SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BILLSERV, INC.
(Names of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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MICHAEL R. LONG
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
April 11, 2002
Dear Billserv, Inc. Stockholder:
I am pleased to invite you to Billserv, Inc.'s Annual Meeting of Stockholders.
The meeting will be held at 10:00 a.m. on Thursday, May 23, 2002, at the Airport
Hilton Hotel, 611 N.W. Loop 410, San Antonio, Texas 78216.
At the meeting, you and the other stockholders will be asked to (1) elect three
directors to the Billserv, Inc. Board of Directors; (2) approve an amendment to
the 1999 Non-Employee Director Plan; and (3) ratify the appointment of Ernst &
Young LLP as the Company's independent auditors for the current fiscal year. You
will also have the opportunity to hear what has happened in our business in the
past year and to ask questions. You will find other detailed information about
Billserv, Inc. and its operations in the enclosed Proxy Statement and Annual
Report.
We hope you can join us on May 23. Whether or not you can attend, please read
the enclosed Proxy Statement. When you have done so, please MARK your votes on
the enclosed proxy, SIGN AND DATE THE PROXY, and RETURN it to us in the enclosed
envelope. Your vote is important, so please return your proxy promptly.
Thank you for your investment in our company. We look forward to seeing you at
the meeting.
Yours truly,
/s/ Michael R. Long
--------------------
Michael R. Long
BILLSERV, INC.
211 NORTH LOOP 1604 EAST, SUITE 100
SAN ANTONIO, TEXAS 78232
April 11, 2002
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2002
Billserv, Inc. will hold its Annual Meeting of Stockholders at the Airport
Hilton Hotel, 611 NW Loop 410, San Antonio, Texas 78216 on Thursday, May 23,
2002 at 10:00 a.m.
We are holding this meeting:
o To elect three directors to serve until the 2005 Annual Meeting of
Stockholders;
o To approve an amendment to the 1999 Non-Employee Director Plan of
Billserv, Inc.;
o To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the year ending December 31, 2002; and
o To transact any other business that properly comes before the meeting.
Your Board of Directors has selected APRIL 1, 2002 as the record date for
determining stockholders entitled to vote at the meeting. A list of stockholders
on that date will be available for inspection at Billserv, Inc., 211 North Loop
1604 East, Suite 100, San Antonio, Texas, 78232 for ten days before the meeting.
This Notice of Annual Meeting, Proxy Statement and proxy card are being
distributed on or about April 15, 2002.
By Order of the Board of Directors,
/s/ Marshall N. Millard
---------------------------
Marshall N. Millard
Secretary
TABLE OF CONTENTS
GENERAL INFORMATION.................................................................................. 7
ITEM 1. ELECTION OF DIRECTORS........................................................................ 9
Nominees for Election to a Three Year Term Ending with the 2005 Annual
Meeting...................................................................................... 9
Directors Continuing in Office Until the 2003 Annual Meeting of Stockholders.................... 10
Directors Continuing in Office Until the 2004 Annual Meeting of Stockholders.................... 11
Compensation of Directors....................................................................... 12
Committees of the Board of Directors; Meetings.................................................. 13
STOCK OWNERSHIP...................................................................................... 14
Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.................. 14
Section 16(a) Beneficial Ownership Reporting Compliance......................................... 15
MANAGEMENT........................................................................................... 15
Executive Officers.............................................................................. 15
BOARD REPORT ON EXECUTIVE COMPENSATION............................................................... 16
Compensation Policy............................................................................. 16
Compensation of Executive Officers.............................................................. 17
Employment Contracts and Change in Control Arrangements......................................... 19
Compensation Committee Interlocks and Insider Participation..................................... 20
Stock Performance Graph......................................................................... 20
ITEM 2. APPROVAL OF AMENDMENT TO THE 1999 NON-EMPLOYEE DIRECTOR PLAN................................. 20
General......................................................................................... 20
Terms and Conditions............................................................................ 20
ITEM 3. RATIFICATION OF ERNST & YOUNG LLP
AS INDEPENDENT AUDITORS.............................................................................. 21
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS........................................................... 21
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS..................................................... 22
FINANCIAL STATEMENTS................................................................................. 22
OTHER MATTERS........................................................................................ 23
SOLICITATION......................................................................................... 23
ATTACHMENTS.......................................................................................... A-1
ANNEX A - 1999 NON-EMPLOYEE DIRECTOR PLAN, WITH PROPOSED AMENDMENT
ANNEX B - AUDIT COMMITTEE CHARTER, AS AMENDED
Shareholders may receive a copy of any report filed by the Company with the
Securities and Exchange Commission by sending a written request to:
Mr. Marshall Millard
Secretary of Billserv, Inc.
211 North Loop 1604 East, Suite 100
San Antonio, TX 78232
GENERAL INFORMATION
Q: WHO IS SOLICITING MY PROXY?
A: You may vote your shares either in person or
A: We, the Board of Directors of Billserv, by proxy. To vote by proxy, you should mark,
Inc., are sending you this Proxy Statement date, sign and mail the enclosed proxy in the
in connection with our solicitation of proxies enclosed prepaid envelope. Giving a proxy will
for use at Billserv, Inc.'s 2002 Annual not affect your right to vote your shares
Meeting of Stockholders. Certain directors, if you attend the Annual Meeting and want to
officers and employees of Billserv, Inc. also vote in person--by voting you automatically
may solicit proxies on our behalf by mail, revoke your proxy. You also may revoke your
phone, fax or in person. proxy at any time before the voting by giving
the Secretary of Billserv, Inc. written notice
Q: WHO IS PAYING FOR THIS SOLICITATION? of your revocation or by submitting a later-
dated proxy. If you execute, date and return
A: Billserv, Inc. will pay for the solicitation your proxy but do not mark your voting
of proxies. Billserv, Inc. will also reimburse preference, the individuals named as proxies
banks, brokers, custodians, nominees and will vote your shares FOR the election of the
fiduciaries for their reasonable charges and nominees for director; FOR the approval of the
expenses in forwarding our proxy materials to amendment to the 1999 Non-Employee Director
the beneficial owners of Billserv, Inc. common Plan; and FOR ratification of ERNST & YOUNG
stock. LLP as the Company's independent auditors for
the current fiscal year.
Q: WHAT AM I VOTING ON?
Q: WHAT CONSTITUTES A QUORUM?
A: Three items: (1) the election of Terri A.
Hunter, Peter G. Kirby and Richard B. Bergman A: Voting can take place at the Annual Meeting
to the Board of Directors; (2) the approval of only if stockholders owning a majority of the
an amendment to the 1999 Non-Employee Director voting power of the common stock (that is a
Plan, increasing the number of shares available majority of the total number of votes entitled
under that Plan to 800,000; and (3) the to be cast) are present in person or represented
ratification of ERNST & YOUNG LLP as the by effective proxies. On the record date,
Company's independent auditors for the current Billserv, Inc. had 20,581,126 voting shares of
fiscal year. common stock outstanding. Both abstentions and
broker non-votes (situations in which a broker
Q: WHO CAN VOTE? holding your shares in "street" or "nominee"
name indicates to us on a proxy that you have
A: Only those who owned common stock at the close not voted and it lacks discretionary authority
of business on APRIL 1, 2002, the record date to vote your shares) are counted as present for
for the Annual Meeting, can vote. If you owned
common stock on the record date, you have one
vote per share for each matter presented at
the Annual Meeting.
