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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For fiscal year ended December 31, 1997 OR
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/ / Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ___________ to ____________
Commission file number 0-22361
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Net.B@nk, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Georgia 58-2224352
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
950 North Point Parkway, Suite 350
Alpharetta, Georgia 30005
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(Address of Principal Executive Offices) (Zip Code)
(770) 343-6006
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, computed by reference to the average bid and
asked prices of such common equity as of March 10, 1998: $87,344,331
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Number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 6,145,562 shares of Common Stock at
March 10, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1997 are incorporated by reference into Part II.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders, scheduled to be held on April 23, 1998, are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
Overview
The Company owns and operates the Atlanta Internet Bank (the "Bank"), which
provides convenient, cost-effective and secure banking services to the growing
number of consumers using the Internet for commercial and financial services.
Customers can access the Bank on a 7x24 basis from any personal computer ("PC"),
wherever located, by means of a secure Web browser or by ATM, telephone, fax or
U.S. mail.
The Company's objective is to offer a broad range of banking and financial
service products through the Internet and alternative delivery channels.
Customer convenience and operating efficiency are two key components of the
Company's strategy. The Bank does not incur the cost of supporting a physical
branch system, which management believes benefits customers through the Bank's
ability to pass along its lower cost structure to its customers by offering
attractive deposit rates.
In the initial phase of the Company's operations, management concentrated
its efforts on developing, testing and implementing an Internet banking
platform. Once the platform structure was in place, management established
deposit-oriented products including electronic bill paying, personal credit
lines, checking and money market accounts and certificates of deposit. During
1998, management intends to offer additional consumer loan products, such as
mortgages; construction, home equity and secured loans; VISA debit/credit cards
and other fee generating products. Management also plans to continue to pursue
other revenue generating opportunities through partnerships and strategic
alliances where appropriate.
Customers can access the Bank through any Internet service provider by means
of an acceptable secure Web browser such as Netscape's Navigator (Version 2.0 or
higher) or Microsoft's Internet Explorer (Version 3.0 or higher). Customers can
review account activity, enter transactions into an on-line account register,
pay bills electronically and print bank statement reports, all on a real-time
basis. Unlike PC-based home banking software, which resides on a PC that stores
the data and requires manual downloading and backup, the Bank enables customers
to transact banking business on a real-time basis from any location provided
they have a secure Web browser to connect them to the Bank through the Internet.
The Bank currently offers interest-bearing checking accounts, money market
accounts and certificates of deposit and provides direct deposit, monthly
statement, on-line transfer, wire transfer, bank e-mail and electronic bill
paying services. As of March 10, 1998, the Bank had 7,447 accounts and
approximately $109.2 million in deposits, of which approximately $67.2 million
was invested in certificates of deposit, approximately $37.6 million was
invested in money market accounts and approximately $4.4 million was invested in
checking accounts.
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The Company was incorporated as a Georgia corporation on February 20, 1996.
The Bank commenced operations in October 1996 as a service of Carolina First
Bank ("CFB") under the trade name "Atlanta Internet Bank" pending regulatory
approval of the Company's purchase of the outstanding stock of Premier Bank and
the transfer of the assets and liabilities relating to the operation of the Bank
from CFB. The principal executive offices of the Company and the Bank are
located at 950 North Point Parkway, Suite 350, Alpharetta, Georgia 30005,
telephone (770) 343-6006.
Industry Background
Use of the Internet has grown rapidly during the 1990s and is expected to
continue to grow. According to an industry source, over 58 million people in the
U.S. used the Internet during 1997, with expected growth to 75 to 100 million
U.S. users and 250 to 300 million users internationally by 2001. Much of the
recent growth in Internet use by businesses and individuals has been driven by
the emergence of a network of servers and information available on the Internet
called the "World Wide Web." The Web features a rapidly increasing number of
"home pages" that provide information about a wide variety of institutions,
businesses and individuals. A home page functions primarily as an advertisement,
however, and does not necessarily allow a user to transact business on a
real-time basis with the person or entity sponsoring the page. For example,
although several hundred banks have home pages on the Web, management believes
that only a few have the capability to transact banking business over the
Internet. Management believes the Bank is the only bank that operates solely on
the Internet without branch locations.
Electronic Banking
The creation of the Web and the introduction of Web browsers with graphical
presentation and "point and click" navigation have made the Internet a
mainstream global network. A variety of security standards have been developed
to make the Internet safer for general commerce and financial services
transactions. Transactions can now be protected through secure Web servers that
are separated from general purpose Web servers and through encrypted
transmissions between servers and the user's PC.
The increasing amount of commerce transacted on the Web has prompted the
development of electronic banking delivery systems. These forms of electronic
delivery systems provide convenience for customers and allow financial
institutions to lower their overhead costs. The two types of electronic banking,
PC-based home banking and Internet banking, are very different in their
functionality, means of operations and timeliness. The characteristics of each
are described below.
PC-Based Home Banking. PC-based home banking requires PC-based financial
services software products such as Intuit Inc.'s ("Intuit") Quicken, Microsoft's
Money or Meca Software, LLC's ("Meca") Managing Your Money. Each product carries
its own set of instructions that the customer must learn before commencing any
banking transactions. The software resides on the customer's PC along with his
or her account data and requires a dial-up modem and manual downloading.
Consequently, PC-based home banking must be conducted from the PC containing
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the customer's software and account data. The customer must back up his or her
account data at frequent intervals to reduce the risk of losing data. Because
the customer must connect with the financial institution via modem and download
his or her account data, real-time transactions are not possible. The
information presented to the customer is current only as of the time it was
downloaded to the customer's PC.
Internet Banking. Unlike PC-based home banking, Internet banking requires
only a secure Web browser for Internet access to the Internet and the financial
institution. No particular software is required and the customer's operations
are not restricted to a specific PC. Instead, the customer accesses the
financial institution through the Internet and transfers funds, pays bills or
transacts other business on a real-time basis. Account data remains stored on
the Bank's secure server at all times, protected by technology designed
specifically to safeguard such information. No downloading or back-up is
required, as the Bank's server backs up all data and transactions on a
continuous basis. With Internet banking, the information presented to the
customer remains current at all times.
The following chart compares the typical features of Internet banking,
PC-based home banking and traditional branch banking:
Banking Service Delivery Channel
<TABLE>
<CAPTION>
Internet Banking PC-Based Home Banking Traditional Branch Banking
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<S> <C> <C> <C>
Accessibility 7 days a week 7 days a week Traditional Banking Hours
24 hours per day 24 hours per day
Real-Time Processing (1) Batch Processing (2) Batch Processing (2)
Convenience Need Only Internet Access and Banking Software and Account Branches and ATMs
Secure Browser Data Reside on Single PC
No Customer Back-up Required Requires Frequent Customer
Back-up
Cost No Branches No Branches Full Overhead Structure
Low Personnel Cost and Other Reduced Personnel Cost and
Overhead Other Overhead
Data Security Password/ID Protected Password/ID Protected N/A
Encrypted Dial-up Modem Secure Dial-up Modem N/A
Transmission Transmission
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All Data Stored on Secured Data Stored on PC All Data Stored on Secured
System System
Technology Program Upgrades Centralized Upgrades Require New N/A
Flexibility and Require no Customer Diskettes to be Installed on
Installation PC by Customer
</TABLE>
(1) Customer transfers between their accounts are processed on a real-time
basis.
(2) Customer transfers between their accounts are batched and processed daily.
Products and Services
Current Products and Services
The Bank currently offers interest-bearing checking accounts, money market
accounts and certificates of deposit. Each new Bank customer receives a
password, a checkbook and an ATM/VISA check card. In addition, the Bank provides
electronic bill paying services, direct deposit, on-line transfer, wire
transfer, personal lines of credit and other services traditionally associated
with checking accounts. The Bank's primary products and services are described
below.
- Checking and Money Market Accounts. The Bank is able to offer attractive
interest rates on checking and money market accounts as a result of the
Bank's low overhead costs. The Bank charges customers a service charge,
currently set at $4.50 per month, for a 4% interest-bearing checking
account and no service charge for a 3% interest bearing checking
account. Management believes that the interest-bearing checking account
is generally used as the primary account for transactions and bill
payment, with the money market account being used for more stable
savings balances. Overdraft protection is automatically established
between the money market account and the interest-bearing checking
account.
- Certificates of Deposit. The Bank offers certificates of deposit with
terms of six, 12 and 30 months. As in the case of checking and money
market accounts, the Bank offers attractive interest rates on its
certificates of deposit.
- Bill Payment Service. Through services provided by CheckFree, customers
are able to pay their bills on-line through electronic funds transfer or
a written draft prepared and sent to the creditor by CheckFree. No
additional fee is charged for this service.
- Other Services. The Bank also offers direct deposit, on-line transfer
and wire transfer services. Customers receive monthly bank statements by
mail and can print their bank statements at any time. The Bank provides
customer assistance by telephone or customers can send on-line e-mail
messages to the Bank and systems administrators will respond to their
inquiries with return e-mail messages.
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Future Products and Services
Management intends to follow the Bank's current product offerings with new
products and services. Management plans to add credit cards, loans (including
mortgage and other consumer loan products) and brokerage services over the next
several quarters. These products and services are described below. No assurance
can be given, however, that these products and services will be made available
or that, if available, they will be successful.
- Consumer Loan Products. Beginning in the second quarter of 1998, the
Bank plans to introduce loan products to current and potential customers
via the Internet and other delivery channels. Targeted products include
mortgages, home improvement/equity loans and credit cards. Management
plans to utilize decision support systems that respond to inquiries on a
7x24 basis. While the Bank will set credit criteria, terms and
conditions and rates, much of the closing process and servicing will be
provided by contracted third parties. The Bank also intends to purchase
loans as well as participations in loans.
- Brokerage Services. The Bank plans to offer brokerage services to its
customers beginning in the second quarter of 1998 pursuant to a contract
with UVEST Investment Services, Inc. Customers will be able to view
their account balances and conduct banking and brokerage transactions
within the same session. Management anticipates that combined brokerage
and deposit account statements will be available in 1998. Management has
not yet identified specific products or providers or sought regulatory
approval for brokerage services.
- Other Products and Services. The Bank plans to offer Individual
Retirement Accounts ("IRAs") and insurance products to its existing and
future customers. Management has not selected specific IRA or insurance
products or providers. In addition, the Bank intends to provide OFX
(open exchange) compatibility by the end of 1998.
Management estimates the Bank will incur an aggregate of approximately
$570,000 in costs relating to the introduction of the foregoing products and
services in 1998. Management believes these costs will relate primarily to the
development and integration of the technology needed to provide these products
and services in conjunction with those currently provided by the Bank and to the
marketing and advertising activities required to introduce the Bank's new
products and services.
Lending and Investment Activities
The Bank generates interest income by making consumer loans and investing in
various fixed income securities, loan participations and whole loan packages.
Management's lending philosophy emphasizes providing its customer base with
convenient access to consumer loan products. Beginning in the spring of 1998,
customers will be able to apply for loan products via the Internet, telephone or
U.S. mail. Through the use of automated credit scoring and decision-making
technologies, management believes it can respond quickly to customer requests
for loan products.
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The Bank has a loan/credit committee to set underwriting standards and
criteria for purchased loans and the issuance of its own loan products and to
monitor on an ongoing basis the Bank's loan portfolio. Management's general
philosophy is to focus on credit quality. In addition, management believes the
demographic profile of Internet users will positively impact the Bank's loan
portfolio with respect to net losses and charge-offs.
While the Bank builds its customer base and its own generated loan
portfolio, it will invest excess funds in various fixed income securities, loan
participations and whole loan packages. Management's philosophy of high credit
quality will guide its investment decisions. The Bank's fixed income securities
portfolio concentrates primarily in U.S. Treasury obligations, collateralized
mortgage obligations and mortgage-backed securities issued by agencies such as
Fannie Mae and Freddie Mac. The Bank also invests in loan participations offered
from commercial banks that syndicate loans and invest in packages of whole loans
offered by commercial banks and other financial intermediaries.
Operations
Account Activity
Customers can access the Bank through any Internet service provider by means
of an acceptable secure Web browser such as Netscape's Navigator (Version 2.0 or
higher) or Microsoft's Internet Explorer (Version 3.0 or higher). When customers
access the Bank's service menu, they can open a new account, review the status
of an existing account or engage in a transaction.
To open a new account, the customer can either (i) complete an application
on-line; (ii) print out the account application displayed on the screen, fill it
out and send it to the Bank; or (iii) apply by calling the Bank's toll-free
telephone number, 1-888-BKONWEB. The Bank then establishes an account for the
customer through its direct interface with BISYS, the Bank's systems processor.
It also sends a "welcome kit" to the customer, a preliminary password and some
basic information about the Bank. The customer is instructed to deposit funds to
his or her account at the Bank by direct deposit, wire transfer, mail or other
means. The Bank then accesses the BISYS network and records the initial deposit.
Deposits into an open account at the Bank can be made via direct deposit
programs, by transferring funds between accounts at the Bank, by wire transfer,
by mail or in person at the Bank's principal executive offices; however, no
teller line is maintained and the Bank does not intend to establish a physical
branch system. Customers can also make withdrawals and have access to their
accounts at ATMs that are affiliated with the Cirrus Network. Other networks may
be added in the future. On-line customers currently are able to review account
activity, enter transactions into an on-line account register, pay bills
electronically, receive statements by mail and print bank statement reports. In
the future, customers will be able to take advantage of additional product
offerings by the Bank, such as brokerage, lending and insurance services.
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Geographic Scope
The Bank can accept customers regardless of their residence or location
as long as they have a PC with a secure Web browser. Because the Bank lacks a
physical branch presence, regulatory restrictions based solely on geographic
location will not apply to the Bank. In addition, because the Bank transacts
business only by means of the Internet, ATMs, telephone and U.S. mail, bank
personnel cannot meet with customers to obtain identification or other
relevant information. Consequently, the Bank employs a variety of methods to
verify its customers' identities and the data presented in their account
applications. For example, the Bank verifies the name and address on the
account application, performs a credit check on the applicant and verifies
the applicant's employment before it accepts a new account. If the Bank
cannot confirm an applicant's identity, determines that the applicant
presents a risk to the Bank or is unable to provide services that will
conform to the particular requirements of a foreign jurisdiction, the Bank
will decline the application.
Product Delivery
Management believes the widespread acceptance of graphical computer
interfaces and Web browsers presents a unique and rapidly growing opportunity
to offer a variety of traditional as well as non-traditional banking and bank
related services via the Internet. To this end, the Company has pursued a
strategy of acquiring and utilizing proven banking systems and technologies
rather than developing new technologies and systems. This enables the Company
to focus on marketing a variety of services in attractive packages to the
consumer while reducing the Company's dependence on one supplier or on the
uncertainties of new technologies.
