit against Visa U.S.A.,
Inc. and Visa International Service Association (collectively "Visa") in the
192nd Judicial District Court of Dallas County, Texas. The suit alleges that
Visa undertook a series of actions that interfered with the Company's business
relationships and disparaged the Company, its products, its management and its
stockholders. The suit alleges that Visa intentionally set out to destroy the
Company's ability to market its ZixCharge shopping portal and payment
authorization system, which competed against the MasterCard and Visa-owned
Secure Electronic Transaction system. The suit seeks monetary damages and such
other relief as the court deems appropriate.
The Company is involved in legal proceedings that arise in the ordinary
course of business. In the opinion of management, the outcome of pending legal
proceedings will not have a material adverse affect on the Company's
consolidated financial statements.
4. SUBSEQUENT EVENT
On May 1, 2000, the Company sold, in a private placement, certain newly
issued equity securities to investors led by H. Wayne Huizenga. The Company is
to receive a total of $44,000,000 in three equal installments on May 1, 2000,
June 30, 2000 and September 1, 2000. The Company issued to the investor group
916,667 shares of its common stock valued at $48.00 per share, ten-year warrants
to purchase 916,667 shares of the Company's common stock at $57.60 per share and
four-year warrants to purchase 1,222,223 shares of the Company's common stock at
$12.00 per share. The four-year warrants were reallocated from David P. Cook and
will not be exercisable until May 1, 2001. Additionally, H. Wayne Huizenga has
been appointed vice chairman of the Company's board of directors.
9
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Historically, the Company operated in one industry segment, the provision
of systems and solutions for the intelligent transportation, electronic security
and other markets through the design, manufacturing, installation and support of
hardware and software products utilizing the Company's wireless data and
security technologies. The businesses comprising this industry segment were sold
during 1998 and 1997 and have been classified as discontinued operations in the
condensed consolidated financial statements.
Since January 1999, the Company has been developing digital signature and
encryption technology and is planning a series of products that enhance privacy,
security and convenience over the Internet. To date, the Company has not earned
any revenues from these products. ZixMail(TM), which was commercially released
in March 2000, is a secure document delivery, private email and message tracking
service that enables Internet users worldwide to easily send and receive
encrypted and digitally signed communications without changing their existing
email systems or addresses. ZixCharge(TM), which has not been commercially
released, is a shopping portal and payment authorization system that enables
consumers to purchase goods and services over the Internet without being
required to provide personal and charge card information to Internet merchants.
Additionally, in October 1999, the Company purchased all of the outstanding
shares of Anacom Communications, Inc. ("Anacom"), a provider of Internet
transaction processing and real-time credit processing services to Internet
merchants.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS
Revenues
Revenues in the first quarter of 2000 are attributable to Anacom. The
Company is not currently charging for use of its ZixMail product, commercially
released in March 2000. The Company has not yet determined when it will begin
charging for the use of ZixMail. It is contemplated that it could begin charging
as early as July 1, 2000, or as late as January 1, 2001.
Research and development expenses
Research and development expenses decreased from $2,731,000 in the first
quarter of 1999 to $2,211,000 for the corresponding period in 2000. Expenses in
1999 include a non-cash charge of $746,000 for amortization of the fair value of
stock options granted to Lante Corporation, a third party Internet services
company that assisted the Company with its development efforts. In 2000,
compensation costs increased and third party consulting costs decreased from the
prior year resulting from the hiring of additional technical personnel to
support the development of the Company's various Internet products.
Operating costs and general corporate expenses
Operating costs and general corporate expenses increased from $775,000 in
the first quarter of 1999 to $9,595,000 for the same period in 2000. The
increase is primarily due to expenses for marketing, advertising, expanded lease
facilities, depreciation of property and equipment and personnel relating to
establishing the Company's Internet related businesses. In addition, the first
quarter of 2000 includes $4,274,000 of non-cash charges for stock-based
compensation resulting from the issuance of certain equity securities. See Note
2 to the Condensed Consolidated Financial Statements for a discussion regarding
the accounting for these equity securities and their potential impact on the
Company's future operating results.
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Investment income
Investment income decreased from $1,061,000 in the first quarter of 1999 to
$574,000 for the same period in 2000 primarily due to the decrease in invested
cash and marketable securities as a result of expenditures related to
establishing the Company's new Internet related businesses.
Income tax benefit
The income tax benefit on the loss from continuing operations in 2000 and
1999 is different from the U.S. statutory rate of 34%, primarily due to
unbenefitted U.S. losses. The Company fully reserves its deferred tax assets due
to the uncertainty of future taxable income from the Company's new business
initiatives.
Loss from continuing operations
As a result of the foregoing, the Company experienced losses from
continuing operations of $2,415,000 in 1999 and $11,136,000 in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's principal source of liquidity is its net
working capital position of $39,446,000, including cash and marketable
securities of $36,252,000. The Company plans to continue to invest its excess
cash in short-term, high-grade U.S. corporate debt securities or U.S. government
and agency securities. The Company's first quarter 2000 loss from continuing
operations included significant non-cash expenses. Net cash used by continuing
operations in the first quarter of 2000 was $4,570,000, primarily representing
development and start-up costs relating to the Company's Internet related
businesses. Additionally, in the first quarter of 2000, the Company invested
$1,555,000 in property and equipment for computer equipment associated with its
secure data center. The Company's near-term liquidity will be negatively
impacted as the Company continues its development stage activities, particularly
with regards to discretionary marketing and advertising costs; however, the
Company expects additional investment in property and equipment for 2000 to be
no more than $3,000,000.
On May 1, 2000, the Company sold, in a private placement, certain newly
issued equity securities to investors led by H. Wayne Huizenga. The Company is
to receive a total of $44,000,000 in three equal installments on May 1, 2000,
June 30, 2000 and September 1, 2000. The Company issued to the investor group
916,667 shares of its common stock valued at $48.00 per share, ten-year warrants
to purchase 916,667 shares of the Company's common stock at $57.60 per share and
four-year warrants to purchase 1,222,223 shares of the Company's common stock at
$12.00 per share. The four-year warrants were reallocated from David P. Cook,
the Company's chairman, president and chief executive officer and will not be
exercisable until May 1, 2001.
The Company believes its existing net working capital position along with
funds provided by the Huizenga investors will be sufficient to meet near-term
anticipated needs. The Company currently has no existing borrowings or credit
facilities. Acquisitions, if any, would be financed by the most attractive
alternative available, which could be cash or the issuance of debt or equity
securities.
IMPACT OF THE YEAR 2000
The Year 2000 Issue is primarily the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company has not experienced any problems with respect to the Year 2000 Issue.
Software systems developed for use in connection with the Company's new Internet
related businesses are designed and tested for Year 2000 compliance.