Q: HOW DO I VOTE?
7.
purposes of establishing the quorum necessary the proposals submitted at the upcoming Annual
for the meeting to proceed. Meeting.
Q: WHAT VOTE OF THE STOCKHOLDERS WILL RESULT Q: WILL THERE BE OTHER MATTERS PROPOSED AT THE
IN THE MATTERS BEING PASSED? 2002 ANNUAL MEETING?
A: ELECTION OF DIRECTORS. Directors need the A: Billserv, Inc.'s Bylaws limit the matters
affirmative vote of holders of a plurality of presented at the upcoming Annual Meeting to
the voting power present to be elected. At those in the notice of the meeting, those
this year's meeting, the three nominees otherwise properly presented by the Board of
receiving the greatest number of votes will be Directors and those presented by stockholders
deemed to have received a plurality of the so long as the stockholder has given the
voting power present. Neither abstentions nor Secretary written notice of the matter on or
broker non-votes will have any effect on the before December 31, 2001. We do not expect any
election of directors. other matter to come before the meeting. If
any other matter is presented at the Annual
APPROVAL OF THE AMENDMENT TO THE 1999 Meeting, your signed proxy gives the
NON-EMPLOYEE DIRECTOR PLAN. To approve the individuals named as proxies authority to vote
amendment to the 1999 Non-Employee Director your shares in their discretion.
Plan, stockholders holding a majority of the
shares represented in person or by proxy at Q: WHEN ARE 2003 STOCKHOLDER PROPOSALS DUE IF
the meeting must affirmatively vote to approve THEY ARE TO BE INCLUDED IN THE COMPANY'S PROXY
the matter. In this case, abstentions have the MATERIALS?
same effect as a vote "against" the proposal,
while broker non-votes have no effect at all. A: To be considered for presentation at Billserv,
Inc.'s 2003 Annual Meeting of Stockholders and
RATIFICATION OF ERNST & YOUNG LLP. Like the included in the Company's proxy statement, a
vote required to approve the Plan, as stockholder proposal must be received at
described above, stockholders holding a Billserv, Inc.'s offices no later than
majority of the shares represented in person December 31, 2002. To curtail controversy as
or by proxy at the upcoming Annual Meeting to the date on which a proposal was received
must affirmatively vote to ratify ERNST & by the Company, we suggest that proponents
YOUNG, LLP as the Company's independent submit their proposals by certified mail,
auditors for the current fiscal year. return receipt requested.
Abstentions continue to have the same effect
as votes "against" the proposal and broker
non-votes continue to have no effect at all.
Q: HOW DOES THE BOARD RECOMMEND THAT WE VOTE ON
THE MATTERS PROPOSED?
A: The Board of Directors of Billserv, Inc., Inc.
unanimously recommends that stockholders vote
FOR each of
8.
ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors of Billserv, Inc. has currently set the number
of directors constituting the whole board at seven. As established by the
Company's Bylaws, these directors are divided into three classes serving
staggered three-year terms. The directors were re-classified in 2001 as a result
of the increased number of directors serving on the Board.
The individuals named as proxies will vote the enclosed proxy for the
election of the nominees unless you direct them to withhold your votes. If any
of the nominees become unable to serve as a director before the meeting (or
decides not to serve), the individuals named as proxies may vote for a
substitute or we may reduce the number of members of the Board. We recommend a
vote FOR the nominees.
Below are the names and ages of the nominees for directors, the years
they became directors, their principal occupations or employment for at least
the past five years and certain of their other directorships, if any.
NOMINEES FOR ELECTION TO A THREE YEAR TERM ENDING WITH THE 2005 ANNUAL MEETING
CLASS III DIRECTORS
o Terri A. Hunter Age 38, a director since 2001, nominee
Ms. Hunter joined the Company in April 2000 as it Chief
Financial Officer. She possesses over sixteen years of
analytical and management experience in finance, accounting,
and investor relations for public companies. Most recently,
from October 1999 to May 2000, Ms. Hunter was Vice President,
Finance and Investor Relations, for Clear Channel
Communications, Inc., a global leader in the out-of-home
advertising industry with radio, television, and outdoor
displays in 37 countries around the world. Ms. Hunter was also
employed with U.S. Long Distance, Inc. and its spin-off
company, Billing Concepts, Inc., from February 1993 to October
1999, where she lead their financial planning and analysis
functions, as well as investor relations. In addition, Ms.
Hunter has held various finance and accounting roles with
Electronic Data Systems, and Cullen/Frost Bankers, since her
graduation in May 1985 from the University of Texas at Austin.
She also serves on the Board of Directors for the San Antonio
chapter of the National Investor Relations Institute.
o Peter G. Kirby Age 62, a director since 2001, nominee
9.
Mr. Kirby is a tenured professor of
management at Our Lady of the Lake University in San Antonio, Texas,
where he has served for the past twelve years.
o Richard B. Bergman Age 62, a director since 2001, nominee
Mr. Bergman has served as a Director and Partner of
Bergman, Igel, Kaplan & Associates, a business
consulting firm located in New York, Washington, D.C.
and Florida, since 2000. From 1999 to 2000, he served as
a consultant for Glass America, an auto glass and
commercial glazing company in Chicago, Illinois. From
1989 to 1999, he was a business consultant to numerous
companies in various industries.
DIRECTORS SERVING THREE YEAR TERMS ENDING WITH THE 2003 ANNUAL MEETING CLASS II
DIRECTORS
o Louis A. Hoch Age 36, a director since 1998.
Mr. Hoch joined the Company as President and Chief
Operating Officer in November 1998. Mr. Hoch's
background has been primarily in the telecommunications
industry in which he has over 10 years of experience.
Most recently, from April to November 1998, Mr. Hoch was
the Subject Matter Expert for Call Centers in Telecom,
at Andersen Consulting. His leadership in the call
center industry was acknowledged by Andersen Consulting
when it classified his processes and technology
architecture to be one of their guidelines for best
practices in call center development. While employed at
U. S. Long Distance, Inc. and its spin-off company,
Billing Concepts, Inc., from June 1991 to April 1998,
Mr. Hoch successfully built large billing systems that
were proven flexible enough to sustain exponential
growth in record volumes, and call centers that
integrated the latest in technology and processes.
During his tenure at Billing Concepts, Mr. Hoch held
successive positions; as a Tech Support Representative,
Program Analyst, Program Manager, MIS Manager, and
finally, Director of Information Technology. Mr. Hoch
holds a B.B.A. in Computer Information Systems and an
M.B.A. in International Business Management, both from
Our Lady of the Lake University. He is certified as a
Computer Professional (CCP) by the Institute for
Certification of Computing Professionals (ICCP).
10.
o Roger R. Hemminghaus Age 65, a director since 1999.