Service Providers
Management has negotiated agreements with a select group of service
providers who not only provide the Bank with significant quality, security,
reliability, performance and marketing capabilities, but also play an
integral role in the implementation of the Bank's full financial services
strategy. Moreover, the Company has preserved a degree of flexibility that
will enable it to continually assess and evaluate its product offerings and
delivery structure and incorporate other alliance opportunities as they
present themselves. Should any of these relationships terminate, however,
management believes the Company could secure the required services from an
alternative source without material interruption of the Bank's operations.
- AT&T. Pursuant to an agreement between the Company and AT&T dated August
16, 1996 (the "AT&T Agreement"), AT&T's Advanced Network Solutions
Division provided technical, marketing and customer service through a
bundled product and service offering called "Personal Financial
Services." Specifically, AT&T provided the Bank with a secure Internet
Web site on AT&T's Easy World Wide Web ("EW3"), computer software that
performed services related to the operation and maintenance of the
Bank's infrastructure and other electronic banking services. AT&T also
provided a toll-free touch-tone voice response service for technical and
bill payment customer support, banking customer service
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and inbound telemarketing. Under the AT&T Agreement, AT&T also provided
and maintained the software products of two other banking software
companies -- Edify and CheckFree.
AT&T notified the Bank in August 1997 that it was discontinuing its
Personal Financial Services offering. Management chose to expedite the
transfer of those services from AT&T to a more directly controlled set
of relationships. The Bank acquired the hardware and proprietary AT&T
software in November 1997 and moved it intact to the BISYS electronic
funds transfer (EFT) processing facility in Houston, Texas. The Bank
contracted directly with Edify to license the Electronic Banking System
(EBS) product previously managed by AT&T and contracted with CheckFree
for the bill payment services previously provided through the AT&T
relationship. The hosting of the marketing web site currently remains
with the AT&T Easy World Wide Web group, but that relationship is
currently under review.
- BISYS. The Bank receives core systems processing services, such as
deposit account, loan processing and year-end processing services,
pursuant to an agreement between the Company and BISYS dated August 22,
1996 (the "BISYS Agreement"). For these standard services, the Bank pays
BISYS a monthly fee calculated by multiplying the number of customer
accounts by a per account charge. The monthly fee is reviewed on a
quarterly basis and adjusted so that as the number of accounts rises,
the per account charge is reduced. Non-standard services, such as ATM
services and the production of certain reports, are subject to
additional monthly charges. In addition, the Bank paid BISYS an initial
conversion fee. The BISYS Agreement expires on August 22, 1999, but will
renew automatically for successive three-year terms absent six months'
prior written notice to the contrary by either party.
In November 1997, the Bank moved the hosting of the Edify EBS and the
secure Web server from AT&T to the BISYS EFT processing facility as
described above. BISYS administers the EBS and secure Web server
hardware, software and operations. The interface between the BISYS core
processing systems and the EBS system provides the Bank's Internet-based
electronic banking and bill payment functions. For these services, the
Bank paid BISYS an initial setup fee and pays BISYS a flat monthly fee
that remains fixed regardless of the number of customers and accounts
served via the Internet channel.
- Edify. The Bank has obtained a license directly from Edify for the
Electronic WorkForce (EWF) and EBS. These software products allow the
Bank to create, customize and make available the Internet-based banking
and bill payment services it offers. The Bank paid Edify a one-time
license fee for production and backup/development copies of the
software. The Bank also obtained an annually renewable software
maintenance agreement that secures software upgrades and technical
product support from Edify. The Bank also engages Edify Professional
Services occasionally on a time and materials basis to perform software
enhancements and release upgrades to the EWF and EBS software.
- CheckFree. The Bank has entered into a service agreement with CheckFree
to provide bill payment services for Bank customers. The bill payment
instructions are entered into the Internet-based system provided by the
Edify EBS software. BISYS provides a dial-up environment through which
bill payment instructions are transmitted directly to CheckFree
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for processing. CheckFree acknowledges receipt of instructions, or
provides error messages, and fulfills the bill payment function to the
merchant.
The following chart summarizes the services provided by AT&T, BISYS, Edify
and CheckFree:
- - AT&T WorldNet - Rotating banner ads on Welcome Page (Main Page)
- Banner advertisements in various WorldNet
locations
- - Easy World Wide Web - Hosting of the Bank's marketing web site
(EW3)
- - Marketing Advantage - Co-Branded WorldNet Navigator disks provided
to Atlanta Internet Bank customers and used
for direct marketing purposes. Displays
Atlanta Internet Bank's logo on WorldNet
screen using special registration.
- - Network Voice Response TouchTone voice response service for toll-free
inbound routing to:
- Technical and bill paying customer support
- Banking customer service
BISYS - Bank systems processing
- Secure hosting of Edify's Electronic Banking
System
- Interface to secure server hosting
- Online customer ID/password verification
- ATM and debit card systems
- Items capture/inclearings, other services
Edify - Electronic Banking System - Licensed to the
Bank and run on secure server
CheckFree - Bill paying services under contract with
the Bank
Security
The Bank's ability to provide its customers with secure financial
services over the Internet is of paramount importance. Management has
reviewed the Internet systems, services and software used in the Bank's
operations to ensure that they meet the highest standards of security. The
following are among the security measures that are in place:
Encrypted Transactions. All banking transactions and Internet
communications are encrypted so that sensitive information is not available
on the Internet in a form that can be read or easily deciphered. Encryption
of Internet communications is accomplished through the use of the Netscape
SSL (Secure Sockets Layer) technology. SSL is the standard for encryption on
the
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Internet and is currently used by Netscape's Navigator (Version 2.0 or
higher) and Microsoft's Internet Explorer (Version 3.0 or higher). Messages
between the Bank server and BISYS are encrypted using DES encryption, which
is described in the section entitled "-Isolated Bank Server" below.
Secure Logon. To eliminate the possibility of downloading the Bank's or a
customer's password file, user identification and passwords are not stored on
the Internet, the Web server or the customer's PC. Furthermore, passwords are
variable length strings of six to eight alpha-numeric characters, which makes
the chance that a password can be randomly guessed less than one in one
trillion.
Isolated Bank Server The computer that is used to provide the Bank's
services cannot be accessed directly through the Internet. It is on a private
connection, or intranet, that provides two-way communication between the
isolated Bank server and the Internet server. Consequently, an Internet user
cannot directly access the computer that actually provides the Bank's
services.
All banking services are routed from the Internet server through a
firewall. The firewall is a combined software and hardware product that
precisely defines, controls and limits the access to "internal" computers
from "outside" computers across a network. Use of this firewall means that
only authenticated bank customers or administrators may send or receive
transactions through it, and -the firewall itself is immune to penetration
from the network. In other words, the firewall is a mechanism used to protect
the Bank server from the freely accessible Internet.
Furthermore, all messages sent or received between the Internet server
and the Bank server are encrypted using DES encryption. This is a symmetric
key algorithm and is highly secure because it is not susceptible to standard
ciphertext attacks. Thus, even if a perpetrator were able to route a message
to the Bank server through the firewall, the message could not be encrypted
in a way that would be considered valid by the server. As a result, the
message would be rejected.
Authenticated Session Integrity. An authenticated user is any user who
signs onto the Bank site with a valid user ID and password. Although the vast
majority of authenticated users will be legitimate Bank customers, the Bank
server is programmed to limit exposure to an authenticated user who is
attempting to defraud the Bank. If the authenticated user alters the URL (the
command or request that is sent from the browser to the server) in any way in
an attempt to gain access to other users' accounts, the Bank server
immediately detects that the session integrity variables have been violated.
The Bank server will immediately stop the session and record the attempt in a
log so that Bank staff can investigate.
Physical Security. All servers and network computers reside in secure
BISYS facilities. The operations supporting the Bank's Internet access are
based in the EFT processing center in Houston, Texas. The facility houses
other sensitive BISYS EFT operations and is card secured. The facility is
subject to regularly scheduled SAS 70 audits.
Service Continuity. The network is constructed to minimize single point
of failure. Redundant hardware is available for replacement of hardware due
to failure. However, in case of any
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circumstance that results in customers not being able to access the Bank over
the Internet, customers will retain access to their funds through several
means, including checks, ATM cards, customer service and an automated
telephone response system.
Monitoring. All customer transactions on the Bank server in BISYS and in
CheckFree produce one or more entries into transactional logs. Management
recognizes that it is critical to monitor these logs for unusual or
fraudulent activity. As mentioned previously, any attempt by an authenticated
user to modify the command or request that is sent from the browser to the
server will be logged. Additionally, all financial transactions will be
logged. Bank personnel review these logs regularly, and any abnormal or
unusual activity will be noted and appropriate action will be taken by the
Bank. Ultimately, vigilant monitoring is the best defense against fraud.
The preceding security measures ensure that the Bank is set up in a
secure manner. However, over the long term, the security of the Bank depends
upon the procedures and standards used for administration of the Internet
site. Management expects BISYS and CheckFree to continue their respective
practices of obtaining an SAS 70 audit. BISYS will incorporate the secure Web
server and EBS hosting activities into its SAS 70 audit going forward.
Although the Internet allows a relatively large number of users (i.e.,
anyone, anywhere, who has access to a computer and the Internet) to access
the Bank's Web site, further access to the Bank requires a secure Web
browser, user identification number and password. Management therefore
believes the risk of fraud presented by Internet banking is not materially
different from the risk of fraud inherent in any banking relationship.
Management believes the three principal reasons for a breach in bank security
are: (i) misappropriation from the user of the user's account number or
password; (ii) penetration of the bank's server by an outside "hacker"; and
(iii) fraud committed by an employee of the bank or one of its service
providers. Both traditional banks and Internet banks are vulnerable to these
types of fraud. By establishing the security measures described above,
management believes the Bank has minimized its vulnerability to the first two
types of fraud. To counteract fraud by employees, associates and consultants,
management has established internal procedures and policies designed to
ensure that, as in any bank, proper control and supervision is exercised over
employees, associates and consultants. The Bank also counteracts all three
types of fraud through daily examination of the Bank's transactional logs.
Marketing
Current Marketing Strategies
The Bank currently markets its services through banner advertising
campaigns on various Web sites targeted toward the Bank's customer profile.
These sites include, but are not limited to, AOL, ABCNews.com, BankRate
Monitor, Motley Fool, Money.com, MSNBC.com and USAToday.com. The Bank also
uses traditional print advertising material in newspapers and magazines. The
Bank's marketing, advertising and public relations campaigns focus on the
following three components:
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- Value. The Bank's relatively low overhead and operating costs enable it
to offer higher interest rates than those normally offered by
traditional banks. The Bank entered the market in October 1996 with
attractive introductory rates on its money market and checking accounts.
This pricing structure has been successful in attracting depositors who
are motivated by the Bank's rates, as well as by the variety of services
the Bank expects to promote in the future. Consequently, management
believes the Bank's customer base will grow as new product and service
offerings provide additional incentives for banking on-line.
- Convenience and Service. Unlike traditional banks, the Bank never
closes. Its products and services are available on a 7x24 basis at the
user's convenience. Unlike depositors in traditional banks, the Bank's
depositors have complete control over when and how they access their
accounts. PC-based home banking, which utilizes PC-based software,
requires repeated manual downloading and backup and limits the user to a
specific PC. The Bank's customers have real-time, interactive access to
their accounts from any PC, wherever located, by means of a secure Web
browser. The Bank's services offer a solution for busy people who
travel, people with disabilities, college students and their families,
employees on international assignment, and the growing population using
the Internet for a variety of services. The convenience of Internet
banking becomes increasingly valuable as new products and services are
offered.
- Service Providers. The Bank has carefully chosen Edify, BISYS and
CheckFree as its service providers in an effort to ensure the highest
quality service possible to its customers. See "-Operations-Service
Providers."
Future Marketing Strategies
Management intends to continue to market the Bank's services through a
combination of special marketing alliances, advertising campaigns and public
relations activities, while expanding joint marketing programs and advertising
with other Internet service and content providers. While the key messages of
value, convenience, service and reliability will continue to play a major role
in the Bank's marketing and public relations efforts, management also intends to
focus on targeted groups. The Bank's primary goal will be to grow its account
base to solidify its brand name recognition in multiple market segments.
Management intends to identify and pursue customers through several additional
channels, including, but not limited to:
- On-line Users. Management believes that current Internet users are
favorably predisposed to Internet services. This is a rapidly growing
demographic group, as increasing numbers of users go on-line every day.
Management has registered the Bank on the Internet's top search engines,
uses on-line banner advertising opportunities and has established the
Bank's presence with other Internet service providers and targeted
Internet sites.
- On-line Shoppers. The Bank has an arrangement with one of the world's
first on-line retail "malls" to pioneer an on-line shoppers account.
Management believes on-line shopping will become one of the fastest
growing segments on the Internet over the next two years. Management
intends to actively market the Bank's services to this population.
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- Marketing Alliances. Management intends to market the Bank's services
through alliances with selected professional organizations, colleges,
alumni associations and consumer service providers. For example, the
Bank entered into such an alliance with the Georgia Institute of
Technology Alumni Association. In each case, management will emphasize
the uniqueness of the Bank and its exclusive offerings to a particular
group.
- Special Niche Customers. The Bank is targeting specific market segments
such as college students, U.S. citizens living outside the United
States, disabled persons and residents of large apartment complexes. The
Bank is developing programs that are tailored to fit their demographic
profiles. The Bank will use special offers to introduce these niche
customers to on-line banking.
Specific Public Relations Activities
A vital part of the Bank's marketing plan is the execution of its public
relations strategy. For each of its targeted marketing campaigns, management
will develop a public relations campaign for advertising and editorial coverage.
Many traditional public relations methods will be used in promoting Bank
services. Management intends to pursue media coverage, including general press,
industry periodicals, television, radio and other media covering banking and
finance, technology, consumer issues and special interests. Press releases,
video news releases, direct mail campaigns, media alerts and presentations will
announce new banking services as they are added, as well as new partnerships and
alliances. Additionally, management plans to develop specific "net campaigns"
for Internet advertising, forum discussions and general electronic public
relations.
Competition
The market for electronic banking has only recently begun to develop, is
rapidly evolving and has few proven competitors. With the expected continued
development of the Internet as an avenue for providing financial services,
management expects competition to intensify. Because of the diverse and
changing competitive marketplace in the financial services industry and for
Internet-related products and services, there can be no assurance that
management has identified or considered all possible present and future
competitors. Many of the Company's known competitors have substantially
greater financial resources than the Company.
Several significant competitors currently offer on-line banking services.