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RISKS AND UNCERTAINTIES
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: Certain matters discussed in this Quarterly
Report on Form 10-Q contain statements that constitute forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. The words "expect," "estimate," "anticipate," "predict,"
"believe" and similar expressions and variations thereof are intended to
identify forward-looking statements. Readers are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. These risks and uncertainties include, but are not limited to, the
following:
LIMITED OPERATING HISTORY
The Company has only a limited operating history in the Internet arena on
which to base an evaluation of its business and prospects. The Company's
prospects must be considered in light of the risks and uncertainties encountered
by other companies in the early stages of development. These risks and
uncertainties are often worse for companies in new and rapidly evolving markets,
particularly Internet-related businesses.
PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE
The ZixMail and ZixCharge products are targeted at the new and rapidly
evolving market for secure Internet communications and e-commerce. Although the
competitive environment in this market has yet to fully develop, the Company
anticipates that it will be intensely competitive, subject to rapid change and
significantly affected by new products and service introductions and other
market activities of industry participants. The Company's success will depend on
many factors, including, but not limited to, the following:
o The Company must be able to successfully and timely develop its
products. The commercial version of ZixMail was released in March
2000. ZixCharge has not been commercially released, however.
o The Company must be able to achieve broad market acceptance for its
products. There is currently no known Internet secure document
delivery and private messaging system, such as ZixMail, that currently
operates at the scale that the Company would require, at its current
expenditure levels and proposed pricing, to become profitable from its
ZixMail operations. To reach a larger ZixMail customer base than it
can reach through its direct sales and marketing efforts, the Company
is pursuing strategic or other similar collaborative relationships
with third parties. There is no assurance that the Company will be
successful in entering into these relationships, or that if entered
into, they will significantly assist the Company in obtaining large
numbers of ZixMail users. Moreover, in any event, there is no
assurance that enough paying users of ZixMail will be ultimately
obtained to enable the Company to operate profitably.
o Since the commercial version of ZixCharge has not yet been released,
there are currently no consumers or merchants using ZixCharge. The
success of ZixCharge will depend on the Company's ability to obtain,
as users, large numbers of consumers who desire to shop privately over
the Internet and its ability to obtain large numbers of merchants that
will permit them to do so using ZixCharge. To obtain access to large
numbers of consumers, the Company is pursuing strategic or similar
collaborative relationships with financial institutions or other
companies that have existing business relationships with large numbers
of people. There is no assurance that the Company will be successful
in entering into these relationships, or that if entered into, they
will significantly assist the Company in obtaining large numbers of
ZixCharge users. Moreover, in any event, there is no assurance that
the Company will be successful in obtaining a critical mass of
consumers as ZixCharge users or obtaining a critical mass of merchants
that will allow consumers to use ZixCharge. If the Company is unable
to obtain the necessary critical mass, the Company may decide not to
commercially introduce ZixCharge.
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REVENUES
The Company currently has no significant revenues.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is a new entrant into the rapidly evolving secure Internet
communications and e-commerce markets. The Company will be competing with larger
companies that have access to greater capital, research and development,
marketing, distribution and other resources than the Company. In addition, the
Internet arena is characterized by extensive research efforts and rapid product
development and technological change that could render the Company's products
obsolete or noncompetitive. The Company's failure to develop and introduce new
products and services successfully on a timely basis and to achieve market
acceptance for those products and services could have a significant adverse
effect on its business, financial condition and results of operations. The
Company may decide, at any time, to delay, discontinue or not initiate the
development and release of any one or more of its planned or contemplated
products.
SECURITY INTERRUPTIONS AND SECURITY BREACHES
The Company's business depends on the uninterrupted operation of its secure
data center. The Company must protect this center from loss, damage or
interruption caused by fire, power loss, telecommunications failure or other
events beyond its control. Any damage or failure that causes interruptions in
the Company's secure data center operations could materially harm its business,
financial condition, and results of operations.
In addition, the Company's ability to issue digitally-signed certified
time-stamps and public encryption codes in connection with its ZixMail service
depends on the efficient operation of the Internet connections between customers
and the Company's data center. The Company depends on Internet service providers
efficiently operating these connections. These providers have experienced
periodic operational problems or outages in the past. Any of these problems or
outages could adversely affect customer satisfaction.
Furthermore, it is critical that the Company's facilities and
infrastructure remain secure and the market perceive them to be secure. Despite
the Company's security measures, its infrastructure may be vulnerable to
physical break-ins, computer viruses, attacks by hackers or similar disruptive
problems. It is possible that the Company may have to use additional resources
to address these problems. The Company's planned ZixCharge business will retain
certain confidential customer information in its secure data center. Any
physical or electronic break-ins or other security breaches or compromises of
this information could expose the Company to significant liability, and
customers could be reluctant to use its Internet-related products.
KEY PERSONNEL
The Company depends on the performance of its senior management team and
other key employees, particularly highly skilled technical and sales and
marketing personnel. The Company's success also depends on its ability to
attract, retain and motivate these individuals. There is intense competition for
these personnel, and the Company faces a tight employment market in general.
There are no agreements with any of the Company's personnel that prevent them
from leaving ZixIt at any time. In addition, the Company does not maintain key
person life insurance for any of its personnel. The loss of the services of any
of the Company's key employees or its failure to attract, retain and motivate
key employees could harm its business.
UNKNOWN DEFECTS OR ERRORS IN ZIXMAIL AND ZIXCHARGE
ZixMail and ZixCharge could contain undetected defects or errors. Despite
our testing, defects or errors may occur, which could result in loss of or delay
in revenues, failure to achieve market acceptance, diversion of development
resources, injury to the Company's reputation, litigation claims, increased
insurance costs or increased service and warranty costs. Any of these could harm
the Company's business.
13
<PAGE> 14
PUBLIC KEY CRYPTOGRAPHY TECHNOLOGY
The Company's ZixMail product employs, and future products may employ,
public key cryptography technology. With public key cryptography technology, a
user has a public key and a private key, which are used to encrypt and decrypt
messages. The security afforded by this technology depends, in large measure, on
the integrity of a user's private key, which is dependent, in part, on the
application of certain mathematical principles. The integrity of a user's
private key is predicated on the assumption that it is difficult to
mathematically derive a user's private key from the user's related public key.
Should methods be developed that make it easier to derive a user's private key,
the security of encryption products using public key cryptography technology
would be reduced or eliminated and such products could become unmarketable. This
could require the Company to make significant changes to its products, which
could damage its reputation and otherwise hurt its business. Moreover, there
have been public reports of the successful decryption of certain encrypted
messages. This, or related, publicity could affect public perception of the
security afforded by public key cryptography technology, which could harm the
Company's business.
GOVERNMENT REGULATION
Exports of software products using encryption technology are generally
restricted by the U.S. government. Although the Company has obtained U.S.
government approval to export its ZixMail product to almost all countries in the
world, the list of countries to which ZixMail cannot be exported could be
revised in the future. Furthermore, some foreign countries impose restrictions
on the use of software products using encryption technology, such as ZixMail.
Failure to obtain the required governmental approvals would preclude the Company
from selling ZixMail in international markets.
LACK OF STANDARDS
There is no assurance that ZixMail or ZixCharge will become a generally
accepted standard or that they will be compatible with any standards that become
generally accepted.