Mr. Hemminghaus was named Chairman Emeritus of Ultramar
Diamond Shamrock January 1, 2000. In December 1996 he
became Chairman and Chief Executive Officer of Ultramar
Diamond Shamrock Corp. following the merger of Diamond
Shamrock, Inc. and Ultramar Corporation. Prior to the
merger, Mr. Hemminghaus was Chairman, Chief Executive
Officer and President of Diamond Shamrock, Inc. After
serving four years as a naval officer involved in
nuclear power development, Hemminghaus started his
career in the refining and marketing industry in 1962 as
an engineer for Exxon, USA. Before joining a predecessor
company to Diamond Shamrock in 1984, Mr. Hemminghaus
held various management positions in the areas of
refining, distribution, petroleum products and natural
gas. Hemminghaus is on the board of directors of CTS
Corporation, Luby's, Inc., Southwest Research Institute,
Tandy Brands Accessories, Inc. and Xcel Energy, Inc. He
is a past Chairman of the Federal Reserve Bank of Dallas
and former Chairman of the National Petrochemicals and
Refiners Association. Hemminghaus is the Chairman of the
Board of Regents of Texas Lutheran University.
CLASS I DIRECTORS
o Michael R. Long Age 57, a director since 1998.
Mr. Long became a director, and Chairman and Chief
Executive Officer of the Company, in November 1998. Mr.
Long has over 29 years of senior executive management
and systems development experience in six publicly
traded companies, and has successfully operated his own
systems consulting business. Mr. Long has held positions
at U.S. Long Distance Corp., as Vice President of
Management Information Systems from December 1993 to
August 1996; Billing Concepts, Inc., as Vice President
of Information Technologies from August 1996 to June
1997, and Andersen Consulting as Business Development
Director, Financial Services, from October 1997 to
November 1998.
11.
o E. Scott Crist Age 37, a director since 1999.
Mr. Crist is Managing Director of Crist Ventures and a
general partner of Venture Bridge LP, an early-stage
venture capital fund. He is Chairman of the Board of
Office e-Procure, Inc., an office supply procurement
company utilizing Web-based procurement technologies. He
is also the former CEO and founder of Telscape
International, Inc., (NASDAQ) an integrated
communications company focused on emerging markets. Mr.
Crist was formerly President and CEO for Matrix, a
telecommunications company that ranked #7 on the INC.
MAGAZINE list of the 500 fastest growing private
companies in the U.S in 1995. Mr. Crist was named an
ENTREPRENEUR OF THE YEAR by CNN/ NASDAQ/Ernst & Young in
1999. He is on the Board of several early-stage
technology companies. Mr. Crist has an M.B.A. from the
Kellogg School at Northwestern University and a B.S. in
Electrical Engineering from NC State University. He is
on the faculty at Rice University's Graduate Business
School.
COMPENSATION OF DIRECTORS
In 2001, Billserv, Inc. provided compensation to non-employee directors
of $1,000 for each board meeting attended, and reimbursement of certain
out-of-pocket expenses. The Company and its stockholders have previously
approved the 1999 Non-Employee Director Plan which authorizes the discretionary
issuance of up to 500,000 shares of common stock to the non-employee directors
of Billserv, Inc.
Upon joining the Board of Directors, both Mr. Crist and Mr. Hemminghaus
were issued options to purchase shares of the Company's common stock. On January
4, 1999, Mr. Crist was issued options to purchase 40,000 shares at an exercise
price of $2.81 per share. Mr. Hemminghaus was issued options to purchase 80,000
shares at an exercise price of $5.18 on April 6, 1999. On April 17, 2000,
Messrs. Hemminghaus and Crist were each issued options to purchase 35,000 shares
at an exercise price of $11.25 per share. On December 28, 2000, each was issued
options to purchase 50,000 shares at an exercise price of $2.06 per share. On
October 31, 2001, each was issued options to purchase 40,000 shares at an
exercise price of $0.86 per share.
12.
Mr. Kirby joined the Board of Directors in June 2001, at which time he was
issued an option to purchase 10,000 shares of the Company's common stock at an
exercise price of $2.07 per share. On October 31, 2001, Mr. Kirby was issued an
option to purchase 8,000 shares at an exercise price of $0.86 per share.
Mr. Bergman joined the Board of Directors in October 2001, at which time
he was issued an option to purchase 100,000 shares of the Company's common stock
at an exercise price of $0.88 per share.
Those directors who also serve as employees of the Company receive no
additional compensation for their service on the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
Billserv, Inc. has the following two standing committees:
THE AUDIT COMMITTEE
o Meets periodically with Billserv, Inc.'s independent auditors to
review the general scope of audit coverage, including consideration
of the Company's accounting practices and procedures, its system of
internal accounting controls and financial reporting.
o Makes recommendations to the Board of Directors with respect to
appointment of the Committee's independent auditors.
The Audit Committee met two times during the 2001 fiscal year. The current
members of this Committee are Mr. Crist, Mr. Hemminghaus, Mr. Kirby and
Mr. Bergman.
The Board of Directors has approved an Audit Committee charter which
outlines the responsibilities of the Audit Committee and the appropriate
procedures necessary to meet those responsibilities. A copy of the Audit
Committee charter, as amended, is attached to this proxy statement as
Annex B.
COMPENSATION COMMITTEE
o Recommends to the Board of Directors annual salaries for senior
management.
o In consultation with senior management, recommends to the Board of
Directors the administration and grant of incentive awards.
On April 6, 1999, the Board of Directors created the Compensation
Committee. The initial members of this Committee were Mr. Crist and Mr.
Long. In October of 1999, Mr. Hemminghaus replaced Mr. Long on this
Committee. During 2001, the Compensation
13.
committee met twice. The current members of the Compensation Committee are
Mr. Crist, Mr. Hemminghaus, Mr. Kirby and Mr. Bergman.
ENTIRE BOARD
o During 2001, the entire Board of Directors of Billserv, Inc. met 3
times for regular and special meetings. During this period, each
director attended all meetings of the Board of Directors and any
committee on which he served. The Board also acted by unanimous
written consent on several occasions.
STOCK OWNERSHIP
BENEFICIAL OWNERSHIP OF CERTAIN STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 20, 2002, by:
o each of our named executive officers and directors;
o all of our executive officers and directors as a group; and
o each person, or group of affiliated persons, known to us to own
beneficially more than 5% of our common stock.
The table gives effect to the shares of common stock that could be issued upon
the exercise of outstanding options and common stock options within 60 days of
March 20, 2002. Unless otherwise noted in the footnotes to the table and subject
to community property laws where applicable, the following individuals have sole
voting and investment control with respect to the shares beneficially owned by
them. The address of each executive officer and director is c/o Billserv, Inc.,
211 North Loop 1604 East, Suite 100, San Antonio, Texas 78232.
Shares
Beneficially Owned (1)
----------------------
Name Number Percentage
---- ------ ----------
RS Investment Management Co., LLC (2) .............................. 3,600,000 17.5%
CheckFree Investment Corporation (3)................................ 3,140,742 15.3%
Robert Evans (4).................................................... 1,876,700 9.1%
Michael Procacci, Jr. (5)........................................... 1,173,600 5.7%
Louis A. Hoch ...................................................... 1,159,033 5.6%
Michael R. Long .................................................... 735,000 3.6%
Marshall N. Millard................................................. 222,796 1.1%
Terri A. Hunter..................................................... 64,880 0.3%
Anthony L. Diamond ................................................. 43,166 0.2%
14.