These competitors include financial institutions offering PC-based home
banking and Internet banking services and software companies offering
PC-based home banking services. Management believes the following constitute
the Bank's major competitors:
- Security First Network Bank, FSB ("SFNB"), Atlanta, Georgia, is the
first bank to offer banking services predominantly on the Internet. SFNB
opened for operation in October 1995 and offers deposit and bill payment
services and loan products. In March 1998, Royal Bank of Canada
announced its intent to acquire SFNB.
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- IBM is teaming up with 18 large banks to offer a full service home
banking package called Integrion. The joint venture will connect a
customer's PC with the bank through the IBM Global Communications
Network, a private communications network. The banks that are included
in this consortium will not be limited in the type of financial
management software they offer to their customers, but Integrion will
control the channels connecting the financial institution to their
customers.
- Management also views the major financial software companies, Intuit and
Microsoft, as competitors. Intuit's Quicken software is the most popular
home banking software on the market today. Microsoft's Money is also a
well-known home banking software package. These applications enable
customers to access one of the network member banks and download their
account information, transfer funds between accounts and automatically
reconcile account balances.
- Meca Software, LLC is jointly owned by NationsBank, Bank of America
Corporation, Fleet Financial Group, Inc., First Bank Systems, Inc., and
Royal Bank of Canada. Meca is the maker of the financial software,
Managing Your Money. This software will offer home banking as well as
other financial services via the Internet this year.
All of these competitors are larger and have greater financial and other
resources than the Company. Nevertheless, management believes the Bank
competes effectively with the foregoing competitors. Although SFNB is also an
Internet bank, management believes the Bank competes effectively with SFNB
based primarily on the Bank's sole focus of providing banking services.
Management views the Bank's principal competitive advantages over
PC-based home banking software providers to be, in approximately equal
proportions, speed, simplicity and flexibility. Management believes that the
real-time interface between customers and their account activity, as well as
the relative simplicity of the steps required to transact business with the
Bank, distinguishes the Bank from PC-based home banking providers.
Additionally, customers of the Bank are not restricted to the location of a
single PC, as is the case with PC-based financial services software.
The Bank also competes with traditional banks. Management believes that
the Bank's competitive advantage with respect to these banks is based
primarily on price and secondarily on speed, flexibility and convenience.
Because the Bank does not have the overhead expenses inherent in operating a
traditional branch, it is able to attract new customers by passing its
savings on to them. The growth of the Internet and the speed, flexibility and
convenience it offers also provide the Bank with a competitive advantage over
traditional banks.
Supervision and Regulation
Savings and loan holding companies and federal savings banks are
extensively regulated under both Federal and state law. The following is a
brief summary of certain statutes and rules and regulations that affect or
will affect the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statute and regulatory provision
referred to below and is not intended to be an exhaustive description of the
statutes or regulations applicable to the business
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of the Company and the Bank. Supervision, regulation and examination of the
Company and the Bank by the regulatory agencies are intended primarily for
the protection of depositors rather than shareholders of the Company. The
terms savings association, federal savings bank and thrift are used
interchangeably in this section.
Savings and Loan Holding Company Regulation
The Company is a registered holding company under both the Savings
and Loan Holding Company Act (the "SLHCA") set forth in Section 10 of the
Home Owners Loan Act ("HOLA") and the Financial Institutions Code of Georgia
("FICG"). The Company is regulated under such acts by the Office of Thrift
Supervision (the "OTS") and by the Department of Banking and Finance (the
"Georgia Department"), respectively. As a savings and loan holding company,
the Company is required to file with the OTS an annual report and such
additional information as the OTS may require pursuant to the SLHCA. The OTS
also conducts examinations of the Company and each of its subsidiaries.
Savings and loan holding companies and their subsidiaries are
prohibited from engaging in any activity or rendering any services for or on
behalf of their savings institution subsidiaries for the purpose or with the
effect of evading any law or regulation applicable to the institution. This
restriction is designed to prevent the use of holding company affiliates to
evade requirements of the SLHCA that are designed to protect the holding
company's savings institution subsidiaries. A unitary holding company, that
is, a holding company that owns only one insured institution whose subsidiary
institution satisfies the qualified thrift lender test (discussed below), is
not restricted to any statutorily prescribed list of permissible activities,
and the SLHCA and the FICG impose no limits on direct or indirect non-savings
institution subsidiary operations.
The SLHCA and the FICG makes it unlawful for any savings and loan
holding company, directly or indirectly, or through one or more subsidiaries
or one or more transactions, to acquire control of another savings
association or another savings and loan holding company without prior
approval from the OTS and the Georgia Department, respectively. An
acquisition by merger, consolidation or purchase of assets of such an
institution or holding company or of substantially all of the assets of such
an institution or holding company is also prohibited without prior OTS or
Georgia Department approval. When considering an application for such an
acquisition, the OTS and the Georgia Department take into consideration the
financial and managerial resources and future prospects of the prospective
acquiring company and the institution involved. This includes consideration
of the competence, experience and integrity of the officers, directors and
principal shareholders of the acquiring company and savings institution. In
addition, the OTS and the Georgia Department consider the effect of the
acquisition on the institution, the insurance risk to the Savings Association
Insurance Fund ("SAIF") and the convenience and needs of the community to be
served.
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<PAGE>
The OTS may not approve an acquisition that would result in the
formation of certain types of interstate holding company networks. The OTS is
precluded from approving an acquisition that would result in the formation of a
multiple holding company controlling institutions in more than one state unless
the acquiring company or one of its savings institution subsidiaries is
authorized to acquire control of an institution or to operate an office in the
additional state pursuant to a supervisory acquisition authorized under Section
13(k) of the Federal Deposit Insurance Act or unless the statutes of the state
in which the institution to be acquired is located permits such an acquisition.
Savings and loan holding companies are allowed to acquire or to retain
as much as 5% of the voting shares of a savings institution or savings and loan
holding company without regulatory approval.
Bank Regulation
General. The Bank is a federal savings bank organized under the laws of
the United States subject to examination by the OTS. The OTS regulates all areas
of the Bank's banking operations including reserves, loans, mergers, payment of
dividends, interest rates, establishment of branches, and other aspects of
operations. OTS regulations generally provide that federal savings banks must be
examined no less frequently than every 12 months, unless the federal savings
bank (i) has assets of less than $250 million; (ii) is well capitalized; (iii)
was found to be well managed and its composite condition was found to be
outstanding (or good, if the bank had total assets of not more than $100,000)
during its last examination; (iv) is not subject to a formal enforcement
proceeding or an order from the Federal Deposit Insurance Corporation ("FDIC")
or another banking agency; and (v) has not undergone a change of control during
the previous 12-month period. Federal savings banks must be examined no less
frequently than every 18 months. The Bank also is subject to assessments by the
OTS to cover the costs of such examinations.
The Bank is also insured and regulated by the FDIC. The major functions
of the FDIC with respect to insured federal savings banks include paying
depositors to the extent provided by law in the event an insured bank is closed
without adequately providing for payment of the claims of depositors and
preventing the continuance or development of unsound and unsafe banking
practices.
Subsidiary institutions of a savings and loan holding company, such as
the Bank, are subject to certain restrictions imposed by the Federal Reserve Act
on any extension of credit to the holding company or any of its subsidiaries, on
investment in the stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower. In addition, a
holding company and its subsidiaries are prohibited from engaging in certain
tying arrangements in connection with any extension of credit or provision of
any property or services.
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<PAGE>
Capital Requirements. OTS regulations require that federal savings
banks maintain (i) "tangible capital" in an amount of not less than 1.5% of
total assets, (ii) "core capital" in an amount not less than 4.0% of total
assets, and (iii) a level of risk-based capital equal to 8% of risk-weighted
assets. Under OTS regulations, the term "core capital" generally includes common
stockholders' equity, noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries less unidentifiable intangible assets (other than certain amounts
of supervisory goodwill) and certain investments in certain subsidiaries plus
90% of the fair market value of readily marketable purchased mortgage servicing
rights ("PMSRs") and purchased credit card relationships (subject to certain
conditions). "Tangible capital" generally is defined as core capital minus
intangible assets and investments in certain subsidiaries, except PMSRs.
In determining total risk-weighted assets for purposes of the
risk-based requirement, (i) each off-balance sheet asset must be converted to
its on-balance sheet credit equivalent amount by multiplying the face amount of
each such item by a credit conversion factor ranging from 0% to 100% (depending
upon the nature of the asset), (ii) the credit equivalent amount of each
off-balance sheet asset and each on-balance sheet asset must be multiplied by a
risk factor ranging from 0% to 200% (again depending upon the nature of the
asset) and (iii) the resulting amounts are added together and constitute total
risk-weighted assets. "Total capital," for purposes of the risk-based capital
requirement equals the sum of core capital plus supplementary capital (which, as
defined, includes the sum of, among other items, perpetual preferred stock not
counted as core capital, limited life preferred stock, subordinated debt, and
general loan and lease loss allowances up to 1.25% of risk-weighted assets) less
certain deductions. The amount of supplementary capital that may be counted
towards satisfaction of the total capital requirement may not exceed 100% of
core capital, and OTS regulations require the maintenance of a minimum ratio of
core capital to total risk-weighted assets of 4%.
OTS regulations have been amended to include an interest-rate risk
component to the risk-based capital requirement. Under this regulation, an
institution is considered to have excess interest rate-risk if, based upon a
200-basis point change in market interest rates, the market value of an
institution's capital changes by more than 2%. This new requirement is not
expected to have any material effect on the ability of the Bank to meet the
risk-based capital requirement. The OTS also revised its risk-based capital
standards to ensure that its standards provide adequately for concentration of
credit risk, risk from nontraditional activities and actual performance and
expected risk of loss on multi-family mortgages.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the OTS
determines that the institution's capital was or may become inadequate in view
of its particular circumstances.
Additionally, the Georgia Department requires that savings and loan
holding companies, such as the Company, must maintain a 5% Tier 1 leverage ratio
on a consolidated basis.
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Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Act") imposes a regulatory matrix which
requires the federal banking agencies, which include the OTS, the FDIC, the
Office of the Comptroller of Currency (the "OCC"), and the Federal Reserve
Board, to take prompt corrective action to deal with depository institutions
that fail to meet their minimum capital requirements or are otherwise in a
troubled condition. The prompt corrective action provisions require
undercapitalized institutions to become subject to an increasingly stringent
array of restrictions, requirements and prohibitions, as their capital levels
deteriorate and supervisory problems mount. Should these corrective measures
prove unsuccessful in recapitalizing the institution and correcting its
problems, the FDIC Act mandates that the institution be placed in receivership.
Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with the framework adopted by the
FDIC Act, the banking agencies have developed a classification system, pursuant
to which all banks and thrifts will be placed into one of five categories:
well-capitalized institutions, adequately capitalized institutions,
undercapitalized institutions, significantly undercapitalized institutions and
critically undercapitalized institutions. The capital thresholds established for
each of the categories are as follows:
<TABLE>
<CAPTION>
Risk-Based Tier 1 Risk-Based
Capital Category Tier 1 Capital Capital Capital Other
- --------------------------- -------------- ------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Well-Capitalized 5% or more 10% or more 6% or more Not subject to a
capital directive
Adequately Capitalized 4% or more 8% or more 4% or more ---
Undercapitalized less than 4% less than 8% less than 4% ---
Significantly Undercapitalized less than 3% less than 6% less than 3% ---
Critically Undercapitalized 2% or less --- --- ---
tangible equity
</TABLE>
The undercapitalized, significantly undercapitalized and critically
undercapitalized categories overlap; therefore, a critically undercapitalized
institution would also be an undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures that the remedies and
restrictions prescribed for undercapitalized institutions will also apply to
institutions in the lowest two categories.
The down-grading of an institution's category is automatic in two
situations: (i) whenever an otherwise well-capitalized institution is subject to
any written capital order or directive, and (ii) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower
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capital level based on safety and soundness considerations relating to factors
other than capital levels.
The FDIC Act prohibits all insured institutions regardless of their
level of capitalization from paying any dividend or making any other kind of
capital distribution or paying any management fee to any controlling person if
following the payment or distribution the institution would be undercapitalized.
While the prompt corrective action provisions of the FDIC Act contain no
requirements or restrictions aimed specifically at adequately capitalized
institutions, other provisions of the FDIC Act and the agencies' regulations
relating to deposit insurance assessments, brokered deposits and interbank
liabilities treat adequately capitalized institutions less favorably than those
that are well-capitalized.
A depository institution that is not well capitalized is prohibited
from accepting deposits through a deposit broker. However, an adequately
capitalized institution can apply for a waiver to accept brokered deposits.
Institutions that receive a waiver are subject to limits on the rates of
interest they may pay on brokered deposits.
Capital Distributions. An OTS rule imposes limitations on all capital
distributions by savings associations (including dividends, stock repurchases
and cash-out mergers). Under the current rule, a savings association is
classified based on its level of regulatory capital both before and after giving
effect to a proposed capital distribution. Under a proposed rule, the OTS would
conform its three classifications to the five capital classifications set forth
under the prompt corrective action regulations. Under the proposal, institutions
that are at least adequately capitalized would still be required to provide
prior notice. Well capitalized institutions could make capital distributions
without prior regulatory approval in specified amounts in any calendar year.
An institution that both before and after a proposed capital
distribution has net capital equal to or in excess of its capital requirements
may, subject to any otherwise applicable statutory or regulatory requirements or
agreements entered into with the regulators, make capital distributions in any
calendar year up to 100% of its net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital ratio" (i.e., the
percentage by which the association's capital-to-assets ratio exceeds the ratio
of its fully phased-in capital requirement to its assets) at the beginning of
the calendar year. No regulatory approval of the capital distribution is
required, but prior notice must be given to the OTS.
An institution that either before or after a proposed capital
distribution fails to meet its then applicable minimum capital requirement or
that has been notified that it needs more than normal supervision may not make
any capital distributions without the prior written approval of the OTS. In
addition, the OTS may prohibit a proposed capital distribution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice.
Liquidity. Under applicable federal regulations, savings associations
are required to maintain an average daily balance of liquid assets (including
cash, certain time deposits, certain bankers' acceptances, certain corporate
debt securities and highly rated commercial paper,
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securities of certain mutual funds and specified United States government, state
or federal agency obligations) equal to a monthly average of not less than a
specified percentage of the average daily balance of the savings association's
net withdrawable deposits plus short-term borrowings. Under HOLA, this liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the deposit flows of
member institutions, and currently is 4%. Savings institutions also are required
to maintain an average daily balance of short-term liquid assets at a specified
percentage (currently 1%) of the total of the average daily balance of its net
withdrawable deposits and short-term borrowings.