INTELLECTUAL PROPERTY RIGHTS
The Company may have to defend its intellectual property rights or defend
against claims that the Company is infringing the rights of others. Intellectual
property litigation and controversies are disruptive and expensive. Infringement
claims could require the Company to develop non-infringing products or enter
into royalty or licensing arrangements. Royalty or licensing arrangements, if
required, may not be obtainable on terms acceptable to the Company. The
Company's business could be significantly harmed if it is not able to develop or
license the necessary technology. Furthermore, it is possible that others may
independently develop substantially equivalent intellectual property, thus
enabling them to effectively compete against the Company.
SALES OF BUSINESSES
The Company disposed of its remaining operating businesses in 1998 and
1997. In selling those businesses, the Company agreed to provide customary
indemnification to the purchasers of those businesses for breaches of
representations and warranties, covenants and other specified matters. Although
the Company believes that it has adequately provided for future costs associated
with these indemnification obligations, indemnifiable claims could exceed the
Company's estimates.
STOCK PRICE
The market price of the Company's common stock has fluctuated significantly
in the past and is likely to fluctuate in the future. Also, the market prices of
securities of other Internet-related companies have been highly volatile.
14
<PAGE> 15
OTHER UNANTICIPATED RISKS AND UNCERTAINTIES
There are no assurances that the Company will be successful or that it will
not encounter other, and even unanticipated, risks. The Company discusses other
operating, financial or legal risks or uncertainties in its other periodic SEC
filings. The Company is, of course, also subject to general economic risks.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended March 31, 2000, the Company did not experience any
material changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in the Company's 1999 Annual Report to
Shareholders on Form 10-K.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Note 4 to Condensed Consolidated Financial Statements regarding the
Company's issuance of common stock and warrants to purchase additional shares of
common stock to H. Wayne Huizenga and his affiliates and assigns (the
"Investors"). The transaction is exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 and Regulation D thereunder because the
shares of common stock and warrants were issued in a transaction not involving a
public offering under Rule 506 of Regulation D. These securities were sold in a
single transaction to the Investors who all qualify as "accredited investors"
under Regulation D. All the terms and conditions of Rules 502 and 503 were
satisfied.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following is a list of exhibits filed as part of this
Quarterly Report on Form 10-Q.
DESCRIPTION OF EXHIBITS
3.1 Articles of Incorporation, together with all
amendments thereto (filed as Exhibit 3.1 to the
Company's Form 10-K for the year ended December 31,
1998, and incorporated herein by reference). Articles
of Amendment to Articles of Incorporation, dated
September 14, 1999 (filed as Exhibit 3.2 to the
Company's Form 10-Q for the quarterly period ended
September 30, 1999, and incorporated herein by
reference). Articles of Amendment to Articles of
Incorporation, dated October 12, 1999 (filed as
Exhibit 3.3 to the Company's Form 10-Q for the
quarterly period ended September 30, 1999, and
incorporated herein by reference).
*3.2 Restated Bylaws of ZixIt Corporation, dated September
14, 1999.
*10.1 Amendment No. 2 to Stock Option Agreement, dated May
2, 2000, between David P. Cook and ZixIt Corporation.
*27.1 Financial Data Schedule.
b. The Registrant filed Forms 8-K with the Securities and Exchange
Commission on April 12, 2000 and May 3, 2000 to report the Common
Stock and Warrant Purchase Agreement, dated April 11, 2000 with
H. Wayne Huizenga and his affiliates and assigns and the May 1,
2000 closing of the transaction contemplated thereby,
respectively.
*Filed herewith.
15
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
ZIXIT CORPORATION
(Registrant)
Date: May 15, 2000 By: /s/Steve M. York
--------------------------------------
Steve M. York
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Articles of Incorporation, together with all amendments
thereto (filed as Exhibit 3.1 to the Company's Form 10-K for
the year ended December 31, 1998, and incorporated herein by
reference). Articles of Amendment to Articles of
Incorporation, dated September 14, 1999 (filed as Exhibit
3.2 to the Company's Form 10-Q for the quarterly period
ended September 30, 1999, and incorporated herein by
reference). Articles of Amendment to Articles of
Incorporation, dated October 12, 1999 (filed as Exhibit 3.3
to the Company's Form 10-Q for the quarterly period ended
September 30, 1999, and incorporated herein by reference).
*3.2 Restated Bylaws of ZixIt Corporation, dated September 14,
1999.
*10.1 Amendment No. 2 to Stock Option Agreement, dated May 2,
2000, between David P. Cook and ZixIt Corporation.
*27.1 Financial Data Schedule.
</TABLE>
*Filed herewith.
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
ZIXIT CORPORATION
SEPTEMBER 14, 1999
<PAGE> 2
RESTATED BYLAWS
OF
ZIXIT CORPORATION
ARTICLE I
OFFICES
1. Principal Office. The principal office of the Corporation shall be
located in the City of Dallas, County of Dallas, State of Texas. The Corporation
also may have offices at such other places, both within and without the State of
Texas, as the Board of Directors may from time to time determine or the business
of the Corporation may require.
2. Registered Office. The registered office of the Corporation,
required by the Texas Business Corporation Act (the "Act") to be maintained in
the State of Texas, may be, but need not be, the same as its principal place of
business in the State of Texas or the business office of a domestic or foreign
corporation authorized to transact business in the State of Texas. The address
of the registered office of the corporation may be changed from time to time by
resolution of the Board of Directors.
ARTICLE II
SHAREHOLDERS
1. Time and Place of Meeting. Meetings of the shareholders shall be
held at such times and at such places, within or without the State of Texas, as
shall be determined by the Board of Directors.
2. Annual Meetings. Annual meetings of shareholders shall be held on
such date and at such time and place during the fourth month of each fiscal year
(beginning in 1988) as shall be determined by the Board of Directors of the
Corporation, at which they shall elect a Board of Directors and transact such
other business as may properly be brought before the meeting. The date of the
annual meeting of the shareholders may be a date or time different than that set
forth above if the Board of Directors so determines and so states in the notice
of the meeting or in a duly executed waiver thereof.
3. Special Meetings. Special meetings of the shareholders may be called
at any time by the President or the Board of Directors, and shall be called by
the President or the Secretary at the request in writing of a majority of the
Board of Directors or at the request in writing of the holders of not less than
ten percent (10%) of all the shares issued, outstanding and entitled to vote at
the meeting. Such request shall state the purpose or purposes of the proposed
meeting. Business transacted at special meetings shall be confined to the
purposes stated in the notice of the meeting.
<PAGE> 3
4. Notice. Written or printed notice stating the place, day and hour of
the meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than ten (10) nor more than
fifty (50) days before the date of the meeting, either personally or by mail, by
or at the discretion of the President, the Secretary, or the officer or person
calling the meeting, to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
share transfer records of the Corporation.