Roger R. Hemminghaus................................................ 122,098 0.6%
E. Scott Crist ..................................................... 81,998 0.4%
All officers and directors as a group, nine (9) persons, including
the executive officers and directors listed above ............. 2,451,671 11.9%
(1) BASED ON A TOTAL OF 20,581,126 SHARES ISSUED AND OUTSTANDING AS OF
MARCH 20, 2002.
(2) INCLUDES THE FOLLOWING INVESTORS AS A GROUP: RS INVESTMENT
MANAGEMENT, L.P.; RS GROWTH GROUP, LLC; RS DIVERSIFIED GROWTH FUND;
AND RS PAISLEY PACIFIC FUND, L.P. REFLECTS BENEFICIAL OWNERSHIP
ACCORDING TO 13D FILING WITH THE SEC ON NOVEMBER 2, 2001.
(3) REFLECTS BENEFICIAL OWNERSHIP ACCORDING TO 13G FILING WITH THE SEC
ON FEBRUARY 13, 2002.
(4) REFLECTS BENEFICIAL OWNERSHIP ACCORDING TO 13G FILING WITH THE SEC
ON DECEMBER 11, 2001.
(5) REFLECTS BENEFICIAL OWNERSHIP ACCORDING TO 13G FILING WITH THE SEC
ON DECEMBER 5, 2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of Billserv, Inc.'s common stock must report their
initial ownership of the common stock, and any changes in that ownership, to the
Securities and Exchange Commission. The Securities and Exchange Commission has
designated specific due dates for these reports. Based solely on its review of
copies of the reports filed with the Securities and Exchange Commission and
written representations of its directors and executive officers, Billserv, Inc.
believes all persons subject to reporting timely filed the required reports in
2001.
MANAGEMENT
EXECUTIVE OFFICERS
Below are the names and ages of the Executive Officers of Billserv, Inc.
and a brief description of their prior experience and qualifications.
o Michael R. Long See biography of Mr. Long on page 11.
o Louis A. Hoch See biography of Mr. Hoch on page 10.
o Terri A. Hunter See biography of Ms. Hunter on page 9.
o Anthony L. Diamond Age 41, Senior Vice President, Sales and Marketing
Mr. Diamond joined the Company in June 2000. He brought
to Billserv, Inc. over 17 years of sales and marketing
leadership from varied industries. Throughout his
career, he has specialized in assessing corporate
challenges, creating high performance operations and
successfully launching new products. In 1995, upon
leaving Azrock Industries as its Director of Marketing,
Mr. Diamond founded Diamond, Werkenthien & Associates, a
sales and marketing consulting firm with domestic and
international clients. In June 1998,
15.
he sold his interest and joined a client company, Paris
Technologies, as Vice President of Marketing, where he
built the channel strategy and introduced a new database
technology to mid-size businesses throughout North
America, Europe and Australia. In September 1999, Mr.
Diamond became Vice President, Sales and Marketing at
FAS, Inc., a leading provider of monitoring and
Internet-based reporting on construction lending
projects to major lenders nationwide. Mr. Diamond holds
a degree in Advertising from the University of Texas at
Austin.
o Marshall N. Millard Age 40, Senior Vice President, General Counsel
Mr. Millard joined the Company in November 1998. He has
more than fifteen years of experience providing legal
counsel to publicly and privately held companies. From
1993 to 1998, he held corporate counsel positions at
U.S. Long Distance, Inc. and its spin-off company,
Billing Concepts, Inc. He is licensed to practice law in
the Supreme Court and all lower courts in the State of
Texas, the federal court for the Western District of
Texas, and the Fifth Circuit Court of Appeals.
BOARD REPORT ON EXECUTIVE COMPENSATION
COMPENSATION POLICY
Compensation decisions for the executive officers of Billserv, Inc. for
compensation paid during the year ended December 31, 2001, were made by the
Compensation Committee.
The Company's goal is to attract, retain and reward a highly competent and
productive employee group. To do so, the Board of Directors has determined that
it is in the best interest of the Company to provide a total compensation
package that competes favorably with those offered within the electronic
commerce industry, general industry and the geographic areas in which Billserv,
Inc. operates. The Company's current compensation package includes a mix of base
salary, short-term and long-term incentive opportunities and other employee
benefits. Changes in compensation are based on the individual's performance, the
Company's financial performance and the competitive marketplace. The Board
considers the median level of the market as competitive.
BASE SALARY. The base salary policy provides for compensation at
competitive levels. Increases in executive base salary are awarded for
individual performance based on the executive's performance plan. These
performance plans contain specific measures, both quantitative and
qualitative, related to financial achievements of the Company. Increases
generally reflect established merit increase guidelines applicable to all
salaried employees.
16.
OPTION PLANS. In addition to the foregoing, directors, officers and
employees of Billserv, Inc. may be compensated through awards of options
to purchase common stock of the Company.
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth summary information as to
compensation received by the Chief Executive Officer and each of the four other
most highly compensated persons who were serving as executive officers as of
December 31, 2001 (collectively, the "named executive officers"), for services
rendered to Billserv, Inc. in all capacities during fiscal years ended 2001,
2000, and 1999:
17.
Long-Term
Annual Compensation Awards
Compensation Securities All
---------------------------- Underlying Other
Name & Principal Positions Fiscal Year Salary (1) Options (#) Compensation (2)
-------------------------- ----------- ---------- ----------- ----------------
Michael R. Long ................... 2001 $190,000 325,000 $11,074
Chairman and CEO 2000 $188,046 165,000 $11,275
1999 $140,000 100,000 ---
Louis A. Hoch...................... 2001 $175,000 250,000 $ 1,596
President and COO 2000 $164,231 90,000 $ 513
1999 $134,615 100,000 --
Terri A. Hunter.................... 2001 $145,000 150,000 $ 1,368
Executive Vice President 2000 $ 94,885 125,000 $ 223
and CFO 1999 -- -- --
Anthony L. Diamond................. 2001 $145,000 100,000 $ 1,653
Executive Vice President 2000 $ 60,367 125,000 $ 193
and CFO 1999 -- -- --
Marshall N. Millard................ 2001 $120,000 30,000 $ 1,368
Secretary, Senior Vice 2000 $113,846 50,000 $ 356
President and General 1999 $ 94,000 40,000 --
Counsel
-----------
(1) Each of the named executives has entered into employment agreements
expiring on December 31, 2002, which provide for annual salary and bonuses
at the discretion of the Board of Directors, as well as health benefits.
Ms. Hunter and Mr. Diamond joined the Company in April 2000 and June 2000,
respectively. In 2002, each of the named officers is to receive salary
compensation as follows: Mr. Long, $190,000; Mr. Hoch, $175,000; Ms.
Hunter, $145,000; Mr. Diamond, $145,000; and Mr. Millard, $120,000.
(2) Reflects premiums paid for group term life insurance coverage.
18.
The following table provides information regarding the grant of stock options
during fiscal year 2001 to the named executive officers.