Equity Investments. The OTS has revised its risk-based capital
regulation to modify the treatment of certain equity investments and to clarify
the treatment of other equity investments. Equity investments that are
permissible for both savings banks and national banks will no longer be deducted
from savings associations' calculations of total capital over a five-year
period. Instead, permissible equity investments will be placed in the 100%
risk-weight category, mirroring the capital treatment prescribed for those
investments when made by national banks under the regulations of the OCC. Equity
investments held by savings associations that are not permissible for national
banks must still be deducted from assets and total capital.
Qualified Thrift Lender Requirement. A federal savings bank is deemed
to be a "qualified thrift lender" ("QTL") as long as its "qualified thrift
investments" equal or exceed 65% of its "portfolio assets" on a monthly average
basis in nine out of every 12 months. Qualified thrift investments generally
consist of (i) various housing related loans and investments (such as
residential construction and mortgage loans, home improvement loans, mobile home
loans, home equity loans and mortgage-backed securities), (ii) certain
obligations of the FDIC and (iii) shares of stock issued by any FHLB, the FHLMC
or the FNMA. In addition, the following assets may be categorized as qualified
thrift investments in an amount not to exceed 20% in the aggregate of portfolio
assets: (i) 50% of the dollar amount of residential mortgage loans originated
and sold within 90 days of origination; (ii) investments in securities of a
service corporation that derives at least 80% of its income from residential
housing finance; (iii) 200% of loans and investments made to acquire, develop or
construct starter homes or homes in credit needy areas (subject to certain
conditions); (iv) loans for the purchase or construction of churches, schools,
nursing homes and hospitals; and (v) consumer loans (in an amount up to 20% of
portfolio assets). For purposes of the QTL test, the term "portfolio assets"
means the savings institution's total assets minus goodwill and other intangible
assets, the value of property used by the savings institution to conduct its
business, and liquid assets held by the savings institution in an amount up to
20% of its total assets.
OTS regulations provide that any savings association that fails to meet
the definition of a QTL must either convert to a national bank charter or limit
its future investments and activities (including branching and payments of
dividends) to those permitted for both savings associations and national banks.
Further, within one year of the loss of QTL status, a holding company of a
savings association that does not convert to a bank charter must register as a
bank holding company and will be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to federally
chartered savings associations and maintain full access to FHLB advances, the
Bank must meet the definition of a QTL.
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Loans to One Borrower Limitations. HOLA generally requires savings
associations to comply with the loans to one borrower limitations applicable to
national banks. National banks generally may make loans to a single borrower in
amounts up to 15% of their unimpaired capital and surplus, plus an additional
10% of capital and surplus for loans secured by readily marketable collateral.
HOLA provides exceptions under which a savings association may make loans to one
borrower in excess of the generally applicable national bank limits. A savings
association may make loans to one borrower in excess of such limits under one of
the following circumstances: (i) for any purpose, in any amount not to exceed
$500,000; or (ii) to develop domestic residential housing units, in an amount
not to exceed the lesser of $30 million or 30% of the savings association's
unimpaired capital and unimpaired surplus, provided other conditions are
satisfied. The Federal Institutions Reform, Recovery, and Enforcement Act of
1989 provided that a savings association could make loans to one borrower to
finance the sale of real property acquired in satisfaction of debts previously
contracted in good faith in amounts up to 50% of the savings association's
unimpaired capital and unimpaired surplus. The OTS, however, has modified this
standard by limiting loans to one borrower to finance the sale of real property
acquired in satisfaction of debts to 15% of unimpaired capital and surplus. That
rule provides, however, that purchase money mortgages received by a savings
association to finance the sale of such real property do not constitute "loans"
(provided no new funds are advanced and the savings association is not placed in
a more detrimental position holding the note than holding the real estate) and,
therefore, are not subject to the loans to one borrower limitations.
Commercial Real Property Loans. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings association may make to an
amount not in excess of 400% of the savings association's capital.
Community Reinvestment. Under the Community Reinvestment Act (the
"CRA") and the implementing OTS regulations, federal savings banks have a
continuing and affirmative obligation to help meet the credit needs of its local
community, including low and moderate-income neighborhoods, consistent with the
safe and sound operation of the institution. The CRA requires the board of
directors of financial institutions, such as the Bank, to adopt a CRA statement
for each assessment area that, among other things, describes its efforts to help
meet community credit needs and the specific types of credit that the
institution is willing to extend. The regulations promulgated pursuant to CRA
contain three evaluation tests: (i) a lending test which will compare the
institution's market share of loans in low- and moderate-income areas to its
market share of loans in its entire service area and the percentage of a bank's
outstanding loans to low- and moderate-income areas or individuals, (ii) a
services test which will evaluate the provision of services that promote the
availability of credit to low- and moderate-income areas, and (iii) an
investment test, which will evaluate an institution's record of investments in
organizations designed to foster community development, small- and
minority-owned businesses and affordable housing lending, including state and
local government housing or revenue bonds.
Fair Lending. Congress and various federal agencies (including, in
addition to the bank regulatory agencies, the Department of Housing and Urban
Development, the Federal Trade Commission and the Department of Justice)
(collectively the "Federal Agencies") responsible for implementing the nation's
fair lending laws have been increasingly concerned that prospective
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<PAGE>
home buyers and other borrowers are experiencing discrimination in their efforts
to obtain loans. In recent years, the Department of Justice has filed suit
against financial institutions that it determined had discriminated, seeking
fines and restitution for borrowers who allegedly suffered from discriminatory
practices. Most, if not all, of these suits have been settled (some for
substantial sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified: (i)
overt evidence of discrimination, when a lender blatantly discriminates on a
prohibited basis, (ii) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (iii) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
FDIC Insurance Assessments. Federal deposit insurance is required for
all federally chartered savings associations. Deposits at the Bank are insured
to a maximum of $100,000 for each depositor by Savings Association Insurance
Fund (the "SAIF"). As a SAIF-insured institution, the Bank is subject to
regulation and supervision by the FDIC, to the extent deemed necessary by the
FDIC to ensure the safety and soundness of the SAIF. The FDIC is entitled to
have access to reports of examination of the Bank made by the OTS and all
reports of condition filed by the Bank with the OTS. The FDIC also may require
the Bank to file such additional reports as it determines to be advisable for
insurance purposes. Additionally, the FDIC may determine by regulation or order
that any specific activity poses a serious threat to the SAIF and that no SAIF
member may engage in the activity directly.
Insurance premiums are paid in semiannual assessments. Under a
risk-based assessment system, the FDIC is required to calculate a savings
association's semiannual assessment based on (i) the probability that the
insurance fund will incur a loss with respect to the institution (taking into
account the institution's asset and liability concentration), (ii) the potential
magnitude of any such loss, and (iii) the revenue and reserve needs of the
insurance fund. The semiannual assessment imposed on the Bank may be higher
depending on the SAIF revenue and expense levels, and the risk classification
applied to the Bank.
The deposit insurance assessment rate charged to each institution
depends on the assessment risk classification assigned to each institution.
Under the risk-classification system, each SAIF member is assigned to one of
three capital groups: "well capitalized," "adequately capitalized," or "less
than adequately capitalized," as such terms are defined under the OTS's prompt
corrective action regulation (discussed above), except that "less than
adequately capitalized" includes any institution that is not well capitalized or
adequately capitalized. Within each capital group, institutions are assigned to
one of three supervisory subgroups--"healthy" (institutions that are
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<PAGE>
financially sound with only a few minor weaknesses), "supervisory concern"
(institutions with weaknesses which, if not corrected could result in
significant deterioration of the institution and increased risk to the SAIF) or
"substantial supervisory concern" (institutions that pose a substantial
probability of loss to the SAIF unless corrective action is taken). The FDIC
will place each institution into one of nine assessment risk classifications
based on the institution's capital group and supervisory subgroup
classification.
Historically, SAIF premiums had been equivalent to deposit insurance
premiums paid by banks on deposits to the Bank Insurance Fund ("BIF"). Deposit
insurance premiums were set to facilitate each fund achieving its designated
reserve ratios. As each fund achieves its designated reserve ratio, however, the
FDIC has the authority to lower the premium assessments for that fund to a rate
that would be sufficient to maintain the designated reserve ratio. In August
1995, the FDIC determined that the BIF had achieved its designated reserve ratio
and approved lower BIF premium rates for deposit insurance by the BIF for all
but the riskiest institutions. On November 14, 1995, the FDIC determined that
BIF deposit insurance premiums for well capitalized banks would be further
reduced to the then-statutory minimum of $2,000 per institution per year,
effective January 1, 1996. Because the SAIF remained significantly below its
designated reserve ratio, insurance premiums for assessable SAIF deposits were
not reduced in either FDIC action.
The financial condition of the SAIF resulted in the adoption of the
Deposit Insurance Funds Act of 1996 ("DIFA"), which was enacted on September 30,
1996 as part of the Omnibus Consolidated Appropriations Act. Under DIFA, a
special one-time assessment of 65.7 cents per $100 of assessable SAIF deposits
was collected on November 27, 1996 and applied retroactively to SAIF deposits as
of March 31, 1995. DIFA provides that special assessments are deductible under
Section 162 of the Internal Revenue Code in the year in which the assessment is
paid. After collection of the special assessment, the SAIF achieved its
designated reserve ratio and SAIF premium rates became the same as BIF rates.
DIFA further provides that BIF and SAIF are to be merged, creating the "Deposit
Insurance Fund," on January 1, 1999, provided that bank and savings association
charters are combined by that date. The Treasury Department has submitted a
report to Congress on the development of a common charter for all insured
depository institutions. See "Supervision and Regulation - Elimination of
Federal Savings Charter."
DIFA further assesses premiums for Financing Corporation Bond debt
service ("FICO"). Beginning January 1, 1997, FICO premiums for BIF and SAIF
became 1.3 and 6.4 basis points, respectively. Full pro rata sharing of FICO
will begin no later than January 1, 2000.
Effective January 1, 1997, SAIF members had the same risk-based
assessment schedule as BIF members, which is 0 to 27 cents per $100 of deposits.
FICO assessments of 1.3 cents for BIF deposits and 6.4 cents per $100 of
deposits for SAIF deposits will be added to the BIF-assessable base and SAIF
assessable base, respectively, until December 31, 1999. Thereafter,
approximately 2.4 cents per $100 of deposits would be added to each regular
assessment for all insured depositors, thereby achieving full pro rata FICO
sharing.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon a finding by the FDIC that the savings association has engaged in
unsafe or unsound practices, is in
23
<PAGE>
an unsafe or unsound condition to continue operations, or has violated any
applicable law, rule, regulation, order or condition imposed by, or written
agreement with, the FDIC. Additionally, if insurance termination proceedings are
initiated against a savings association, the FDIC may temporarily suspend
insurance on new deposits received by an institution under certain
circumstances.
Federal Home Loan Bank System. The FHLB System consists of 12 regional
FHLBs, each subject to supervision and regulation by the Federal Housing Finance
Board (the "FHFB"). The FHLBs provide a central credit facility for member
savings associations. The maximum amount that the FHLB of Atlanta will advance
fluctuates from time to time in accordance with changes in policies of the FHFB
and the FHLB of Atlanta, and the maximum amount generally is reduced by
borrowings from any other source. In addition, the amount of FHLB advances that
a savings association may obtain will be restricted in the event the institution
fails to constitute a QTL.
Federal Reserve System. The Federal Reserve Board has adopted
regulations that require savings associations to maintain nonearning reserves
against their transaction accounts (primarily NOW and regular checking
accounts). These reserves may be used to satisfy liquidity requirements imposed
by the OTS. Because required reserves must be maintained in the form of cash or
a non-interest-bearing account at a Federal Reserve Bank, the effect of this
reserve requirement is to reduce the amount of the Bank's interest-earning
assets.
Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings associations to exhaust all FHLB sources before borrowing from a Federal
Reserve bank.
Transactions with Affiliates Restrictions. Transactions engaged in by a
savings association or one of its subsidiaries with affiliates of the savings
association generally are subject to the affiliate transaction restrictions
contained in Sections 23A and 23B of the Federal Reserve Act in the same manner
and to the same extent as such restrictions apply to transactions engaged in by
a member bank or one of its subsidiaries with affiliates of the member bank.
Section 23A of the Federal Reserve Act imposes both quantitative and qualitative
restrictions on transactions engaged in by a member bank or one of its
subsidiaries with an affiliate, while Section 23B of the Federal Reserve Act
requires, among other things that all transactions with affiliates be on terms
substantially the same, and at least as favorable to the member bank or its
subsidiary, as the terms that would apply to, or would be offered in, a
comparable transaction with an unaffiliated party. Exemptions from, and waivers
of, the provisions of Sections 23A and 23B of the Federal Reserve Act may be
granted only by the Federal Reserve Board. The HOLA and OTS regulations
promulgated thereunder contain other restrictions on loans and extension of
credit to affiliates, and the OTS is authorized to impose additional
restrictions on transactions with affiliates if it determines such restrictions
are necessary to ensure the safety and soundness of any savings association.
Current OTS regulations are similar to Sections 23A and 23B of the Federal
Reserve Act.
Future Requirements. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial
24
<PAGE>
institutions. It cannot be predicted whether or what form any proposed statute
or regulation will be adopted or the extent to which the business of the Company
and the Bank may be affected by such statute or regulation.
Elimination of Federal Savings Association Charter
Legislation that would eliminate the federal savings association
charter is under discussion. If such legislation is enacted, the Bank would be
required to convert its federal savings bank charter to either a national bank
charter or to a state depository institution charter. Various legislative
proposals also may result in the restructuring of federal regulatory oversight,
including, for example, consolidation of the OTS into another agency, or
creation of a new Federal banking agency to replace the various such agencies
which presently exist. The Bank is unable to predict whether such legislation
will be enacted or, if enacted, whether it will contain relief as to bad debt
deductions previously taken.
25
<PAGE>
ITEM 2. PROPERTIES
The Company leases 7,480 square feet of office space for its
headquarters and those of the Bank at 950 North Point Parkway, Suite 350,
Alpharetta, Georgia 30005. The office space is subject to a lease that expires
in January 31, 2005.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
26
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Information regarding the quarterly high and low sales prices for the
Company's Common Stock, the number of record shareholders and the Company's
dividend policy is contained in the Company's Annual Report to Shareholders for
the year ended December 31, 1997 under the heading "Market for Stock and Related
Shareholder Matters" and is hereby incorporated herein by reference.
On July 31, 1997, the Registrant issued to Carolina First Bank 1,325,000
shares of Common Stock for consideration valued at $3,840,000 and issued to
Premier Bancshares, Inc. 41,406 shares of Common Stock for consideration valued
at $125,000. Such issuances were made pursuant to an exemption provided by
Section 4(2) of the Securities Act of 1933, as amended. All of the securities
were acquired by the recipients for investment and with no view toward the
resale or distribution thereof. In each instance, the recipient was an
accredited investor, the offers and sales were made without any public
solicitation and the stock certificates bore restrictive legends. No underwriter
was involved in the transactions and no commissions were paid.