5. Closing of Share Transfer Records and Fixing Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose (other than determining shareholders entitled to
consent to action by shareholders proposed to be taken without a meeting of
shareholders), the Board of Directors of the Corporation may provide that the
share transfer records shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the share transfer records shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such records shall be closed for at least ten (10) days
immediately preceding such meeting. In lieu of closing the share transfer
records, the Board of Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty (60) days and, in the case of a meeting of shareholders, not less
than ten (10) days, prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If the share transfer records
are not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof except
where the determination has been made through the closing of the share transfer
records and the stated period of closing has expired.
Unless a record date shall have previously been fixed or
determined pursuant to this section, whenever action by shareholders is proposed
to be taken by consent in writing without a meeting of shareholders, the Board
of Directors may fix a record date for the purpose of determining shareholders
entitled to consent to that action, which record date shall not precede, and
shall not be more than ten (10) days after, the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no record date
has been fixed by the Board of Directors and the prior action of the Board of
Directors is not required by this section, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office, its principal place of business, or an officer or agent of
the Corporation having custody of the books in which proceedings of meetings of
shareholders are recorded. Delivery shall be by hand or by certified or
registered mail, return receipt requested. Delivery to the Corporation's
principal place of business shall be addressed to the President. If no record
date shall have been fixed by the Board of Directors and prior action of the
Board of Directors is required by this section, the record date for determining
shareholders entitled to consent to action in writing without a meeting shall be
at the close of business on the date on which the Board of Directors adopts a
resolution taking such prior action.
2
<PAGE> 4
6. Voting List. The officer or agent of the Corporation having charge
of the stock transfer books for shares of the Corporation shall make, at least
ten (10) days before each meeting of the shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of voting
shares held by each, which list, for a period of ten (10) days prior to such
meeting, shall be kept on file at the registered office or principal place of
business of the Corporation and shall be subject to inspection by any
shareholder at any time during the usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or to vote at any
meetings of shareholders.
7. Quorum. A quorum shall be present at all meetings of shareholders
for the transaction of business if the holders of a majority of the issued and
outstanding shares entitled to vote are represented at the meeting in person or
by proxy, unless otherwise provided in the Articles of Incorporation or the Act.
However, the shareholders represented in person or by proxy at a meeting of
shareholders at which a quorum is not present may adjourn the meeting until such
time and to such place as may be determined by a vote of the holders of a
majority of the shares represented in person or by proxy at that meeting. Once a
quorum is present at a meeting of shareholders, the shareholders represented in
person or by proxy at the meeting may conduct such business as may be properly
brought before the meeting until it is adjourned, and the subsequent withdrawal
from the meeting of any shareholder or the refusal of any shareholder
represented in person or by proxy to vote shall not affect the presence of a
quorum at the meeting.
8. Voting. With respect to any matter, other than the election of
directors or a matter for which the affirmative vote of the holders of a
specified portion of the shares entitled to vote is required by this section,
the affirmative vote of the holders of a majority of the shares entitled to vote
on that matter and represented in person or by proxy at a meeting of
shareholders at which a quorum is present shall be the act of the shareholders.
Directors shall be elected by a plurality of the votes cast by
the holders of shares entitled to vote in the election of directors at a meeting
of shareholders at which a quorum is present.
Each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share having voting power
held by such shareholder, except to the extent that the voting rights of the
shares of any class or classes are limited or denied by the Articles of
Incorporation. At each election for directors every shareholder shall be
entitled to vote, in person or by proxy, the number of shares owned by him for
as many persons as there are directors to be elected and for whose election he
has a right to vote. Cumulative voting is prohibited by the Articles of
Incorporation. Every proxy must be executed in writing by the shareholder. A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
executed by the shareholder, shall be treated as an execution in writing for
purposes of this section. No proxy shall be valid after eleven (11) months from
the date of its execution unless otherwise provided therein. Each proxy shall be
revocable unless expressly provided therein to be irrevocable or unless
otherwise made irrevocable by law.
3
<PAGE> 5
An irrevocable proxy, if noted conspicuously on the certificate
representing the shares that are subject to the irrevocable proxy, shall be
specifically enforceable against the holder of those shares or any successor or
transferee of the holder. Unless noted conspicuously on the certificate
representing the shares that are subject to the irrevocable proxy, an
irrevocable proxy, even though otherwise enforceable, is ineffective against a
transferee for value without actual knowledge of the existence of the
irrevocable proxy at the time of the transfer or against any subsequent
transferee (whether or not for value), but such an irrevocable proxy shall be
specifically enforceable against any other person who is not a transferee for
value from and after the time that the person acquires actual knowledge of the
existence of the irrevocable proxy.
Shares registered in the name of another corporation may be voted
by such officer, agent or proxy as the bylaws of such corporation may prescribe
or, in the absence of such provisions, as the board of directors of such
corporation may determine.
Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a trustee
may be voted by him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of such shares into his
name as trustee.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without being transferred into his name, if such authority is
contained in an appropriate order of the court that appointed the receiver.
A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the Corporation or held by
it in a fiduciary capacity shall not be voted, directly or indirectly, at any
meeting, and shall not be counted in determining the total number of outstanding
shares at any given time.
9. Action by Unanimous Consent. Any action required to be taken at any
annual or special meeting of shareholders, or any action which may be taken at
any annual or special meeting of shareholders, may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall have been signed by the holder or
holders of all the shares entitled to vote with respect to the action that is
the subject of the consent.
Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective to take
the action that is the subject of the consent unless, within sixty (60) days
after the date of the earliest dated consent delivered to the corporation in the
manner required by this section, a consent or consents signed by the holder or
holders of shares having not less than the minimum number of votes that would be
necessary to take the action that is the subject of the consent are delivered to
the Corporation by delivery to its registered office, its principal place of
business, or an officer or agent of the corporation having custody of the books
in which proceedings of meetings of shareholders are recorded. Delivery shall be
by hand or certified or registered mail, return receipt requested. Delivery to
the Corporation's principal place of business shall be addressed to the
President.
4
<PAGE> 6
A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing signed by a shareholder, shall be regarded as signed by the
shareholder for purposes of this section.
Prompt notice of the taking of any action by shareholders without
a meeting by less than unanimous written consent shall be given to those
shareholders who did not consent in writing to the action.
If any action by shareholders is taken by written consent, any
articles or documents filed with the Secretary of State of the State of Texas as
a result of the taking of the action shall state, in lieu of any statement
required by this section or by the Act concerning any vote of shareholders, that
written consent has been given in accordance with the provisions of this section
and that any written notice required by this section has been given.
10. Presence at Meetings by Means of Communication Equipment.
Shareholders may participate in and hold a meeting of such shareholders by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this section shall constitute presence in person at
such meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE III
DIRECTORS
1. Number of Directors. The number of directors of the Corporation
shall be fixed from time to time by resolution of the Board of Directors. Until
otherwise fixed by resolution of the Board of Directors, the number of directors
shall be six. No decrease in the number of directors shall have the effect of
reducing the term of any incumbent director. Directors shall be elected at the
annual meeting of the holders of shares entitled to vote in the election of
directors, except as provided in Section 2 of this Article III, and each
director shall hold office until (i) his successor is elected and qualified,
(ii) he dies, (iii) he resigns, or (iv) he is removed. Directors need not be
residents of the State of Texas or shareholders of the Corporation.