Number % of Total Potential Realizable
of Options Exercise Value
Securities Granted to Or at Assumed Annual
Underlying Employees in Base Rates of Stock
Options Fiscal Price Expiration Price Appreciation for
Name Granted 2001 ($/Share) Date Option Term (1)
---- ------- ---- --------- ---- --------------------------
5% ($) 10% ($)
------ -------
Michael R. Long ............ 325,000 17.6% $0.86 10/31/11 $175,776 $445,451
Louis A. Hoch............... 250,000 13.5% $0.86 10/31/11 $135,212 $342,655
Terri A. Hunter............. 150,000 8.1% $0.86 10/31/11 $ 81,127 $205,593
Anthony L. Diamond.......... 100,000 5.4% $0.86 10/31/11 $ 54,085 $137,062
Marshall N. Millard......... 30,000 1.6% $0.86 10/31/11 $ 16,225 $ 41,119
-----------------------------
1. The potential realizable value is calculated based on the term of the option
and is calculated by assuming that the fair market value of common stock on the
date of the grant as determined by the Board appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and the common stock received therefore is sold on the last day of
the term of the option for the appreciated price. The 5% and 10% rates of
appreciation are derived from the rules of the SEC and do not reflect our
estimate of future stock price appreciation. The actual value realized may be
greater or less than the potential realizable values set forth in the table.
EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Billserv, Inc. has entered into employment agreements with its five
executive officers. These agreements expire December 31, 2002 and provide for an
annual salary, bonuses at the discretion of the Board of Directors, and health
benefits. In 2002, each of the named officers are to receive salary compensation
as follows: Mr. Long, $190,000; Mr. Hoch, $175,000; Ms. Hunter, $145,000; Mr.
Diamond, $145,000; and Mr. Millard, $120,000.
The Company's agreements with its executive officers provide for change in
control protection for each executive, as the Company may terminate any such
agreement not later than thirty (30) days after a change of control. In such
event, the executive would be entitled to deferred compensation. Deferred
compensation is calculated as the greater of (A) the base salary payments the
executive would have received had his or her employment continued for the
remaining term of the agreement (including yearly increases calculated at the
maximum increase for the prior two years); or (B) an amount equal to 2.95 times
the highest annual compensation earned by the executive in the past two years.
In addition, the executive would be entitled to all of the benefits otherwise
provided in the agreement (such as automobile expenses) during a certain period
of time defined in the agreement as the greater of the remaining term of the
agreement or one year. The executive may also be entitled to an amount equal to
the pro rata portion of the bonus compensation for the year in which the
executive's employment
19.
is terminated determined on the basis of the number of days elapsed in such year
prior to such termination. Upon termination of employment, each employee is
prohibited from competing with the Company for a period of two (2) years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, the Compensation Committee consists of Mssrs. Crist,
Hemminghaus, Kirby, and Bergman, none of whom are employees of the Company.
Mr. Hoch serves as an advisory director to Office e-Procure, Inc., an
office supply procurement company utilizing Web-based procurement technologies.
Mr. Crist is Chairman of the Board of Office e-Procure, Inc.
STOCK PERFORMANCE GRAPH
12/31/00 3/31/01 6/30/01 9/30/01 12/31/01
-------- ------- ------- ------- --------
Billserv, Inc. 100 .84 .80 .32 .42
Nasdaq Composite 100 .74 .87 .61 .79
Nasdaq Computer 100 .69 .84 .52 .76
ITEM 2.
APPROVAL OF AMENDMENT TO THE 1999 NON-EMPLOYEE DIRECTOR PLAN
GENERAL
On December 16, 1999, the stockholders approved the 1999 Non-Employee
Director Plan of Billserv, Inc., the text of which is attached as ANNEX A to
this Proxy Statement. The Board of Directors now proposes to increase the number
of shares available under the plan by 300,000, for a total of 800,000. The
material features of the Non-Employee Director Plan are discussed below, but the
description is subject to and is qualified in its entirety by the full text of
the Non-Employee Director Plan.
The purpose of the Non-Employee Director Plan is to advance the interests
of the Company by providing additional incentives to attract and retain
qualified and competent non-employee directors, upon whose efforts and judgment
the success of the Company (including its subsidiaries) is largely dependent. In
furtherance of this purpose, the Non-Employee Director Plan authorizes the
granting of non-qualified stock options ("Options") to purchase common stock to
such directors. Currently, a total of 500,000 shares of common stock is reserved
for issuance upon the exercise of the Options. However, the Board of Directors
proposes to amend the Non-Employee Director Plan to increase the number of
shares available to 800,000 shares.
TERMS AND CONDITIONS
Under the Non-Employee Director Plan, options must be granted at an
exercise price per share that is no less than the fair market value of the
common stock at the date of grant. The exercise price of an option may be paid
in cash, certified or cashier's check, money order, or by delivery of already
owned shares of common stock having a fair market value equal to the exercise
price (to the extent such shares have been owned by the optionee for at least
six months and only if permitted by the applicable option agreement), or by
delivery of a combination of such methods.
20.
The options are not assignable or transferable other than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order. During the lifetime of an optionee, the option is exercisable
only by him, his guardian or legal representative.
The expiration date of each option shall not exceed ten (10) years from
the date of the grant. The Non-Employee Director Plan will automatically
terminate on July 10, 2009, and any option outstanding on such date will remain
outstanding until it has either expired or been exercised.
The Board of Directors believes that the Non-Employee Director Plan
assists in attracting and retaining qualified non-employee directors and has the
effect of more significantly aligning the interests of the non-employee
directors with the Billserv, Inc. stockholders. The Board of Directors believes
that increasing the number of shares under the Non-Employee Director Plan to
800,000 will also increase this effect.
We recommend a vote FOR the approval of the amendment to the 1999
Non-Employee Director Plan of Billserv, Inc.
ITEM 3.
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Board of Directors of the Company, upon recommendation of its Audit
Committee, has appointed ERNST & YOUNG LLP as independent auditors to examine
the Company's consolidated financial statements for the fiscal year ending
December 31, 2002 and to render other professional services as required.
The Company is submitting the appointment of ERNST & YOUNG LLP to
stockholders to obtain your ratification. Representatives of ERNST & YOUNG LLP
will be present at the meeting, will have the opportunity to make a statement if
they desire to do so, and are expected to be available to respond to questions.
We recommend a vote FOR the ratification of ERNST & YOUNG LLP as the
independent auditors for the current fiscal year.
ANNUAL MEETING ADVANCE NOTICE REQUIREMENTS
A stockholder may recommend a nominee to become a director of Billserv,
Inc. by giving the secretary of the Company (at the address set forth above) a
written notice setting forth certain information, including: (1) the name, age,
and business and residence addresses of the person intended to be nominated, (2)
a representation that the nominating stockholder is in fact a holder of record
of Billserv, Inc. common stock entitled to vote at the meeting and that he or
she intends to be present at the meeting to nominate the person specified, (3) a
description of all arrangements between the nominating stockholder, the nominee
and other persons concerning the nomination, (4) any other information about the
nominee that must be disclosed in proxy
21.
solicitations under Rule 14(a) of the Securities Exchange Act of 1934 and (5)
the nominee's written consent to serve, if elected. Such nominations must be
made pursuant to the same advance notice requirements for stockholder proposals.
The Company's 2003 annual meeting of stockholders is currently scheduled
for May 2003. Copies of the Company's Bylaws are available upon written request
made to the secretary of Billserv, Inc. at the above address. The requirements
described above do not supersede the requirements or conditions established by
the Securities and Exchange Commission for stockholder proposals to be included
in Billserv, Inc.'s proxy materials for a meeting of stockholders. The Chairman
of the meeting may refuse to bring before a meeting any business not brought in
compliance with applicable law and the Company's Bylaws.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
GENERAL
The accounting firm of Ernst & Young LLP has acted as independent accountants to
audit the financial statements of the Company and its consolidated subsidiaries
since 1998. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting and be available to respond to appropriate questions. Such
representatives will have the opportunity to make a statement if they desire to
do so.