On July 31, 1997, the Registrant consummated an initial public offering
of 3,500,000 shares of Common Stock at an aggregate offering price of
$42,000,000, or $12.00 per share, in a firm commitment underwritten offering
managed by Morgan Keegan & Company, Inc. and Interstate/Johnson Lane
Corporation, who received an underwriting discount of $2,940,000 or $.84 per
share. The Company's use of proceeds was described in its Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Company's Annual
Report to Shareholders for the year ended December 31, 1997 under the heading
"Selected Financial Data" and is hereby incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The responses to this item are included in the Company's Annual Report to
Shareholders for the year ended December 31, 1997 under the heading
"Management's Discussion and Analysis" and are hereby incorporated herein by
reference.
27
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this item is included in the Company's Annual
Report to Shareholders for the year ended December 31, 1997 under the heading
"Market Risk" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 14 are included in the Company's
Annual Report to Shareholders for the year ended December 31, 1997 and are
hereby incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
headings "The Nomination and Election of Directors," "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and are incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
heading "Compensation of Executive Officers" and are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The responses to this item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
heading "Security Ownership of Principal Shareholders and Management" and are
incorporated herein by reference.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on April 23, 1998 under the
headings "Certain Transactions" and "The Nomination and Election of Directors -
Compensation Committee Interlocks and Insider Participation" and are
incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the Year ended December
31, 1997 and the Period from February 20, 1996 (Date of
Incorporation) to December 31, 1996
Statements of Shareholders' Equity (Deficiency) for the Period from
February 20, 1996 (Date of Incorporation) to December 31, 1996 and
for the Year ended December 31, 1997
Consolidated Statements of Cash Flows for the Year ended December
31, 1997 and the Period from February 20, 1996 (Date of
Incorporation) to December 31, 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
Quarterly Financial Data (unaudited)
(b) Reports on Form 8-K:
None
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- -------- -------
<S> <C>
3.1 Amended and Restated Articles of Incorporation. (1)
3.2 Bylaws.(1)
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
3.3 Amendments to the Bylaws adopted April 22, 1997. (1)
4.1 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Company's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Company.
10.1 Amended and Restated Stock Purchase Agreement among the Company
and First Alliance/Premier Bancshares, Inc. dated as of December
18,1996, as amended by Amendment No. 1 dated as of February 25,
1997 and by Amendment No. 2 dated as of May 31, 1997. (1)
10.2 Operation Agreement among the Registrant and Carolina First Bank
dated July 17, 1996, as amended December 6, 1996 and March 19,
1997.(1)
10.3* 1996 Stock Incentive Plan (1), as amended as of March 19, 1998.
10.4 Lease Agreement dated as of June 18, 1996 between The Griffin
Company and the Company, as amended December 12, 1996. (1)
10.5* Memorandum dated June 11, 1996 from T. Stephen Johnson to Donald
S. Shapleigh. (1)
10.6 Trial Agreement dated August 19, 1996 between the Company and
AT&T Corp., with attachments and letter dated August 6, 1996. (1)
10.7 Services Agreement dated as of August 21, 1996 by and between the
Company and BISYS, Inc., with related addenda. (1)
10.8 BISYS Standard Services Price List and Special Services Price
List, dated December 1, 1991. (1)
10.9 Lease Agreement dated as of September 15, 1997 between the
Company and Windward Forest Partners, LLC
10.10++ Services Agreement dated as of October 31, 1997 between the
Company and CheckFree Corporation.
10.11++ Services Agreement dated as of September 26, 1997 between the
Company and Edify Corporation.
10.12++ Services Agreement dated as of June 16, 1997 between the Company
and Nova Financial Corp.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
10.13++ Additional Service Agreement dated March 13, 1997 between the
Company and BISYS, Inc. for Total Access Banking and End User
Software License Agreement for Total Access Banking.
10.14++ Brokerage Service Agreement dated November 21, 1997 between the
Company and UVEST Investment Services, Inc.
13.1 The following portions of the Company's 1997 Annual Report to
Shareholders that have been incorporated by reference herein:
Market for Stock and Related Shareholder Matters
Selected Financial Data
Management's Discussion and Analysis
Market Risk
Consolidated Financial Statements, the Notes thereto and the
Independent Auditors' Report thereon
Quarterly Financial Data (unaudited)
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for fiscal year ended December 31, 1997
(SEC use only).
27.2 Financial Data Schedule for quarter ended June 30, 1997
(SEC use only).
27.3 Financial Data Schedule for period from February 20, 1996
(date of incorporation) to December 31, 1996 (SEC use only).
27.4 Financial Data Schedule for quarter ended March 31, 1997
(SEC use only).
</TABLE>
- -----------
* Indicates a management compensation plan or agreement.
++ Confidential portions have been redacted pursuant to a Confidential Treatment
Request submitted in accordance with regulations promulgated under the
Securities Exchange Act of 1934, as amended.
(1) Incorporated by reference to the exhibit of the same number contained in the
Registrant's Registration Statement on Form S-1 (Regis. No. 333-23717).
31
<PAGE>
(d) Financial Statements
The financial statement schedules for which provision is made in
the applicable accounting regulations of the Commission are either
not required under the related instructions or are inapplicable and
have therefore been omitted.
194772
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 27, 1998.
NET.B@NK, INC.
By:/s/ D.R. Grimes
--------------------------------------------
D.R. Grimes
Vice Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 27, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ T. Stephen Johnson Chairman of the Board
- ---------------------------
T. Stephen Johnson
/s/ D.R. Grimes Vice Chairman and Chief Executive
- --------------------------- Officer*
D.R. Grimes
/s/ Donald S. Shapleigh, Jr. President, Chief Operating Officer
- --------------------------- and Director
Donald S. Shapleigh, Jr.
/s/ Robert E. Bowers Chief Financial Officer and
- --------------------------- Director**
Robert E. Bowers
/s/ Ward H. Clegg Director
- ---------------------------
Ward H. Clegg
/s/ J. Stephen Heard Director
- ---------------------------
J. Stephen Heard
- --------------------------- Director
Robin C. Kelton
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
/s/ John T. Moore Director
- ---------------------------
John T. Moore
/s/ Thomas H. Muller, Jr. Director
- ---------------------------
Thomas H. Muller, Jr.
/s/ H. Bryce Solomon Director
- ---------------------------
H. Bryce Solomon
/s/ W. James Stokes Director
- ---------------------------
W. James Stokes
/s/ Mack I. Whittle Director
- ---------------------------
Mack I. Whittle
</TABLE>
- ------------------
* Principal Executive Officer
** Principal Accounting and Financial Officer
194772
34
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO THE
NET.B@NK, INC.
1996 STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT is made as of this 19th day of March, 1998, by
Net.B@nk, Inc. a corporation duly organized and existing under the laws of the
State of Georgia (hereinafter called the "Company").
W I T N E S S E T H:
WHEREAS, the Company maintains the Net.B@nk, Inc. 1996 Stock Incentive
Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to increase the number of
shares authorized for issuance thereunder; and
WHEREAS, the Board of Directors of the Company has duly approved and
authorized this amendment to the Plan, subject to the further approval of the
Company's shareholders;
NOW, THEREFORE, the Company does hereby amend the Plan as follows:
1. By deleting, effective as of the date shareholder approval of the
First Amendment is obtained, the first sentence of Section 2.2 in its entirety
and by substituting therefor the following:
"Subject to adjustment in accordance with Section 5.2, 600,000 shares of
Stock (the 'Maximum Plan Shares') are hereby reserved exclusively for issuance
pursuant to Stock Incentives."
2. Except as specifically amended hereby, the Plan shall remain in full
force and effect as prior to the adoption of this First Amendment.
3. Notwithstanding the foregoing, the adoption of this First Amendment is
subject to the approval of the stockholders of the Company and in the event
that the stockholders of the Company fail to approve such adoption within
twelve months of the date of the approval of the First Amendment by the Board
of Directors of the Company, the adoption of this First Amendment shall be
null and void.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed on the day and year first above written.
NET.B@NK, INC.
By: /s/ D.R. Grimes
Title: Chief Executive Officer
ATTEST:
By: /s/ Robert E. Bowers
Title: Chief Financial Officer
(CORPORATE SEAL)
<PAGE>
EXHIBIT 10.9
WINDWARD FOREST LEASE
<TABLE>
Table of Contents
Page Number
<S> <C> <C>
1. Premises......................................................3
2. Term..........................................................3
3. Completion of Improvements....................................3
4. Possession....................................................4
5. Rental........................................................4
6. Security Deposit..............................................6
7. Reserved......................................................7
8. Use of Premises...............................................7
9. Tenant's Acceptance...........................................7
10. Assignment and Subletting...................................7
11. Holding Over................................................8
12. Alterations and Improvements................................9
13. Alterations Required by Law.................................9
14. Repairs to the Premises.....................................9
15. Landlord's Right to Enter Premises..........................9
16. Default and Remedies.......................................10
17. Landlord's Services........................................13
18. Parking....................................................14
19. Window Dressings...........................................14
20. Telephone Service..........................................14
21. Destruction of Premises....................................14
22. Omitted....................................................14
23. Condemnation...............................................15
24. Governmental Orders........................................15
25. Insurance..................................................15
26. Waiver of Subrogation......................................15
27. No Estate in Land..........................................16
28. Indemnity..................................................16
29. Tenant's Environmental Covenants...........................16
30. Liability of Landlord......................................17
31. Limitation of Liability....................................17
32. No Waiver of Rights........................................17
33. Entire Agreement and Exhibits..............................17
34. Notices....................................................17
35. Successors and Assigns: Attornment........................18
36. Subordination..............................................18
37. Estoppel Certificate.......................................18
38. Time is of the Essence.....................................19
39. Captions: Governing Law...................................19
40. Definitions................................................19
41. Severability...............................................19
42. Rules and Regulations......................................19
43. Special Stipulations.......................................19
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
44. Brokerage Commission.......................................19
45. Removal of Personal Property...............................20
46. Signage....................................................20
47. Coring of Floor............................................20
48. Effect of Termination of Lease.............................20
49. Rights Cumulative..........................................20
50. Force Majeure..............................................20
51. Tenant Corporation, Partnership or Individual..............20
52. Submission of Lease........................................21
Signature Page....................................................22
Special Stipulations..............................................23
Rules and Regulations.............................................27
Exhibit A.........................................................32
Exhibit B.........................................................33
Exhibit B-1.......................................................42
Exhibit C.........................................................43
Exhibit D.........................................................45
Exhibit D-1.......................................................47
Exhibit E.........................................................48
Exhibit F.........................................................52
Exhibit G.........................................................53
</TABLE>
<PAGE>
WINDWARD FOREST
Net Bank, Inc. / Windward Forest L.L.C.
THIS LEASE AGREEMENT (hereinafter called "Lease") is made this 15th day of
September, 1997, by and between WINDWARD FOREST PARTNERS, LLC, (hereinafter
called "Landlord"); and Net Bank, Inc. (hereinafter called "Tenant").
W I T N E S S E T H
1. PREMISES. The Landlord, for and in consideration of the rents,
covenants, agreements, and stipulations hereinafter mentioned, reserved, and
contained, to be paid, kept and performed by the Tenant, has leased and rented,
and by these presents does lease and rent, unto the said Tenant, and said Tenant
hereby agrees to lease and take upon the terms and conditions which hereinafter
appear, the following described property (hereinafter called "Premises"),
containing approximately 7,480 square feet, known as Suite No. 350 in WINDWARD
FOREST located in the City of Alpharetta, Fulton County, Georgia (hereinafter
called "Building") and being further known as 950 Northpoint Parkway Alpharetta,
Georgia 30005, and being a portion of that property described in Exhibit "F" of
this Lease. The attached floor plan (Exhibit "A") represents an approximation of
the Premises to be leased pursuant to this Lease.
2. TERM. The term of this Lease shall be for a period of eighty-four and
one-half (84 1/2) months commencing on January 15, 1998 ("Term Commencement
Date") and ending on January 31, 2005, ("Termination Date") unless sooner
terminated or extended as hereinafter provided (such term being hereinafter
referred to as the "Term").
3. COMPLETION OF IMPROVEMENTS. Landlord agrees to proceed with due
diligence to prepare the Premises in accordance with the Tenant Finish Agreement
attached hereto as Exhibit "B" and in accordance with the terms of this Lease.
The Premises shall be deemed substantially completed and possession delivered
when Landlord has substantially completed the work to be constructed or
installed pursuant to the provisions of the Tenant Finish Agreement, subject
only to the completion of items on Landlord's punch list (and exclusive of the
installation of all telephone and other communications facilities and equipment,
and other finish work to be performed by Tenant) and Landlord has delivered a
Certificate of Occupancy to Tenant. Landlord's punch list shall consist of
details of construction, decoration and mechanical adjustment which, in the
aggregate, are minor in character and do not materially interfere with Tenant's
use or enjoyment of the Premises. Landlord will provide Tenant access to the
Premises fifteen (15) business days prior to the completion of the work to be
constructed by Landlord, for Tenant to install any telephone equipment or other
finish work needed to be installed by Tenant into the Premises. Tenant
acknowledges that any changes (even in "small respects") and including material
substitution to the Drawings and Specifications (as defined in Exhibit "B") for
the Tenant Improvements (as defined in Exhibit "B") may cause, directly or
indirectly, delays in the completion of the Tenant Improvements. Should Landlord
approve any change in the Drawings and Specifications for the Tenant
Improvements requested by Tenant which causes a delay in completion of the
Tenant Improvements beyond the date specified in this Lease for such completion
and Landlord has notified Tenant in advance of any anticipated delays in the
completion of the Tenant Improvements due to changes desired by Tenant, then the
Term Commencement Date under this Lease for Tenant to commence paying Base
Monthly Rental (as hereinafter defined) shall not be extended nor shall the
expiration date of the Term of the Lease be extended by reason of such delay in
completion of the Tenant improvements. Tenant at the time of such requested
change shall pay to Landlord all costs and expenses to be incurred by Landlord
in making the change to the Tenant
<PAGE>
Improvements requested by Tenant. Landlord represents that all work designed by
Landlord shall meet all applicable codes and governmental requirements.