2. Vacancies. Subject to other provisions of this section, any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining directors, though the remaining directors may
constitute less than a quorum of the Board of Directors as fixed by Section 10
of this Article III. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors may be filled by unanimous
vote of the existing directors; provided, however, that the Board of Directors
may not fill more than two (2) such directorships during the period between any
two (2) successive annual meetings of shareholders. Any vacancy occurring in the
Board of Directors or any directorship to be filled by reason of an increase in
the number of directors may be filled by election at an annual or special
meeting of the shareholders called for that purpose. Shareholders holding a
majority of the issued and outstanding shares entitled to vote may, at any time,
terminate the term of office of all or any of the directors, with or without
cause, by a vote at any annual or special meeting, or by written consent, signed
by the holders of all of such shares, and filed with the secretary or, in his
absence, with any other officer. Such removal shall be effective immediately
upon such shareholder action even if successors are not elected simultaneously,
and
5
<PAGE> 7
the vacancies on the Board of Directors caused by such action shall be filled
only by election by the shareholders. Furthermore, the Board of Directors may,
by the vote or by the written consent of 66% or more of the entire Board of
Directors, terminate the term of office of any director who was within the
previous 90 day period an employee of the Corporation (or one or more of its
affiliates) but who is no longer an employee of the Corporation or of any of its
affiliates. Such removal shall be effective immediately upon such action by the
Board of Directors even if a successor is not elected simultaneously.
3. General Powers. The business of the Corporation shall be managed by
its Board of Directors, which may exercise all powers of the Corporation and do
all such lawful acts and things, as are not by the Act, the Articles of
Incorporation or these Bylaws directed or required to be exercised or done by
the shareholders.
4. Place of Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Texas.
5. Annual Meetings. The first meeting of each newly elected Board of
Directors shall be held, without further notice, immediately following the
annual meeting of shareholders at which such directors were elected, provided a
quorum shall be present. In the event such meeting is not held immediately
following the annual meeting, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
of notice signed by all of the directors.
6. Regular Meetings. Regular meetings of the Board of Directors shall
be held without special notice at such time and at such place as shall from time
to time be determined by the Board of Directors.
7. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the President, and shall be called by the
Secretary on the written request of a majority of the incumbent directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix the place for holding any special meeting of the Board of Directors
called by them.
8. Notice of Special Meetings. Notice of any special meetings shall be
given at least forty-eight (48) hours prior thereto if given either personally
(including written notice delivered personally or telephone notice) or by
telegram, and at least one hundred twenty (120) hours prior thereto if given by
written notice mailed to each director at the address of his business or
residence. If mailed, the notice shall be deemed to be delivered when deposited
in the United States mail addressed, in the above-specified manner, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the Board of Directors need be specified in the notice or waiver of
notice for such meeting.
9. Waiver of Notice. Any director may waive notice of any meeting, as
provided in Article IV, Section 2, of these Bylaws. The attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
6
<PAGE> 8
10. Quorum and Voting. At all meetings of the Board of Directors, the
presence of a majority of the number of directors fixed by Article III, Section
1, of these Bylaws shall constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by the Act, the Articles of
Incorporation or these Bylaws. If a quorum shall not be present at any meeting
of the Board of Directors, a majority of the directors present thereat may
adjourn the meeting from time to time without notice other than announcement at
the meeting, until a quorum shall be present.
11. Committees. The Board of Directors by resolution passed by a
majority of the full Board of Directors may designate an Executive Committee, to
consist of two or more directors, one of whom shall be designated as Chairman
and shall preside at all meetings of such Executive Committee and at least one
of whom shall be a person other than an officer or employee of the Corporation
or its subsidiaries. The Board of Directors may also designate one or more
directors to be alternate members of such Executive Committee, who may, subject
to any limitations imposed by the Board of Directors, replace absent or
disqualified members at any meeting of the Executive Committee. At any meeting
of the Executive Committee a majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business, and the act of a
majority of the members present at any meeting at which a quorum is present
shall be the act of the Executive Committee. To the extent provided in the
resolution of the Board of Directors, the Executive Committee shall have and may
exercise all of the authority of the Board of Directors, and shall have power to
authorize the seal of the corporation to be affixed to all papers which may
require it, subject to the limitations set forth in the Act, the Articles of
Incorporation or these Bylaws; provided, however, that the Executive Committee
shall not have the authority to authorize the issuance of shares of stock of the
Corporation or to declare dividends with respect to shares of stock of the
Corporation. The designation of such Executive Committee and the delegation
thereto of authority shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed upon it or him by law. Meetings of
the Executive Committee may be called and notices given in the same manner as
calling and giving notice of special meetings of the Board of Directors. Any
member of the Executive Committee may be removed, for or without cause, by the
affirmative vote of a majority of the full Board of Directors. If any permanent
vacancy or vacancies occur in the Executive Committee, such vacancy or vacancies
shall be filled by the affirmative vote of a majority of the full Board of
Directors.
The Board of Directors by resolution passed by a majority of the
full Board of Directors may designate other committees, each committee to
consist of two or more directors, one of whom shall be designated as Chairman
and shall preside at all meetings of such committee. The Board of Directors may
also designate one or more directors to be alternate members of any committee,
who may, subject to any limitations imposed by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. To the extent
provided in the resolution of the Board of Directors, the committees shall have
such power and authority and shall perform such functions as may be provided in
such resolution, subject to the limitations set forth in the Act, the Articles
of Incorporation or these Bylaws. At any meeting of the committee a majority of
the members of the committee shall constitute a quorum for the transaction of
business, and the act of a majority of the members present at any meeting at
which a quorum is present shall be the act of the committee. Such committee or
committees shall have such name or names as may be designated by the Board of
Directors.
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The Executive Committee and all other such committees shall keep
regular minutes of their proceedings and report the same to the Board of
Directors at the meeting of the Board of Directors next succeeding such action.
12. Compensation of Directors. Directors, as such, shall not receive
any stated salary for their services, but by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors. Nothing
herein contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of any committee may, by resolution of the Board of Directors, be allowed like
compensation for attending meetings of such committee.
13. Action by Unanimous Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of a committee
designated by the Board of Directors may be taken without a meeting if a written
consent, setting forth the action so taken, is signed by all the members of the
Board of Directors or the committee, as the case may be, and such consent shall
have the same force and effect as a unanimous vote at a meeting.
14. Presence at Meetings by Means of Communication Equipment. Members
of the Board of Directors of the Corporation or any committee designated by the
Board of Directors may participate in and hold a meeting of the Board of
Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE IV
NOTICES
1. Form of Notice. Whenever under the provisions of the Act, the
Articles of Incorporation or these Bylaws, notice is required to be given to any
director or shareholder, and no provision is made as to how such notice shall be
given, such notice shall be given in writing, by mail, postage prepaid,
addressed to such director or shareholder at such address as appears on the
books of the Corporation, provided that such notice as is required to be given
to any director also may be given either personally (including written notice
delivered personally or telephone notice) or by prepaid facsimile. Any notice
required or permitted to be given by mail shall be deemed to be given at the
time when the same is deposited in the United States mail addressed in the
above-specified manner, with postage thereon prepaid.