AUDIT FEES
Ernst & Young LLP billed the Company a total of $73,259 for professional
services in connection with the audit of the 2001 financial statements and SEC
registration statement review fees.
FINANCIAL INFORMATION SYSTEMS REVIEW FEES
Ernst & Young LLP billed the Company $11,136 during 2001 for professional
services in connection with the review and evaluation of financial information
systems and related controls for purposes of obtaining a SAS 70 certification.
ALL OTHER FEES
Ernst & Young LLP billed the Company a total of $15,240 for other services
rendered during 2001. Substantially all of these fees related to tax planning
and tax return preparation services. The Audit Committee of the Board does not
consider the provision of the services described above by Ernst & Young LLP to
be incompatible with the maintenance of Ernst & Young LLP's independence.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 2001 and Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated herein by reference to
Company's 2001 Annual Report on Form 10-K as filed
22.
with the Securities and Exchange Commission which is being mailed to
stockholders with this Proxy Statement.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any business that will be presented for consideration
at the Annual Meeting other than that specified herein and in the Notice of
Annual Meeting of Stockholders. If other matters are presented it is the
intention of the persons designated as proxies to vote in accordance with their
judgment on such matters.
SOLICITATION
The cost of soliciting Proxies in the accompanying form will be borne by
the Company. In addition to the solicitation of Proxies by the use of the mails,
certain officers and associates (who will receive no compensation therefor in
addition to their regular salaries) may be used to solicit Proxies personally
and by telephone or fax. In addition, banks, brokers and other custodians,
nominees and fiduciaries will be requested to forward copies of the Proxy
materials to their principals and to request authority for the execution of
Proxies. The Company will reimburse such persons for their expenses in so doing.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 2001, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE FURNISHED
WITHOUT CHARGE TO ANY STOCKHOLDER OF THE COMPANY WHOSE PROXY IS SOLICITED BY
THIS PROXY STATEMENT, UPON THE WRITTEN REQUEST OF ANY SUCH PERSON ADDRESSED TO
MR. MARSHALL MILLARD, SECRETARY, BILLSERV, INC., 211 NORTH LOOP 1604 EAST, SUITE
100, SAN ANTONIO, TEXAS 78232. SUCH A REQUEST FROM A BENEFICIAL OWNER OF THE
COMPANY'S COMMON STOCK MUST CONTAIN A GOOD FAITH REPRESENTATION BY SUCH PERSON
THAT, AS OF APRIL 1, 2002, HE OR SHE WAS A BENEFICIAL OWNER OF THE COMPANY'S
COMMON STOCK.
Please SIGN and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors:
MARSHALL MILLARD
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY
23.
ANNEX A
BILLSERV, INC.
1999 NON-EMPLOYEE DIRECTOR PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
Billserv, Inc., a Nevada corporation (the "Company"), by providing an additional
incentive to attract and retain qualified and competent directors, upon whose
efforts and judgment the success of the Company is largely dependent, through
the encouragement of stock ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of Billserv, Inc.
(b) "Committee" shall mean the committee, if any, appointed by the
Board pursuant to Section 12 hereof.
(c) "Date of Grant" shall mean the date on which an Option is
granted to an Eligible Person pursuant to Section 4 or Section 5 hereof.
(d) "Director" shall mean a member of the Board or a member of the
board of directors of a Parent on the date of adoption of the Plan.
(e) "Eligible Person(s)" shall mean those persons who are
Directors of the Company or a Parent and who are not employees of the Company or
a Subsidiary.
(f) "Fair Market Value" of a Share on any date of reference shall
be the closing price on the business day immediately preceding such date. For
this purpose, the closing price of the Shares on any business day shall be (i)
if the Shares are listed or admitted for trading on any United States national
securities exchange, the last reported sales price of Shares on such exchange,
as reported in any newspaper of general circulation, (ii) if actual transactions
in the Shares are included in the Nasdaq National Market or are reported on a
consolidated transaction reporting system, the closing price of the Shares on
such system, (iii) if Shares are otherwise quoted on the Nasdaq system, or any
similar system of automated dissemination of quotations of securities prices in
common use, the mean between the closing high bid and low asked quotations for
such day of Shares on such system, and (iv) if none of clause (i), (ii) or (iii)
is applicable, the mean between the high bid and low asked quotations for Shares
as reported by the National Daily Quotation Service if at least two securities
dealers have inserted both bid and asked quotations for Shares on at least five
(5) of the ten (10) preceding days.
(g) "Internal Revenue Code" or "Code" shall mean the Internal
Revenue Code of 1986, as it now exists or may be amended from time to time.
A-1
(h) "Nonqualified Stock Option" shall mean an option that is not
an incentive stock option as defined in Section 422 of the Internal Revenue
Code.
(i) "Option" shall mean any option granted under Section 4 or 5 of
this Plan.
(j) "Optionee" shall mean a person to whom an Option is granted
under this Plan or any successor to the rights of such person under this Plan by
reason of the death of such person.
(k) "Parent" shall mean a parent corporation of the Company as
defined in Section 424(c) of the Code, if any.
(l) "Payment Date" shall have the meaning set forth in Section
2(a).
(m) "Plan" shall mean this 1999 Non-Employee Director Plan of
Billserv, Inc.
(n) "Prior Plan" shall mean any plan which may have been in place
prior to the execution of this plan.
(o) "Share(s)" shall mean a share or shares of the common stock,
($0.001 per value, of the Company.
(p) "Subsidiary" shall mean a subsidiary corporation of the
Company as defined in Section 424(f) of the Code.
3. SHARES AND OPTIONS. The maximum number of Shares to be issued
pursuant to Options under this Plan shall be Eight Hundred Thousand (800,000)
Shares. Shares issued pursuant to Options granted under this Plan may be issued
from Shares held in the Company's treasury or from authorized and unissued
Shares. If any Option granted under this Plan shall terminate, expire, or be
canceled or surrendered as to any Shares, new Options may thereafter be granted
covering such Shares. Any Option granted hereunder shall be a Nonqualified Stock
Option.
4. AUTOMATIC GRANT OF OPTIONS. (a) Options shall automatically be
granted to Directors as provided in this Section 4. Each Option shall be
evidenced by an option agreement (an "Option Agreement") and shall contain such
terms as are not inconsistent with this Plan or any applicable law. Any person
who files with the Committee, in a form satisfactory to the Committee, a written
waiver of eligibility to receive any Option under this Plan shall not be
eligible to receive any Option under this Plan for the duration of such waiver.
(b) The Options automatically granted to Directors under this
Plan shall be in addition to regular director's fees and other benefits with
respect to the Director's position with the Company or its Subsidiaries. Neither
the Plan nor any Option granted under the Plan shall confer upon any person any
right to continue to serve as a Director.
A-2
(c) No Options shall otherwise be granted hereunder, and neither
the Board nor the Committee, if any, shall have any discretion with respect to
the grant of Options within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, or any successor rule.