4. POSSESSION. If this Lease is executed before the Premises become ready
for occupancy and Landlord cannot deliver possession of the Premises on the date
of commencement of the Term for any reason other than an omission, delay or
default caused by Tenant, rent shall abate until Landlord can deliver
possession, and Tenant hereby accepts such abatement in full settlement of any
and all claims Tenant may have against Landlord arising from Landlord's
inability to deliver possession at the Term Commencement Date. In the event the
Premises are ready for occupancy prior to the Term Commencement Date of this
Lease and Tenant chooses to occupy the Premises at that time, all terms,
covenants and conditions of this Lease shall be in full force and effect as of
such date. Tenant shall pay a prorated share of the monthly rental payment for
any partial calendar month during which Tenant occupies the Premises. By
occupying the Premises as tenant, Tenant shall be deemed to have accepted the
same and acknowledges that the Premises are in the condition required hereunder,
except for punch list items identified by tenant to Landlord in writing within
fifteen (15) days of occupancy.
5. RENTAL. Tenant shall pay to Landlord by payments to Windward Forest
Partners, LLC at the address for notices in paragraph 34 of this lease, promptly
on the first day of each month in advance, during the Term of this Lease,
without deduction or set off, in legal tender the Base Monthly Rental, as this
term is defined below, and Additional Rent, as this term is defined below.
If the Term commences on a day other than the first day of a month, or
terminates on a day other than the last day of a month, then Base Monthly Rental
and Additional Rent for the first or last partial month shall be prorated based
upon the actual number of days in such month.
(a) Base Monthly Rental. Tenant shall pay to Landlord base monthly rental
payments ("Base Monthly Rental") of $10,440.83 per month (calculated based upon
a rental rate of $16.75 per square foot per annum for the Premises). The total
Base Monthly Rental of $10,440.83 per month is composed of two components: a
component of $2,805.00 per month for certain expenses (the "Expense Component")
(calculated based upon a rental rate of $4.50 per square foot per annum for the
Premises) and a component of $7,635.83 per month for other items (the "Primary
Component") (calculated based upon a rental rate of $12.25 per square foot per
annum for the Premises). Base Monthly Rental shall be increased and adjusted on
January 1 of each year during the Term as follows: Base Monthly Rental shall be
increased, but never decreased, on January 1 of each year during the Term by: an
increase of three percent (3%) of the existing Primary Component (with Base
Monthly Rental calculated by adding the Primary Component as so increased to the
Expense Component).
(b) Additional Rent. The following terms, as defined below, are used in
this subparagraph (b):
(i) "Escalation Year" means each calendar year commencing with
the calendar year in which the commencement date of the Term occurs,
falling in whole or in part, within the Term.
(ii) "Estimated Operating Expense Increase" means the payments
to be made by Tenant to Landlord toward the Operating Expense Increase
in the amounts, and in the manner provided for by this subparagraph
(b).
(iii) "Estimated Operating Statement" means the statement
rendered to Tenant setting forth: (A) Landlord's reasonable estimate of
the projected Operating Expenses
4
<PAGE>
attributable to the Premises for the then current Escalation Year; (B)
a computation of the Estimated Operating Expense Increase attributable
to the Premises due for the then current Escalation Year; (C) a
computation of the monthly Estimated Operating Expense Increase
installments to be paid by Tenant pursuant to the Estimated Operating
Statement, being one-twelfth (1/12) of the amount determined pursuant
to clause (B) above; and (D) a computation of the amount due Landlord,
or credit due Tenant, in respect of the lapsed months other than
current Escalation Year.
(iv) "Operating Expense Increase" means the amount to be paid
as Additional Rent in accordance with this subparagraph (b).
(v) "Operating Expenses" as defined herein and are
supplemented in their definition in Exhibit "D", include all real
property taxes for the Building and land ("Land") upon which the
Building is located (including but not limited to, ad valorem taxes,
special assessments, and governmental charges) and utility charges
(including, but not limited to water, sewer, gas, electricity, fuel,
light, heat and power bills) incurred in the operation of the Building,
together with all costs to maintain, repair, replace, supervise, operate
and administer the Building and its common areas, parking lots,
landscaping, sidewalks, driveways, and other areas used in common by
tenants and occupants of the Buildings or their guests, visitors,
employees and invitees together with any assessments imposed upon
Landlord pursuant to recorded covenants, conditions, or restrictions to
which the Land or Building may be subject together with the cost of
insurance premiums for fire, extended coverage, public liability and
other insurance which Landlord reasonably deems necessary in connection
with the ownership and operation of the Building or as required by the
holder of any mortgage or deed to secure debt encumbering the Land,
together with all other operating expenses of the Building and the land.
(vi) "Operating Statement" means a statement setting forth:
(A) the actual Operating Expenses attributable to the Premises for an
Escalation Year; (B) a computation of the total actual Operating
Expense Increase attributable to the Premises for such Escalation Year;
(C) an accounting for Estimated Operating Expense Increase payments, if
any, and with respect to such Escalation Year; and (D) the amount of
Operating Expense Increase then payable to Landlord, or the credit in
respect thereof to which Tenant is entitled, for such Escalation Year,
taking into account any increase in the Estimated Operating Expense
Increase payments due Landlord pursuant to the Estimated Operating
Statement rendered with respect to the next Escalation Year, if any.
Operating Expenses shall be the actual Operating Expenses incurred by
Landlord throughout the applicable Escalation Year.
Tenant shall pay to Landlord as additional rent ("Additional Rent") for
each Escalation Year during the Term, the Operating Expenses attributable to the
Premises (based upon the square footage of the Premises as compared to the total
square footage of the Building) for such Escalation Year if and to the extent
the Operating Expenses exceed $4.50 per square foot per annum of the Building
for the applicable Escalation Year. Within one hundred and twenty (120) days
after the expiration of each Escalation Year, Landlord shall furnish Tenant with
an Operating Statement. All amounts shown as due from Tenant on the Operating
Statement for such Escalation Year shall be due from Tenant within thirty (30)
days after the rendering of such Operating Statement.
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Commencing with the first Escalation Year during the Term, Landlord may
render an Estimated Operating Statement for any Escalation Year. If and when so
rendered from time to time, Tenant shall pay to Landlord in advance on the first
(1st) day of each calendar month the monthly Estimated Operating Expense
Increase installments provided for in such Estimated Operating Statement, such
payments to continue until another Estimated Operating Statement is rendered.
Upon the rendering of the Operating Statement for any Escalation Year for which
Estimated Operating Expense Increase installments were paid by Tenant, Tenant
shall, within thirty (30) days thereafter, pay to Landlord the sum of (a) the
excess, if any, of the Operating Expense Increase due for such Escalation Year
over the monthly Estimated Operating Expense Increase installments paid by
Tenant in respect of such Escalation Year, and (b) the excess, if any, of the
Estimated Operating Expense Increase installments due for the current Escalation
Year, as shown on the Estimated Operating Statement, over the Estimated
Operating Expense Increase installments then being paid by Tenant multiplied by
the number of months which shall have elapsed, in whole or in part, since the
commencement of the current Escalation Year. If Tenant's Estimated Operating
Expense Increase installments for the prior or current Escalation Year shall
exceed the Operating Expense Increase due for the prior Escalation Year or the
Estimated Operating Expense Increase due for the current Escalation Year,
respectively, such excess shall be credited against any amount shown due on the
Operating Statement (including the Estimated Operating Statement) and the
balance, if any, shall be credited against the next succeeding installment or
installments of Operating Expense Increase or Estimated Operating Expense
Increase becoming due hereunder; provided, however, that if the Term of this
Lease shall terminate or expire prior to the full application of such credit,
any balance due Tenant shall be refunded to Tenant by Landlord on the date of
such termination or expiration.
For any Escalation Year not wholly falling within the Term, the Operating
Expense Increase shall be determined by annualizing Operating Expenses during
the portion of the Escalation Year falling within the Term and then prorating
the Operating Expense Increase thereby determined, based upon the number of days
of such Escalation Year falling within the Term. The provisions of this
paragraph shall survive the expiration or earlier termination of this Lease.
(b) Late Charge and Past Due Interest. Tenant hereby acknowledges that if
any monthly payment of Base Monthly Rental or Additional Rent or any other
monies due hereunder from Tenant shall not be received by Landlord within five
(5) days after such payment is due, then Tenant shall pay the Landlord a late
charge equal to five percent (5%) of such delinquent amounts. Any amounts
payable hereunder by Tenant to Landlord which are not paid on or before the date
due as provided in this Lease shall bear interest at the rate of one and a half
percent (1-1/2%) per month from said due date until paid. Said late charge and
interest shall be due without any requirement of Landlord to provide notice of
failure to make payments to Tenant. Tenant shall be granted the ability to pay
the rent as late as the 10th of the month twice during any one calendar year
without a penalty.
6. SECURITY DEPOSIT. Tenant has this day deposited with Landlord a security
deposit in the amount of $10,440.83 as security for the performance by Tenant of
all the terms, covenants, and conditions of this Lease upon Tenant's part to be
performed, which sum shall be returned to Tenant within thirty days after the
expiration of the Term, provided Tenant has fully performed hereunder. Landlord
shall have the right to apply all or any part of said deposit to cure any breach
of Tenant, and if Landlord does so, Tenant shall upon demand deposit with
Landlord the amount so applied so that Landlord will have the full deposit on
hand at all times during the Term. Landlord may commingle the deposit with any
other funds of Landlord, and in the event of a sale of the Building, or a lease
of the Building subject to this Lease, Landlord shall transfer the security
deposit to the purchaser or lessee, as the case may be, and Landlord shall
thereupon be released from all liability for the return of such security deposit
and Tenant shall look to the new landlord solely for the return of said security
deposit, and this provision shall apply to every
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transfer or assignment made of the security deposit to a new landlord; provided,
however, Tenant shall not look for the return of any such security deposit to
any holder or purchaser at foreclosure sale from such holder of a deed to secure
debt or other security instrument affecting the real property of which the
Premises forms a part who acquires title to such property by foreclosure, deed
in lieu thereof, or otherwise, unless such parties shall have actually received
such security deposit from the prior landlord. The security deposit under this
Lease shall not be assigned or encumbered by Tenant, and any such attempted
assignment or encumbrance shall be void.
7. RESERVED
8. USE OF PREMISES. The Premises shall be used for general office purposes
and no other purposes and in accordance with the Rules and Regulations attached
hereto and incorporated herein by this reference. The Tenant may use the
premises for the operation offices of a bank provided this does not involve the
retail customer service banking on site typical of a retail bank location. Both
Tenant and Landlord acknowledge that the Building is not zoned for said use.
Auto leasing as used in this paragraph shall not involve the storage of
automobiles on the land surrounding the property nor the adjacent building to
the Building. The Tenant shall not use, permit or allow the Premises to be used
other than as strictly provided in this Lease and shall not use, permit or allow
the Premises or any part thereof to be used for any unlawful purpose or
otherwise in violation of any federal, state or local statute, law, ordinance,
rule or regulation, including, without limitation, in violation of any zoning
ordinances; nor shall the Tenant permit any nuisance within the Premises or
permit the Premises to be used in any manner which will be a source of material
annoyance or in any way interfere with the peaceful possession, enjoyment and
proper use of other areas of the Building, nor shall the Premises be used in any
manner so as to vitiate the insurance or increase the rate of insurance on the
Premises or the Building. Not by way of limitation of the foregoing but in
addition thereto, neither the Premises nor any portion thereof shall be used or
occupied for any or all of the following: governmental or quasi-governmental
offices, spas, massage parlors, escort services offices, retail sales purposes
classroom facility purposes, schools, radio or television broadcasting or studio
facilities, auto sales offices, equipment or appliance repair shops, daycare
centers, nurseries, churches, or places of religious or quasi-religious worship,
religious facilities (however this does not mean that Tenant's religious
freedoms provided for in the Constitution of the United States shall in any way
be affected with respect to Tenant's use of the space), or retail or wholesale
sales purposes medical research laboratories or offices for medical or
quasi-medical professionals providing medical treatments (but this shall not
prohibit psychiatrist, psychologist and dentists.) At the time of signing of
this Lease, Landlord is unaware of any zoning conflicts which would impede or
prohibit the proposed use contemplated by Tenant in this Lease.
9. TENTANT'S ACCEPTANCE. Tenant acknowledges that it has been afforded an
opportunity to inspect the Premises and accepts the Premises "as is" and as
suited for Tenant's intended use thereof, subject only to the provisions of
Paragraph 3 and Exhibit "B". Upon completion of the improvements contemplated by
Paragraph 3 and Exhibit "B", or occupancy of the Premises by Tenant, whichever
first occurs, Tenant shall be deemed to have accepted any improvements made
since the date hereof, except for punch list items and latent defects.
10. ASSIGNMENT AND SUBLETTING. Tenant shall not voluntarily or
involuntarily, whether by operation of law or otherwise, assign, transfer,
hypothecate or otherwise encumber this Lease or any interest therein and shall
not sublet or permit the use by others of the Premises or any portion thereof
without obtaining in each instance Landlord's prior written consent which shall
not be unreasonably withheld, delayed or denied. Landlord's consent to one
assignment, sublease, transfer or hypothecation shall not be deemed as a consent
to any other or further assignment, sublease, transfer or hypothecation. Any
such assignment, sublease, transfer or hypothecation without Landlord's prior
written consent shall be
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void and shall, at Landlord's option, constitute a material breach of this
Lease. No acceptance by Landlord of any rent or any other sum of money from any
assignee, sublessee or other category of transferee shall release Tenant from
any of its obligations hereunder or be deemed to constitute Landlord's consent
to any assignment, sublease, transfer or hypothecation, and in any event, Tenant
shall remain primarily liable on this Lease for the entire Term hereof and shall
in no way be released from the full and complete performance of all the terms,
conditions, covenants and agreements contained herein.
In the event Tenant should desire to assign this Lease or sublet the
Premises or any part thereof, Tenant shall give Landlord prior written notice,
which notice shall specify (a) the date on which Tenant desires to make such
assignment or sublease; (b) the name and business of the proposed assignee or
sublessee; (c) the amount and location of the space affected; (d) the proposed
effective date and duration of the subletting or assignment; and (e) the
proposed rental to be paid to Tenant by such subtenant or assignee. Landlord
shall then have a period of fifteen (15) days following receipt of such notice
within which to notify Tenant in writing that Landlord elects either (1) to
terminate this Lease as to the space so affected as of the date so specified by
Tenant, in which event Tenant will on that date be relieved of all further
obligations to pay rent hereunder as to such space; or (2) to permit Tenant to
assign or sublet such space, in which event if the proposed rental between
Tenant and subtenants is greater than the Base Monthly Rental as adjusted under
this Lease, then fifty (50%) percent of such excess rental shall be deemed
additional rent owed by Tenant to Landlord under this Lease and the amount of
such excess shall be paid by Tenant to Landlord in the same manner that Tenant
pays the Base Monthly Rental hereunder and in addition thereto; or (3) to
withhold consent to Tenant's assigning or subleasing such space, which consent
shall not be unreasonably withheld, and to continue this Lease in full force and
effect as to the entire Premises. Tenant agrees to reimburse Landlord for
Landlord's reasonable attorney's fees and actual costs incurred in connection
with the processing and documentation of any request made pursuant to this
paragraph.