2. Waiver. Whenever any notice is required to be given to any director
or shareholder of the Corporation under the provisions of the Act, the Articles
of Incorporation or these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated in such notice, shall be equivalent to the giving of such notice.
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ARTICLE V
OFFICERS
1. General. The elected officers of the Corporation shall be a
President, one or more Vice Presidents, with or without such descriptive titles
as the Board of Directors shall deem appropriate, a Secretary and a Treasurer.
The Board of Directors by resolution may also appoint one or more Assistant
Secretaries, Assistant Treasurers and such other officers and assistant officers
and agents as from time to time may appear to be necessary or advisable in the
conduct of the affairs of the Corporation. Any two or more offices may be held
by the same person.
2. Election. The Board of Directors at its first meeting after each
annual meeting of the shareholders shall elect and appoint the officers to fill
the positions designated in Section 1 of this Article V. The Board of Directors
may appoint such other officers and agents as it shall deem necessary and may
determine the salaries of all officers and agents from time to time. The
officers shall hold office until their successors are chosen and qualified. Any
officer elected or appointed by the Board of Directors may be removed, for or
without cause, at any time by a majority vote of the directors present at a
meeting of the Board of Directors at which a quorum is present, when in its
judgment the best interest of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
persons so removed. Election or appointment of an officer or agent shall not of
itself create contract rights. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise shall be filled by the
Board of Directors.
3. Chairman of the Board. The Chairman of the Board shall be chosen
from among the non-employee directors. He shall preside at all meetings of the
Board of Directors, unless he shall be absent or unless he shall, at his
election, designate the President to preside in his stead, and shall have such
incidental powers and duties as are related to the conduct of such meetings. The
Chairman of the Board shall also be an ex-officio member of all standing
committees.
4. President. The President shall be the Chief Executive Officer of the
Corporation and shall be responsible for the operations and business affairs of
the Corporation. He shall preside at all meetings of the shareholders and of the
Board of Directors in the absence of the Chairman of the Board, unless he shall
be absent or unless he shall, at his election, designate another officer to
preside in his stead. He shall, in general, have supervisory power over all of
the other officers and the business activities of the Corporation, subject to
the direction of the Board of Directors. He shall have authority to execute
bonds, deeds and contracts in the name of the Corporation and to affix the
corporate seal thereto; to sign stock certificates; to cause the employment or
appointment of such employees and agents of the Corporation as the proper
conduct of operations may require, and to fix their compensation, subject to the
provisions of these Bylaws and such resolutions as may be adopted by the Board
of Directors from time-to-time; to remove or suspend any employee or agent who
shall have been employed or appointed under his authority or under authority of
an officer subordinate to him; to suspend for cause, pending final action by the
Board of Directors which shall have supervisory power over him, any officer
subordinate to him and, in general, to exercise all powers usually pertaining to
the office of the President of a corporation, except as otherwise provided in
these Bylaws. The President shall see that all orders and resolutions of the
Board of Directors and committees thereof are carried into effect.
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5. Vice Presidents. The Vice President or, if there be more than one,
the Vice Presidents, shall perform all such duties and services as shall be
assigned to or required of them from time to time by the Board of Directors, the
Executive Committee and any officer superior to him.
6. Secretary and Assistant Secretaries. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the shareholders and
record all proceedings of the meetings of the shareholders of the Corporation
and of the Board of Directors in a book to be kept for that purpose, and shall
perform like duties for the Executive Committee when required. He shall give, or
cause to be given, notice of all meetings of the shareholders and meetings of
the Board of Directors. He shall have charge of the seal of the Corporation and
have authority to affix the same to any instrument requiring it, and when so
affixed, it shall be attested by his signature or by the signature of the
Treasurer, an Assistant Secretary or an Assistant Treasurer, which may be in
facsimile. He shall keep and account for all books, documents, papers and
records of the Corporation except those for which some other officer or agent is
properly accountable. He shall have authority to sign stock certificates, and
shall generally perform all the duties usually appertaining to the office of the
Secretary of a corporation.
Assistant Secretaries, in the order of their seniority unless
otherwise determined by the Board of Directors, shall assist the Secretary, and
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary. They shall perform such other duties and have such
other powers as the Board of Directors may prescribe from time to time.
7. Treasurer and Assistant Treasurers. The Treasurer shall be the chief
financial officer of the Corporation and shall have active control of and shall
be responsible for all matters pertaining to the finances of the Corporation. He
shall have the care and custody of all monies, funds and securities of the
Corporation and shall deposit all monies and other valuable effects in the name
of and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall cause to be recorded a statement
of all receipts and disbursements of the Corporation in order that proper
entries may be made in the books of account. He shall have the power to sign
stock certificates, to endorse for deposit or collection, or otherwise, all
checks, drafts, notes, bills of exchange, or other commercial paper payable to
the Corporation, and to give proper receipts or discharges for all payments to
the Corporation. He shall be responsible for all terms of credit granted by the
Corporation and for the collection of all of its accounts. If required by the
Board of Directors, the Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Assistant Treasurers, in the order of their seniority unless
otherwise determined by the Board of Directors, shall assist the Treasurer, and
in the absence or disability of the Treasurer, perform the duties and exercise
the powers of the Treasurer. They shall perform such other duties and have such
other powers as the Board of Directors may prescribe from time to time.
8. Bonding. If required by the Board of Directors, all or certain of
the officers shall give the Corporation a bond in such form, in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors,
for the faithful performance of the duties of their office and for the
restoration to the
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Corporation, in case of their death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in their possession or under their control belonging to the Corporation.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
1. Form of Certificates. The Corporation shall deliver certificates
representing all shares to which shareholders are entitled. Certificates
representing shares of the Corporation shall be in such form as shall be
determined by the Board of Directors and shall be numbered consecutively and
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof that the Corporation is organized under the laws
of the State of Texas; the name of the registered holder; the number, class of
shares and the designation of the series, if any, which said certificate
represents; and either the par value of the shares or a statement that the
shares are without par value. Each certificate shall also set forth on the back
thereof, a full or summary statement of matters required by the Act or the
Articles of Incorporation to be described on certificates representing shares,
and shall contain a statement on the face thereof referring to the matters set
forth on the back thereof. Certificates shall be signed by the President and the
Secretary or any Assistant Secretary, and may be sealed with the seal of the
Corporation or a facsimile thereof. If any certificate is countersigned by a
transfer agent or registered by a registrar, either of which is other than the
Corporation or an employee of the Corporation, the signatures of the
Corporation's officers may be facsimiles. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may be adopted, nevertheless, by the
Corporation and issued and delivered as though the person or persons who signed
the certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
Corporation.