5. OPTION PRICE. (a) The Option price per Share of any Option granted
pursuant to this Plan shall be one hundred percent (100%) of the Fair Market
Value per Share on the Date of Grant.
6. EXERCISE OF OPTIONS. Options may be exercised at any time after the
date on which the Options, or any portion thereof, are vested until the Option
expires pursuant to Section 7; provided, however, that no Option shall be
exercisable prior to six (6) months from the Date of Grant. An Option shall be
deemed exercised when (i) the Company has received written notice of such
exercise in accordance with the terms of the Option Agreement, (ii) full payment
of the aggregate Option price of the Shares as to which the Option is exercised
has been made and (iii) arrangements that are satisfactory to the Committee in
its sole discretion have been made for the Optionee's payment to the Company of
the amount, if any, that the Committee determines to be necessary for the
Company to withhold in accordance with applicable federal or state income tax
withholding requirements. Pursuant to procedures approved by the Committee, tax
withholding requirements, at the option of an Optionee, may be met by
withholding Shares otherwise deliverable to the Optionee upon the exercise of an
Option. Unless further limited by the Committee in any Option Agreement, the
Option price of any Shares purchased shall be paid solely in cash by certified
or cashier's check, by money order, with Shares (but with Shares only if
permitted by the Option Agreement or otherwise permitted by the Committee in its
sole discretion at the time of exercise) or by a combination of the above;
provided, however, that the Committee in its sole discretion may accept a
personal check in full or partial payment of any Shares. If the exercise price
is paid in whole or in part with Shares, the value of the Shares surrendered
shall be their Fair Market Value on the date the Shares are received by the
Company.
7. TERMINATION OF OPTION PERIOD. The unexercised portion of an Option
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:
(a) one (1) year after the date that an Optionee ceases to be a
Director (including for this purpose a Director of a Parent) by reason of death
of the Optionee, or;
(b) the tenth (10th) anniversary of the Date of Grant of the
Option.
8. ADJUSTMENT OF SHARES. (a) If at any time while this Plan is in
effect or unexercised Options are outstanding, there shall be any increase or
decrease in the number of issued and outstanding Shares through the declaration
of a stock dividend or through any recapitalization resulting in a stock
split-up, combination or exchange of Shares, then and in such event:
A-3
(i) appropriate adjustment shall be made in the maximum number of
Shares then subject to being optioned under this Plan, so that the same
proportion of the Company's issued and outstanding Shares shall continue
to be subject to being so optioned; and
(ii) appropriate adjustment shall be made in the number of Shares
and the exercise price per Share thereof then subject to any outstanding
Option, so that the same proportion of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
In addition, the Committee shall make such adjustments in the Option price
and the number of shares covered by outstanding Options that are required to
prevent dilution or enlargement of the rights of the holders of such Options
that would otherwise result from any reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, issuance of
rights, spin-off or any other change in capital structure of the Company.
(b) Except as otherwise expressly provided herein, the issuance by
the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection with
a direct sale or upon the exercise of rights or warrants to subscribe therefor,
or upon conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of or exercise price of Shares
then subject to outstanding Options granted under this Plan.
(c) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under this Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
9. TRANSFERABILITY OF OPTIONS. Each Option Agreement shall provide that
such Option shall not be transferable by the Optionee other than by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order and that, so long as an Optionee lives, only such Optionee or his guardian
or legal representative shall have the right to exercise the related Option
10. ISSUANCE OF SHARES. No person shall be, or have any of the rights
or privileges of, a stockholder of the Company with respect to any of the Shares
subject to an Option unless and until certificates representing such Shares
shall have been issued and delivered to such person. As a condition of any
transfer of the certificate for Shares, the Committee may obtain such
A-4
agreements or undertakings, if any, as it may deem necessary or advisable to
assure compliance with any provision of this Plan, any Option Agreement or any
law or regulation, including, but not limited to. the following:
(i) A representation, warranty or agreement by the Optionee to the
Company, at the time any Option is exercised, that he or she is acquiring
the Shares to be issued to him or her for investment and not with a view
to, or for sale in connection with, the distribution of any such Shares;
and
(ii) A representation, warranty or agreement to be bound by any
legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed by
the Committee to be applicable to the issuance of the Shares and are
endorsed upon the Share certificates.
Share certificates issued to an Optionee who is a party to any stockholder
agreement or a similar agreement shall bear the legends contained in such
agreements.
11. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
a stock option committee (the "Committee") consisting of not fewer than two (2)
members of the Board; provided, however, that if no Committee is appointed, the
Board shall administer this Plan and in such case all references to the
Committee shall be deemed to be references to the Board. The Committee shall
have all of the powers of the Board with respect to this Plan. Any member of the
Committee may be removed at any time, with or without cause, by resolution of
the Board, and any vacancy occurring in the membership of the Committee may be
filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of this Plan. The determinations and
the interpretation and construction of any provision of this Plan by the
Committee shall be final and conclusive.
(c) Any and all decisions or determinations of the Committee shall
be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the written approval of a majority of the
members of the Committee.
(d) This Plan is intended and has been drafted to comply with Rule
16b-3, as amended, under the Securities Exchange Act of 1934, as amended. If any
provision of this Plan does not comply with Rule 16b-3, as amended, this Plan
shall be automatically amended to comply with Rule 16b-3, as amended.
(e) This Plan shall not be amended more than once every six (6)
months, other than to comport with applicable changes to the Internal Revenue
Code, the Employee Retirement Income Security Act of 1974, as amended, or the
rules thereunder.
A-5
12. INTERPRETATION. (a) If any provision of this Plan is held invalid
for any reason, such holding shall not affect the remaining provisions hereof,
but instead this Plan shall be construed and enforced as if such provision never
been included in this Plan.
(b) THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEVADA
EXCEPT TO THE EXTENT SUPERSEDED BY THE LAWS OF THE UNITED STATES OR THE PROPERTY
LAWS OF ANY STATE.
(c) Headings contained in this Plan are for convenience only and
shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine or neuter gender
shall be a reference to such other gender as is appropriate.
13. SECTION 83(B) ELECTION. If as a result of exercising an Option an
Optionee receives Shares that are subject to a "substantial risk of forfeiture"
and are not "transferable" as those terms are defined for purposes of Section
83(a) of the Code, then such Optionee may elect under Section 83(b) of the Code
to include in his gross income, for his taxable year in which the Shares are
transferred to such Optionee, the excess of the Fair Market Value of such Shares
at the time of transfer (determined without regard to any restriction other than
one which by its terms will never lapse), over the amount paid for the Shares.
If the Optionee makes the Section 83(b) election described above, the Optionee
shall (i) make such election in a manner that is satisfactory to the Committee,
(ii) provide the Company with a copy of such election, (iii) agree to promptly
notify the Company if any Internal Revenue Service or state tax agent, on audit
or otherwise, questions the validity or correctness of such election or of the
amount of income reportable on account of such election, and (iv) agree to such
withholding as the Committee may reasonably require in its sole and absolute
discretion.