11. HOLDING OVER. Should Tenant or any of its successors in interest
continue to hold the Premises after termination of this Lease, whether such
termination occurs by lapse of time or otherwise, with Landlord's acquiescence,
and without any distinct agreement between the parties, such holding over shall
constitute and be construed as a tenancy at sufferance at a monthly rental equal
to one and one half (1-1/2) the monthly rental (including Base Monthly Rental
and any adjusted and Additional Rent) provided herein at the time of such
termination if Landlord elects to accept such rent. During such time as Tenant
shall continue to hold the Premises after the termination hereof, Tenant shall
be regarded as a tenant at sufferance and not a tenant at will; subject,
however, to all the terms, provisions, covenants and agreements on the part of
Tenant hereunder. No payments of money by Tenant to Landlord after the
termination of this Lease shall reinstate, continue, renew or extend the Term
and no extension of this Lease after the termination hereof shall be valid
unless and until the same shall be reduced to writing and signed by both
Landlord and Tenant. Tenant shall be liable to Landlord for all damages which
Landlord shall suffer by reason of Tenant's holding over and Tenant shall
indemnify, defend and hold Landlord harmless against all claims made by any
other tenant or prospective tenant against Landlord resulting from delay by
Landlord in delivering possession of the Premises to such other tenant or
prospective tenant. If Landlord accepts rent pursuant to this Paragraph,
Landlord shall always have the right to terminate Tenant's possession under this
Paragraph upon thirty (30) days prior written notice to Tenant.
12. ALTERATIONS AND IMPROVEMENTS.(a) No structural alteration in, or
addition to, the Premises, will be made without first obtaining Landlord's prior
written consent. It is understood that the term structural as used in the
preceding sentence shall mean to include all walls, whether load bearing or not
and all electrical, plumbing, and HVAC and mechanical systems. Tenant shall not
need Landlord's approval for cosmetic alterations that cost less than $5,000.
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(b) If Tenant's actions, omissions or occupancy of the Premises shall cause
the rate of fire or other insurance either on the Building or the Premises to be
increased, Tenant shall pay, as additional rent, the amount of any such increase
promptly upon demand by Landlord.
(c) All erections, additions, fixtures and improvements, whether temporary
or permanent in character (except only the movable office furniture and trade
fixtures and other movable personal property of Tenant) made in or upon the
Premises shall be and remain Landlord's property and shall remain upon the
Premises at the termination of this Lease by lapse of time or otherwise, with no
compensation to Tenant. Landlord reserves the right to require Tenant to remove
any such improvements or additions made by Tenant and office furniture and trade
fixtures at the termination hereof or within fifteen (15) days thereafter.
Landlord may, at its election, repair any damage to the Premises caused by or in
connection with the removal of any articles of personal property, business or
trade fixtures, alterations, improvements and installations, and all costs for
such repairs shall be at Tenant's expense.
13. ALTERATIONS REQUIRED BY LAW. If, because of the nature of Tenant's use
or occupancy of the Premises, any addition, alteration, change, repair, or other
work of any nature, structural or otherwise, shall be required or ordered or
become necessary at any time during the Term because of any law, or governmental
regulation now or hereafter in effect, or any order or decree of any court, the
entire expense thereof, irrespective of when the same shall be incurred or
become due, shall be the sole liability of Tenant, and Landlord shall not
contribute thereto.
14. REPAIRS TO THE PREMISES.Landlord shall not be required to make any
repairs or improvements to the Premises, except structural repairs necessary for
safety and tenantability. Tenant shall, at its own cost and expense, keep in
good repair all portions of the Premises including but not limited to windows,
glass, doors, interior walls and finish work, floors and floor coverings, and
supplemental or special heating and air conditioning systems, and shall take
good care of the Premises and its fixtures and permit no waste, except normal
wear and tear with due consideration for the purpose for which the Premises are
leased. Tenant shall maintain and replace, at its cost and expense, all light
bulbs and fixtures in the Premises that are not the Building's standard 2-foot
by 4-foot fluorescent light fixtures and bulbs therefor.
15. LANDLORD'S RIGHT TO ENTER PREMISES. Tenant shall not change the locks
on any entrance to the Premises. Upon Tenant's written request to Landlord,
Landlord will make a reasonable change of locks on behalf of Tenant at Tenant's
sole cost and expense. Landlord and its agents, employees, and contractors shall
have the right to enter the Premises at such times as Landlord deems reasonably
necessary to make necessary repairs, additions, alterations, and improvements to
the Premises or the Building, including, without limitations the erection, use,
and maintenance of pipes and conduits and to show the Premises to prospective
tenants and purchasers. Landlord shall also be allowed to take into and through
the Premises any and all needed materials that may be required to make such
repairs, additions, alterations, and improvements, all without being liable to
Tenant in any manner whatsoever. During such time as work is being carried on,
in or about the Premises, provided such work is carried out in a manner so as
not to interfere unreasonably with the conduct of Tenant's business therein, the
rent provided herein shall in no way abate, and Tenant waives any claim and
cause of action against Landlord for damages by reason of loss or interruption
to Tenant's business and profits therefrom because of the prosecution of any
such work or any part thereof in the event of emergency, or if otherwise
necessary to prevent injury to persons or damage to property, such entry to the
Premises may be made by force without any liability whatsoever on the part of
Landlord for damage resulting from such forcible entry. Landlord shall make
reasonable efforts to notify tenant and to be courteous and business-like during
such entries.
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16. DEFAULT AND REMEDIES. The following events shall be deemed to be events
of default by Tenant under this Lease: (i) Tenant shall fail to pay any
installment of Base Monthly Rental, or Additional Rent pursuant to the terms
hereof within five (5) days after the due date thereof, and any other charge or
assessment against Tenant after five (5) days written notice to Tenant; (ii)
Tenant shall fail to comply with any term, provision, covenant or warranty made
under this Lease by Tenant, other than the payment of the Base Monthly Rental or
Additional Rent or any other charge or assessment payable by Tenant, and shall
not cure such failure within fifteen (15) days after notice thereof to Tenant;
(iii) Tenant or any guarantor of this Lease shall make a general assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts as they become due, or shall file a petition in bankruptcy, or shall be
adjudicated as bankrupt or insolvent, or shall file a petition in any proceeding
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file an answer admitting or fail timely to contest the
material allegations of a petition filed against it in any such proceeding; (iv)
a proceeding is commenced against Tenant or any guarantor of this Lease seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, and such proceeding shall not have been dismissed within forty-five
(45) days after the commencement thereof, (v) a receiver or trustee shall be
appointed for the Premises or for all or substantially all of the assets of
Tenant or of any guarantor of this Lease; (vi) Tenant shall abandon or vacate
all or any portion of the Premises or fail to take possession thereof as
provided in this Lease; (vii) Tenant shall do or permit to be done anything
which creates a lien upon the Premises or the Building and such lien is not
removed or discharged or bonded within fifteen (15) days after the filing
thereof, (viii) Tenant shall fail to return a fully executed instrument to
Landlord in accordance with the provisions of Paragraphs 25 and 26 hereof within
the time period provided for such return following Landlords request for same as
provided in Paragraphs 25 and 26 (except in the case where the Tenant has
elected to self insure); or (ix) Tenant shall fail to return a properly executed
estoppel certificate to Landlord in accordance with the provisions of Paragraph
37 hereof within the time period provided for such return following Landlord's
request for same as provided in Paragraph 37.
Upon the occurrence of any of the aforesaid events of default, and, without
notice, or demand of Tenant in any instance, Landlord shall have the option to
pursue any one or more of the following remedies:
(a) Terminate this Lease by giving Tenant notice of termination, in which
event this Lease shall expire and terminate on the date specified in such notice
of termination, with the same force and effect as though the date so specified
were the date herein originally fixed as the termination date of the Term of
this Lease, and all rights of Tenant under this Lease and in and to the Premises
shall expire and terminate, and Tenant shall remain liable for all obligations
under this Lease arising up to the date of such termination, and Tenant shall
surrender the Premises to Landlord on the date specified in such notice and if
Tenant fails to do so, Landlord may without prejudice to any other remedy which
it may have for possession or arrearages in rent, enter upon and take possession
of the Premises and expel or remove Tenant and any other person who may be
occupying the Premises or any portion thereof.
(b) Terminate this Lease as provided in clause (a) above and recover from
Tenant all losses and damages Landlord may suffer or incur by reason of such
termination, including, without limitation, a sum which, at the date of such
termination, is equal to the then present value (to be computed as set fourth
below) of the excess, if any, of (i) the Base Monthly Rental, Additional Rent
and all other sums which would have been payable hereunder by Tenant for the
period commencing with the date following the date of such termination and
ending with the date herein before set forth for the expiration of the full Term
hereby granted, over (ii) the aggregate reasonable rental value of the Premises
for the same period. Tenant
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hereby agrees to pay to Landlord on demand the amount of all such losses and
damages which Landlord may suffer by reason of such termination
(c) Terminate this Lease and declare immediately due and payable all Base
Monthly Rental, Additional Rent and other rents and amounts which in Landlord's
reasonable determination would become due and payable under this Lease for the
entire remaining Term hereof, discounted to present value (to be computed as set
forth below), to be due and payable immediately. Upon the acceleration of such
amounts, Tenant agrees to pay the same at once, together with all rent and other
charges and assessments theretofore due, at Landlord's address as herein
provided, provided, however, that such payment shall not be deemed a penalty or
forfeiture but shall constitute liquidated damages for Tenant's failure to
comply with the terms and provisions of this Lease (Landlord and Tenant agreeing
that Landlord's actual damages in such events are impossible to ascertain and
that the amount set forth is a reasonable estimate thereof.) Upon making such
payment, Tenant shall be entitled to receive from Landlord all rents received by
Landlord from other assignees, tenants and subtenants renting said Premises or
portion thereof during the Term of this Lease (with appropriate allocations of
such rents in the event other tenants lease spaces in addition to the Premises),
provided that the monies to which Tenant shall so become entitled shall in no
event exceed the entire amount actually paid by Tenant to Landlord pursuant to
the preceding sentence less all costs, expenses and attorney's fees of Landlord
incurred in connection with the reletting of the Premises.
(d) Without terminating this Lease, terminate Tenant's night of possession
and enter into and upon and take possession of the Premises or any part thereof,
and at Landlord's option, expel and remove persons and property therefrom by
entry, dispossessing suit or otherwise, without thereby releasing Tenant from
any liability hereunder, without terminating this Lease and without being liable
to prosecution or any claim for damage thereof. Such property, if any, may be
removed and stored in a warehouse or elsewhere at the cost of, and for the
account of Tenant, all without being deemed guilty of trespass or becoming
liable for any loss or damage which may be occasioned thereby, and Landlord may,
but shall be under no obligation to do so, relet the Premises or any portion
thereof in Landlord's or Tenant's name, but for the account of Tenant, with or
without advertisement, and by private negotiations, and receive the rent
therefore, and for any term and upon such terms and conditions as Landlord may
deem necessary or desirable. Landlord shall in no way be responsible or liable
for any rental concessions or any failure to lease the Premises or any part
thereof, or for any failure to collect any rent due upon such reletting. Upon
each such reletting, all rentals received by Landlord from such reletting shall
be applied as follows: first, to the payment of any indebtedness (other than any
amounts due hereunder) from Tenant to Landlord; second, to the payment of any
costs and expenses of such reletting, including, without limitation, brokerage
fees and attorneys' fees and costs of alterations and repairs (Tenant agreeing
that Landlord shall have the right to make such alterations and repairs as in
Landlord's judgment, may be necessary to relet the Premises); third, to the
payment of rental and other charges then due and unpaid hereunder; and the
residue, if any, shall be held by Landlord to the extent of and for application
in payment of future amounts due hereunder as the same may become due and
payable hereunder. In reletting the Premises as aforesaid, Landlord may grant
rent concessions and Tenant shall not be credited therefor. If such rentals
received from such reletting shall at any time or from time to time be less than
sufficient to pay to Landlord the entire sums then due from Tenant hereunder,
Tenant shall pay any such deficiency to Landlord. Such deficiency shall, at
Landlord's option, be calculated and paid monthly. No such reletting shall be
construed as an election by Landlord to terminate this Lease unless a written
notice of such election has been given to Tenant by Landlord. Notwithstanding
any such reletting without termination, Landlord may at any time thereafter
elect to terminate this Lease for any such previous event of default provided
same has not been cured. Notwithstanding anything contained herein to the
contrary, no termination of Tenant's right of possession of the Premises by
dispossessory action or otherwise shall release Tenant from the performance of
Tenant's obligations under this Lease, including, without limitation, the timely
payment of all rent reserved
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hereunder for the balance of the Term of this Lease following such termination
of Tenant's right of possession.
(e) Without liability to Tenant or any other party and without constituting
a constructive or actual eviction, suspend or discontinue furnishing or
rendering to Tenant any property, material, labor, utilities or other service,
wherever Landlord is obligated to furnish or render the same, so long as Tenant
is in default under this Lease.
(f) Allow the Premises to remain unoccupied and collect Base Monthly Rental
and other charges due hereunder from Tenant as they come due.
(g) [Omitted]
(h) Landlord may perform, as agent for and at the expense of Tenant, any
obligation of Tenant under this Lease which Tenant has failed to perform and of
which Landlord shall have given Tenant notice and opportunity to cure as
provided herein, the cost of which performance by Landlord together with
interest thereon at the default rate from the date of such expenditure, shall be
deemed additional rental and shall be payable by Tenant to Landlord upon demand
and Tenant agrees that Landlord shall not be liable for any damages resulting to
Tenant from such action whether caused by negligence of Landlord or otherwise.
(i) Landlord may exercise any other legal or equitable right or remedy
which it may have, including, but not limited to Landlord's right judicially to
obtain possession pursuant to Georgia statutory law.
Notwithstanding the provisions of clause (g) above and regardless of
whether a "default" shall have occurred, Landlord may exercise the remedy
described in clause (g) without any notice to Tenant if Landlord, in its good
faith judgment, believes it would be materially injured by failure to take rapid
action or if the unperformed obligation of Tenant constitutes an emergency. Any
costs and expenses incurred by Landlord (including, without limitation,
reasonable attorneys' fees) in enforcing any of its rights or remedies under
this Lease shall be deemed Additional Rent and shall be repaid to Landlord upon
demand to Tenant for said Additional Rent.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
other remedy herein provided or any other remedy provided by law or at equity
nor shall pursuit of any remedy herein provided constitute an election of
remedies thereby excluding the later election of an alternate remedy, or a
forfeiture or waiver of any Base Rental, Additional Rent or other charges and
assessments payable by Tenant and due to Landlord hereunder or of any damage
accruing to Landlord by reason or violation of any of the terms, covenants,
warranties and provisions herein contained.