2. Restrictions on Transferability of Shares. In the event any
restriction on the transfer, or registration of the transfer, of shares shall be
imposed or agreed to by the Corporation, as permitted by law, each certificate
representing shares so restricted shall conspicuously set forth a full or
summary statement of the restriction on the face of the certificate, or shall
set forth such statement on the back of the certificate and conspicuously refer
to the same on the face of the certificate, or shall conspicuously state on the
face or back of the certificate that such restriction exists pursuant to a
specified document and that the Corporation will furnish to the holder of the
certificate without charge upon written request to the Corporation at its
principal place of business or registered office a copy of the specified
document.
3. Lost Certificates. The Corporation may direct that a new certificate
or certificates be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing the issuance of a new
certificate or certificates, the Board of Directors, in its discretion and as a
condition precedent to the issuance thereof, may require the owner of the lost
or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and give the Corporation a
bond in such form, in such sum, and with such surety or sureties as the
Corporation may direct as indemnity against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost or
destroyed.
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4. Transfer of Shares. Shares of stock shall be transferable on the
books of the Corporation by the holder thereof in person or by his duly
authorized attorney. Subject to any restrictions on transfer set forth in the
Articles of Incorporation of the Corporation, these Bylaws or any agreement
among shareholders to which the Corporation is a party or has notice, upon
surrender to the Corporation or to the transfer agent of the Corporation of the
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, it shall be the duty of the
Corporation or the transfer agent of the Corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
5. Registered Shareholders. The Corporation shall be entitled to
recognize the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
INDEMNIFICATION
1. Indemnity. Each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative and
including, without limitation, any "proceeding" referred to in art. 2.02-1 of
the Texas Business Corporation Act (hereinafter a "proceeding"), by reason of
the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust, or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving as a director of officer shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Texas Business Corporation
Act or other applicable law of the State of Texas, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto), against all expense, liability, and loss
(including, without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such Indemnitee in connection therewith, and such
indemnification shall continue as to an Indemnitee who has ceased to be a
director or officer and shall inure to the benefit of the Indemnitee's heirs,
executors, and administrators; provided, however, that, except for a proceeding
brought by an Indemnitee to enforce his or her rights to indemnification, the
Corporation shall indemnify any such Indemnitee in connection with a proceeding
(or part thereof) initiated by such Indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation. The right
to indemnification conferred in this Article VII shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Texas Business
Corporation Act or other applicable law of the State of Texas requires, an
advancement of expenses incurred by an Indemnitee in his or her capacity as a
director of officer (and not in any other capacity in which service was or is
rendered by such Indemnitee, including, without limitation, service to an
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employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking complying in all respects with the requirements of the Texas
Business Corporation Act or other applicable law of the State of Texas
(hereinafter an "undertaking"), by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such Indemnitee is not entitled to be indemnified for such
expenses under this Article VII or otherwise. If the Corporation makes an
advancement of expenses to an Indemnitee, the Corporation shall be subrogated to
every right of recovery the Indemnitee may have against any insurance carrier
from whom the Corporation has purchased insurance for such purpose.
2. Remedy. If a claim under this Article VII is not paid in full by the
Corporation within 60 days after a written claim has been received by the
Corporation, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit, including, without limitation, any appeal. In (i) any suit brought by the
Indemnitee to enforce a right to indemnification (but not in a suit brought by
the Indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that, the Indemnitee
has not met the applicable standard of conduct set forth in the Texas Business
Corporation Act or other applicable law of the State of Texas. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to the
commencement of such suit that the Indemnitee met the applicable standard of
conduct set forth in the Texas Business Corporation Act or other applicable law
of the State of Texas, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its shareholders) that the
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the Indemnitee, be a defense to such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an advancement of expenses or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the Indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article VII or otherwise, shall be on
the Corporation.
3. Employees and Agents. The Corporation may, to the extent authorized
from time to time by the Board of Directors, grant rights to indemnification and
to the advancement of expenses to any employee or agent of the Corporation to
the fullest extent of the provisions of this Article VII with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
4. Partial Indemnification; Interest.
(A) If it is determined pursuant to the provisions of the Texas
Business Corporation Act or other applicable law of the State of Texas, or by
the court before which such action was brought, that an Indemnitee is entitled
to indemnification as to some claims, issues, or matters, but not as to other
claims, issues, or matters, involved in any action, no matter by whom brought,
the person or persons making such determination (or the court) shall authorize
the reasonable proration of such expenses, judgments, penalties, fines, and
amounts incurred in settlement with respect to which indemnification is sought
by the Indemnitee, among such claims, issues, or matters as the person or
persons making such determination (or the court) shall deem appropriate in light
of all of the circumstances of such action.
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(B) If it is determined pursuant to the provisions of the Texas
Business Corporation Act or other applicable law of the State of Texas, or by
the court before which such action was brought, that certain amounts incurred by
the Indemnitee are, for whatever reason, unreasonable in amount, the person or
persons making such determination (or the court) shall authorize indemnification
to be paid by the Corporation to the Indemnitee for only such amounts as the
person or persons making such determination (or the court) shall deem reasonable
in light of all of the circumstances of such action.
(C) To the extent deemed appropriate pursuant to the provisions of the
Texas Business Corporation Act or other applicable law of the State of Texas, or
by the court before which such action was brought, interest shall be paid by the
Corporation to the Indemnitee, at a reasonable interest rate, for amounts for
which the Corporation indemnifies the Indemnitee.
5. Nonexclusivity. The right to indemnification and advancement of
expenses provided to an Indemnitee pursuant to this Article VII shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
under any charter provision, bylaw, agreement, resolution, vote of shareholders
or disinterested directors, or otherwise, including, without limitation, under
the Texas Business Corporation Act or other applicable law of the State of
Texas, as then in effect, both as to acts in his or her official capacity and as
to acts in any other capacity.
6. Insurance.
(A) The Corporation may purchase and maintain insurance on behalf of an
Indemnitee against any liability asserted against him or her or incurred by or
on behalf of him or her whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of this Article
VII or under the Texas Business Corporation Act or other applicable law of the
State of Texas, as then in effect. The purchase and maintenance of such
insurance shall not in any way limit or affect the rights and obligations of the
Corporation or an Indemnitee under this Article VII and the adoption of this
Article VII by the Corporation shall not in any way limit or affect the rights
and obligations of the Corporation or of the other party or parties thereto
under any such policy or agreement of insurance.