14. EFFECTIVE DATE AND TERMINATION DATE. This Plan is adopted as of
January 4, 1999, but shall only become effective upon effectiveness of the
Company's Registration Statement filed under the Securities Exchange Act of
1934, as amended. The effective date of any amendment to the Plan is the date on
which the Board adopted such amendment; provided, however, if this Plan is not
approved by the stockholders of the Company within twelve (12) months after the
effective date, then, in such event, this Plan and all Options granted pursuant
to this Plan shall be null and void. This Plan shall terminate on July 10, 2009,
and any Option outstanding on such date will remain outstanding until it has
either expired or has been exercised.
A-6
ANNEX B
Billserv, Inc.
Audit Committee Charter
ORGANIZATION
The Audit Committee (the "Committee") of the board of directors (the "Board")
shall be comprised of at least two (2) directors who are independent of
management and Billserv, Inc. (the "Company"). The Board shall appoint the
members of the Committee. Members of the Committee shall be considered
independent if they have no relationship to the Company that may interfere with
the exercise of their independence from management and the Company. All
Committee members will be financially literate, and in particular, the chair of
the Committee will have accounting or related financial management expertise, as
determined in the business judgment of the Board.
The Committee shall have the authority to retain special legal, accounting or
other consultants to advise the Committee. The Committee may request any officer
or employee of the Company or the Company's outside counsel or independent
auditor to attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
STATEMENT OF POLICY
The Committee shall provide assistance to the directors in fulfilling their
responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the Company,
and the quality and integrity of financial reports of the Company. In so doing,
it is the responsibility of the Committee to maintain free and open
communication between the Board, the independent auditors, and the financial
management of the Company.
Consistent with the duties and function of the Board, generally, the Committee
has oversight, not managerial duties and authorities in discharging its
responsibilities. The Committee has only the responsibilities specified below.
Accordingly, it is not the responsibility of the Committee to plan or conduct
audits or to determine whether the Company's financial statements are complete
and accurate or are in compliance with generally accepted accounting principles;
rather, those matters are the responsibility of management and the outside
auditor. Similarly, it is not the responsibility of the Committee to conduct
investigations, to ensure compliance with laws or the Company's corporate
compliance program or any code of ethics.
The Committee will, of necessity, rely upon management and the outside audits in
carrying out the responsibilities specified in this Charter. Accordingly, there
can be no assurance that the Company's financial statements will necessarily be
in accordance with generally accepted accounting principles, and not contain any
material inaccuracies, whether or not the Committee discharges the
responsibilities specified in this Charter.
RESPONSIBILITIES
B-1
In carrying out its responsibilities, the Committee believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and to oversee for the Board and shareholders that the corporate accounting and
reporting practices of the Company are in accordance with all requirements and
are of the highest quality.
In carrying out these responsibilities, the Committee shall:
o Obtain the full Board's approval of this Charter and review and reassess
this Charter as conditions dictate (at least annually).
o Review and recommend to the Board the independent auditors to be selected
to audit the financial statements of the Company and its subsidiaries.
o Review the experience and qualifications of the senior members of the
independent auditor team and the quality control procedures of the
independent auditor.
o Have a clear understanding with the independent auditors that they are
ultimately accountable to the Board and the Committee, as the
shareholders' representatives, and that these shareholder representatives
have the ultimate authority in deciding to engage, evaluate, and if
appropriate, terminate their services.
o Review and concur with management's appointment, termination, or
replacement of the chief financial officer of the Company.
o Meet with the independent auditors and financial management of the Company
to review the scope of the proposed audit and timely quarterly reviews for
the current year and the procedures to be utilized, the adequacy of the
independent auditor's compensation, and at the conclusion thereof, review
such audit or review, including any comments or recommendations of the
independent auditors.
o Review with the independent auditors, the Company's chief financial
officer, and financial and accounting personnel, the adequacy and
effectiveness of the accounting and financial controls of the Company, and
elicit any recommendations for the improvement of such internal controls
or particular areas where new or more detailed controls or procedures are
desirable. Particular emphasis should be given to the adequacy of internal
controls to expose any payments, transactions, or procedures that might be
deemed illegal or otherwise improper.
o Review reports received from regulators and other legal and regulatory
matters that may have a material effect on the financial statements or
related Company compliance policies.
o Retain internal audit services to investigate or review matters that in
its judgment require independent investigation.
o Inquire of management, the chief financial officer, and the independent
auditors about significant risk or exposures and assess the steps
management has taken to minimize such risks to the Company.
B-2
o Review the quarterly financial statements with financial management and
the independent auditors, including the results of the independent
auditors' reviews of the quarterly financial statements, to determine that
the independent auditors do not take exception to the disclosure and
content of the financial statements, and discuss any other matters
required to be communicated to the Committee by the auditors. The chair of
the Committee may represent the entire Committee for purposes of this
review.
o Review and discuss the audited financial statements to be contained in the
annual report to shareholders with management and the independent auditors
to determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented to the
shareholders. Review with financial management and the independent
auditors the results of their timely analysis of significant financial
reporting issues and practices, including changes in, or adoptions of,
accounting principles and disclosure practices, and discuss any other
matters required to be communicated to the Committee by the auditors. Also
review with financial management and the independent auditors their
judgments about the quality, not just acceptability, of accounting
principles and the clarity of the financial disclosure practices used or
proposed to be used, and particularly, the degree of aggressiveness or
conservatism of the Company's accounting principles and underlying
estimates, and other significant decisions made in preparing the financial
statements. Based on these interviews and discussions, recommend to the
Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the last fiscal year.
o Provide sufficient opportunity for the independent auditors to meet with
the members of the Committee without members of management present. Among
the items to be discussed in these meetings are the independent auditors'
evaluation of the Company's financial and accounting personnel, and the
cooperation that the independent auditors received during the course of
audit, including any restrictions on the scope of activities or access to
required information, and any disagreements with management.
o Review accounting and financial human resources and succession planning
within the Company.
o Report the results of the annual audit to the board of directors. If
requested by the Board, invite the independent auditors to attend the full
Board meeting to assist in reporting the results of the annual audit or to
answer other directors' questions (alternatively, the other directors,
particularly any other independent directors, may be invited to attend the
Committee meeting during which the results of the annual audit are
reviewed).
o On an annual basis, obtain from the independent auditors a written
communication delineating all their relationships and professional
services as required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees. In addition, review and
discuss with the independent auditors the nature and scope of any
disclosed relationship or professional services and take, or recommend
that the Board take, appropriate action to ensure the continuing
independence of the auditors.
B-3
o Review management's procedures to minimize contracting for consulting and
other professional services provided by the independent auditor or its
affiliates.
o Review the report of the Committee in the annual proxy statement to
shareholders disclosing whether or not the Committee had reviewed and
discussed with management and the independent auditors, as well as
discussed within the Committee (without management or the independent
auditors present), the financial statements and the quality of accounting
principles and significant judgments affecting the financial statements.
In addition, disclose the Committee's conclusion on the fairness of
presentation of the financial statements in conformity with GAAP based on
those discussions.
o Submit the minutes of all meetings of the Committee to, or discuss the
matters discussed at each committee meeting with, the Board.
o Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
o Review the Company's disclosure in any proxy statement for its annual
meeting of shareholders that describes that the Committee has satisfied
its responsibilities under this Charter for the prior year. In addition,
include a copy of this Charter in the annual report to shareholders or the
proxy statement at least triennially or the year after any significant
amendment to the Charter.
B-4