(B) If the Indemnitee shall receive payment from any insurance carrier
or from the plaintiff in any action against the Indemnitee in respect of
indemnified amounts after payments on account of all or part of such indemnified
amounts have been made by the Corporation pursuant to this Article VII, the
Indemnitee shall promptly reimburse the Corporation for the amount, if any, by
which the sum of such payment by such insurance carrier or such plaintiff and
payments by the Corporation to the Indemnitee exceeds such indemnified amounts;
provided, however, that such portions, if any, of such insurance proceeds that
are required to be reimbursed to the insurance carrier under the terms of its
insurance policy, such as deductible or coinsurance payments, shall not be
deemed to be payments to the Indemnitee hereunder. In addition, upon payment of
indemnified amounts under this Article VII, the Corporation shall be subrogated
to the Indemnitee's rights against any insurance carrier in respect of such
indemnified amounts and the Indemnitee shall execute and deliver any and all
instruments and documents and perform any and all other acts and deeds that the
Corporation deems reasonably necessary or advisable to secure such rights.
7. Witness Expenses. Upon an Indemnitee's written request, the
Corporation shall pay (in advance or otherwise) or reimburse any and all
expenses reasonably incurred by the Indemnitee in connection with his or her
appearance as a witness in any proceeding at a time when he has not been
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formally named a defendant or respondent to such a proceeding.
8. Contribution. If the indemnity provided for in this Article VII is
unavailable to an Indemnitee for any reason whatsoever, the Corporation, in lieu
of indemnifying the Indemnitee, shall contribute to the amount reasonably
incurred by or on behalf of the Indemnitee, whether for judgments, fines,
penalties, amounts incurred in settlement, or for expenses in connection with
any proceeding, no matter by whom brought, in such proportion as deemed fair and
reasonable, by the person or persons entitled to make the determination as to
whether the Indemnitee has met the requisite standard of conduct under the Texas
Business Corporation Act or other applicable law of the State of Texas, or by
the court before which such proceeding was brought, taking into account all of
the circumstances of such proceeding, in order to reflect (i) the relative
benefits received by the Corporation and the Indemnitee as a result of the event
or transaction giving cause to such proceeding; and (ii) the relative fault of
the Corporation (and its other directors, officers, employees, and agents) and
the Indemnitee in connection with such event or transaction.
9. Severability. If any provision of this Article VII shall be deemed
invalid or inoperative, or if a court of competent jurisdiction determines that
any of the provisions of this Article VII contravenes public policy, this
Article VII shall be construed so that the remaining provisions shall not be
affected, but shall remain in full force and effect, and any such provisions
that are invalid and inoperative or contravene public policy shall be deemed,
without further action or deed on the part of any person, to be modified,
amended, or limited, but only to the extent necessary to render the same valid
and enforceable, and the Corporation shall indemnify the Indemnitee as to
expenses, judgments, fines, and amounts incurred in settlement with respect to
any proceeding, no matter by whom brought, to the full extent permitted by any
applicable provision of this Article VII that shall not have been invalidated
and to the full extent otherwise permitted.
ARTICLE VIII
GENERAL PROVISIONS
1. Dividends. Dividends upon the outstanding shares of the Corporation,
subject to the provisions of the Act, the Articles of Incorporation and any
agreements or obligations of the Corporation, if any, may be declared by the
Board of Directors at any regular or special meeting. Dividends may be declared
and paid in cash, in property, or in shares of the Corporation, provided that
all such declarations and payments of dividends shall be in strict compliance
with all applicable laws and the Articles of Incorporation. The Board may fix in
advance a record date for the purpose of determining shareholders entitled to
receive payment of any dividend, such record date to be not more than fifty (50)
days prior to the payment of such dividend. In the absence of any action by the
Board of Directors, the date upon which the Board of Directors adopts the
resolution declaring such dividend shall be the record date.
2. Reserves. There may be created by resolution of the Board of
Directors out of the earned surplus of the Corporation such reserve or reserves
as the Board of Directors from time to time, in its absolute discretion, deems
proper to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other proper purposes as
the Board of Directors shall deem beneficial to the Corporation, and the Board
of Directors may modify or abolish any reserve in the same manner in which it
was created.
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3. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
4. Seal. The Corporation shall have a seal which may be used by causing
it or a facsimile thereof to be impressed on, affixed to, or in any manner
reproduced upon, instruments of any nature required to be executed by its proper
officers.
5. Annual Statement. The Board of Directors shall present at each
annual meeting and when requested to do so by shareholders holding at least one
third (1/3) of the outstanding shares, a full and clear statement of the
business and condition of the Corporation.
6. Checks. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may designate from time to time.
7. Voting Securities Owned by Corporation. Voting securities in any
other corporation held by this Corporation shall be voted by the President or
any Vice President, unless the Board of Directors confers authority to vote with
respect thereto, which may be general or confined to specific investments, upon
some other person or officer. Any person authorized to vote securities shall
have the power to appoint proxies with the general power of substitution.
8. Resignation. Any director, officer, employee or agent of the
Corporation may resign by giving written notice to the President or the
Secretary. The resignation shall take effect at the time specified therein, or
immediately if no time is specified therein. Unless specified in such notice,
the acceptance of such resignation shall not be necessary to make it effective.
ARTICLE IX
AMENDMENTS TO BYLAWS
These Bylaws may be altered, amended, modified or repealed, or new
Bylaws may be adopted at any meeting of the Board of Directors at which a quorum
is present by the affirmative vote of a majority of the directors present at
such meeting.
CERTIFICATE
The foregoing Bylaws were executed, effective September 14, 1999.
/s/ Ronald A. Woessner
-----------------------------
Ronald A. Woessner, Secretary
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EXHIBIT 10.1
AMENDMENT NO. 2
TO AMTC CORPORATION STOCK OPTION AGREEMENT
This Amendment No. 2 is entered into as of May 2, 2000, between David P.
Cook ("Cook") and ZixIt Corporation, a Texas corporation ("ZixIt"). Reference is
made to that certain AMTC Corporation Stock Option Agreement, effective as of
April 29, 1998, as amended, between Cook and ZixIt (the "Cook Option").
1. Amendments. The Cook Option is amended as follows:
o Delete "4,000,000" from Section 1 and substitute in its place
"2,627,777." (Note: 2,627,777 shares is the number of shares remaining
under the Cook Option after giving effect to certain previous
reallocations of option shares by Mr. Cook.)
o Revise Section 2 to read in its entirety as follows: "Vesting. The
shares of Common Stock subject to the Option are fully vested as of
the date hereof."
2. No Other Changes. Other than as provided herein, the Cook Option shall remain
in full force and effect.
Executed on the dates set forth below, to be effective as of the date first
set forth above.
ZIXIT CORPORATION
By: /s/ STEVE M. YORK
----------------------
Steve M. York,
Senior Vice President
Date: May 2, 2000
----------------------
/s/ DAVID P. COOK
----------------------
David P. Cook
Date: 5-3-00
----------------------
/s/ CHERYL G. COOK
----------------------
Cheryl G. Cook
Date: 5-6-00
----------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,133
<SECURITIES> 20,119
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,938
<PP&E> 25,743
<DEPRECIATION> (5,098)
<TOTAL-ASSETS> 65,399
<CURRENT-LIABILITIES> 3,492
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 61,728
<TOTAL-LIABILITY-AND-EQUITY> 65,399
<SALES> 0
<TOTAL-REVENUES> 96
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,136)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,136)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,136)
<EPS-BASIC> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