If this Lease is terminated by Landlord pursuant to clause (b) and (c)
above, "present value" shall be computed by discounting the amount of such
excess to present worth at a discount rate equal to one percent (1%) above the
discount rate then in effect at the Federal Reserve Bank of Atlanta, Georgia.
Neither the commencement of any action or proceeding, nor the settlement
thereof, nor entry of judgment thereon shall bar Landlord from bringing
subsequent actions or proceedings from time to time, nor shall the failure to
include in any action or proceeding any sum or sums then due be a bar to the
maintenance of any subsequent actions or proceedings for the recovery of such
sum or sums so omitted. Landlord's pursuit of any remedy or remedies, including,
without limitation, any one or more of the remedies stated above, shall not (i)
constitute an election of remedies or preclude pursuit of any other remedy or
remedies provided in
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this Lease or separately or concurrently or in any combination, or (ii) serve as
the basis for any claim of constructive eviction, or allow Tenant to withhold
any payments under this Lease.
The failure of Landlord to insist upon strict performance of any of the
terms, conditions and covenants herein shall not be deemed to be a waiver of any
subsequent breach or default in the terms, conditions, and covenants herein
contained except as may be expressly waived in writing.
Landlord shall in no event be in default in the performance of any of its
obligations in this Lease unless and until Landlord shall have failed to perform
such obligation within such additional time as is reasonably required to correct
any such default aforementioned by Tenant to Landlord properly specifying
whereas Landlord has failed to perform any such obligation.
If Tenant shall at any time be in default hereunder, and if Landlord shall
deem it necessary to engage attorneys to enforce Landlord's rights hereunder,
the determination of such necessity to be in the sole discretion of Landlord or
if Landlord is made a party to litigation involving or pertaining to Tenant due
to no fault of Landlord, then Tenant will reimburse Landlord for the reasonable
expenses incurred thereby, including but not limited to court costs and
reasonable attorneys' fees.
17. LANDLORD'S SERVICES. Landlord shall render services and supplies
incidental to this Lease in accordance with and as described in this Paragraph
17, as follows:
(a) General cleaning and janitorial service required as a result of normal,
prudent use of the Premises and only on Mondays through Fridays, (five nights
weekly) inclusive, with New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day, and any other recognized bank holiday
(herein collectively called the "Holidays") excepted.
(b) Access to Natural Gas and Electricity (from the individual appropriate
supply utilities serving the Building) for Premises for standard tenant lighting
and small business machinery only from electric circuits designated by Landlord
for Tenant's use and for heat and HVAC within the Premises. (See 17(c) for
Tenant's Additional Rent for Utilities). Tenant will not use any electrical
equipment which in Landlord's reasonable opinion will overload the wiring
installations or interfere with the reasonable use thereof by other users in the
Building. If any additional circuitry or wiring is required by Tenant, and
Landlord approves the installation of the same in writing, such work shall be
performed at Tenant's expense by Landlord's electrician and under Landlord's
control and supervision, and Tenant shall pay Landlord for such additional work
as billed.
Landlord shall not be liable for any damages directly or indirectly
resulting from the installation, use or interruption of use of any equipment in
connection with the furnishing of services referred to in this Paragraph, and
particularly any interruption in services by any cause beyond the immediate
control of Landlord, provided Landlord shall use reasonable diligence in the
restoration of such services.
(c) Tenant's direct electrical and natural gas use ("Tenant's Utility Use",
hereinafter) within the Premises shall be separately metered for Tenant.
Landlord has agreed to provide Tenant with Utilities in Exhibit D-1 not to
exceed $1.50 per rentable square foot per annum, (the "Annual Utility Allowance"
hereinafter). Tenant shall reimburse Landlord, as provided for in paragraph 5,
Additional Rent for Tenant's Utility Use above the Annual Utility Allowance. If,
in Landlord's sole opinion, Tenant's Total Electrical Usage for any month during
the Term shall exceed the Annual Electricity Allowance pro rated to a monthly
basis for that calendar year, then Landlord may demand payment by Tenant for
said excess as Additional Rent.
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18. PARKING. Tenant, its employees, guests, visitors, and invitees shall be
granted the right and privilege to park in the parking facilities provided by
the Building for the Term of this Lease. The parking facilities shall consist of
the surface parking lot surrounding the Building. All parking shall be free and
unassigned, and based on a parking ratio of 6 spaces per 1000 square feet of
building area, which amount Tenant and its employees shall not exceed. During
the original term of this lease, Tenant shall pay no fees or costs for parking.
19. WINDOW DRESSINGS. All exterior windows of the Premises shall be
equipped only with thin slat blinds provided by the Landlord. Tenant may install
other window treatments so long as same have solid white linings and so long as
the thin slat blinds remain affixed between the window glass and the other
window treatments.
20. TELEPHONE SERVICE. Tenant acknowledges and agrees that securing and
arranging for telephone service to the Premises is the sole responsibility of
Tenant and that Landlord has no responsibility or obligation to provide or
arrange such telephone service, nor to permit installation of any facilities or
equipment in the Building outside of the Premises in connection with providing
telephone service to the Premises.
21. DESTRUCTION OF PREMISES. Should the Premises be so damaged by fire or
other cause that rebuilding or repairs cannot be completed within one hundred
eighty (180) days from the date of the fire, or other cause of damage, then
either Landlord or Tenant may terminate this Lease by written notice to the
other given within thirty (30) days of the date of such damage or destruction,
in which event rent shall be abated from the date of such damage or destruction.
However, if the damage or destruction is such that rebuilding or repairs can be
completed within one hundred eighty (180) days, Landlord covenants and agrees,
subject to the provisions of this Paragraph 21, to make such repairs with
reasonable promptness and dispatch, and to allow Tenant an abatement in the Base
Monthly Rental and for such time as the Premises are untenantable or
proportionately for such portion of the Premises as shall be untenantable, and
Tenant covenants and agrees that the terms of this Lease shall not be otherwise
affected. In no event shall Landlord be required to repair or replace any trade
fixtures, furniture, equipment or other property belonging to Tenant nor shall
Landlord be required to rebuild, repair or replace any part of the partitions,
fixtures, additions, or other improvements which may have been placed in or
about the Premises by Tenant; nor shall Landlord have any obligation to incur
any cost to repair, reconstruct or restore the Premises in excess of insurance
proceeds from the casualty necessitating such work that are made available to
Landlord, under its sole control for such work. Notwithstanding anything to the
contrary contained in this Paragraph, Landlord shall not have any obligation
whatsoever to repair, reconstruct or restore the Premises when the damage
resulting from any casualty contained under this Paragraph occurs during the
last twelve (12) months of the Term of this Lease.
22. [Omitted]
23. CONDEMNATION. If the whole of the Premises, or such portion thereof, as
will make Premises unusable for the purposes herein leased, be condemned by any
legally constituted authority for any public use or purpose, then, in either of
said events, the Term hereby granted shall cease from the date when possession
thereof is taken by public authorities, and rental shall be accounted for as
between Landlord and Tenant as of said date. Such termination, however, shall be
without prejudice to the rights of either Landlord or Tenant to recover
compensation and damage caused by condemnation from the condemnor; provided,
however, Tenant shall not be entitled to claim compensation for items which
would reduce Landlord's award.
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24. GOVERNMENTAL ORDERS. Except as otherwise provided in Sections 13 and 22
hereof, in the event Landlord, during the Term, shall be required by any
governmental authority, or by the order or decree of any court, to repair,
alter, remove, construct, reconstruct, or improve any part or all of the
Building or the Premises, then such action may be taken by Landlord at its
expense, and such action shall not in any way affect Tenant's obligations under
this Lease, and Tenant waives all claim for injury, damages or abatement of
rental because of such repair, alteration, removal, construction, reconstruction
or improvement; provided, however, that (a) if such action by Landlord shall
render the Premises wholly untenantable, then Landlord may either terminate this
lease or abate rental during the period of such untenantability; and (b) if in
Landlord's reasonable judgment such actions by Landlord cannot be completed
within one hundred and twenty (120) days, then Landlord may terminate this
Lease. In the event Landlord terminates this lease, Tenant shall immediately
surrender the Premises and rent shall be paid up to and including the date of
the expiration of the Term. Alternatively, if rental is abated during the period
of untenantability as provided in (a) above, then Tenant shall relinquish
possession of the Premises during the period of rental abatement and resume
paying rental upon Landlord's restoration of the Premises to a condition of
tenantability.
25. INSURANCE. Tenant shall carry fire and extended coverage insurance
insuring Tenant's interest in its furniture, equipment, supplies, and other
property owned, leased, held, or possessed by it and contained therein, such
insurance coverage to be in an amount equal to the full insurable value of such
improvements and property.
Tenant also agrees to carry a policy or policies of workers' compensation
and comprehensive general liability insurance, including personal injury and
property damage, with contractual liability endorsement, in an amount of not
less than Five Hundred Thousand and No/100 ($500,000.00) Dollars for the
property damage and One Million and No/100 ($1,000,000.00) Dollars per
occurrence for personal injuries or deaths of persons occurring in or about the
Premises. Said policies shall: (i) name Landlord as an additional insured and
insure Landlord's contingent liability under this Lease (except for the workers'
compensation policy, which shall instead include waiver of subrogation
endorsement in favor of Landlord); (ii) be issued by an insurance company which
is acceptable to Landlord and licensed to do business in the State of Georgia;
and (iii) provide that said insurance shall not be canceled unless thirty (30)
days prior written notice shall have been given to Landlord. Said policy or
policies, or certificate thereof, shall be delivered to Landlord by Tenant upon
commencement of the Term of the Lease and upon each renewal and/or modification
of said insurance. Landlord shall carry comprehensive general liability
insurance during this Lease in a type and amount consistent with sound
management practices and property insurance on the Building for the full
replacement value thereof.
26. WAIVER OF SUBROGATION. Landlord and Tenant each hereby releases the
other from any and all liability or responsibility to the other or anyone
claiming through or under them by way of subrogation or otherwise for any loss
or damage to property caused by fire or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have been
caused by the fault or negligence of the other party, or anyone for whom such
party may be responsible, including, without limitation, any other tenants or
occupants of the remainder of the Building in which the Premises are located;
provided, however, that this release shall be applicable and in force and effect
only to the extent that such release shall be lawful at that time and in any
event only with respect to loss or damage occurring during such time as the
releasor's policies shall contain a clause or endorsement to the effect that any
such release shall not adversely affect or impair said policies or prejudice the
right of file releasor to recover thereunder and then only to the extent of the
insurance proceeds payable under such policies. Landlord and Tenant each agrees
that it will request its insurance carriers to include in its policies such a
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clause of endorsement. If extra cost shall be charged therefor, each party shall
advise the other thereof and of the amount of the extra cost, and the other
party, at its election, may pay the same, but shall not be obligated to do so.
If such other party fails to pay such extra costs, the release provisions of
this Paragraph shall be inoperative against such other party to the extent
necessary to avoid invalidation of such releasor's insurance.
27. NO ESTATE IN LAND. This contract shall create the relationship of
Landlord and Tenant between the parties hereto; no estate shall pass out of
Landlord. Tenant has only a usufruct, not subject to levy and sale and not
assignable by Tenant except by Landlord's consent.
28. INDEMNITY. Excepting for the willful misconduct, or sole negligence of
Landlord, its agents and employees, Tenant indemnifies and shall hold Landlord,
its agents and employees, harmless from and defend Landlord, its agents and
employees, against any and all claims or liability for injury or death to any
person or damage to any property whatsoever:
(a) either (i) occurring in, on, or about the Premises; or (ii) occurring
in, on, or about any facilities (including, without limitation, passageways
hallways or common areas) the use of which Tenant may have in conjunction with
other occupants of the Building, when such injury, death or damage shall be
caused in part or in whole by the act, neglect or fault of, or emission of any
duty with respect to the same by Tenant, its agents, employees, contractors,
invitees, licensees, tenants, or assignees; or
(b) arising from any work or thing whatsoever done by or benefiting the
Tenant in or about the Premises or from transactions of the Tenant concerning
the Premises; or
(c) arising from any breach or default on the part of the Tenant in the
performance of any covenant or agreement on the part of the Tenant to be
performed pursuant to the terms of this Lease; or
(d) otherwise arising from any act of neglect of the Tenant, or any of its
agents, employees, contractors, invitees, licensees, tenants or assignees; and
from and against all reasonable costs, expenses, counsel fees, and court costs
incurred or assessed in connection with any or all of the foregoing.
Furthermore, in case any action or proceeding be brought against Landlord by
reason of any claim or liability, Tenant agrees to cause such action or
proceeding to be defended at Tenant's sole expense by counsel reasonably
satisfactory to Landlord. The provisions of this Lease with respect to any
claims or liability occurring or caused prior to any expiration or termination
of this Lease shall survive such expiration or termination.
29. TENANT'S ENVIRONMENTAL COVENANTS. Tenant warrants and represents to
Landlord that Tenant has not, and will not, generate, store, handle or otherwise
deal with any hazardous or toxic waste, substance or material, or contaminants,
oil, pesticides, radioactive or other materials on the Premises, the removal of
which is required or the maintenance of which is prohibited, regulated or
penalized by any local, state, or federal agency, authority or governmental
unit.
30. LIABILITY OF LANDLORD. Landlord shall not be liable to Tenant or to any
persons, firm, corporation, or other business association claiming by, through,
or under Tenant for failure to furnish or for delay in all furnishing any
service provided for in this Lease. Landlord shall not be liable for any latent
defects in the Premises or Building; nor for defects in the ceiling, heating,
electric, water, or other apparatus or systems or for water discharged from
sprinkler systems, if any, or from water pipes and plumbing facilities in the
Building; nor for the theft, mysterious disappearance, or loss of any property
of Tenant whether from the Premises or any part of the Building; nor from
interference, disturbance or acts to
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or committed against Tenant by third parties, including, without limitation
other occupants of the Building and any such occurrences shall not constitute an
actual or constructive eviction of Tenant.
31. LIMITATION OF LIABILITY. Landlord's obligations and liability with
respect to this Lease shall be limited solely to Landlord's interest in the
Building, as such interest is constituted from time to time, and neither
Landlord nor any officer, director, shareholder, member, manager, or partner of
Landlord, or of any member or manager of Landlord, shall have any personal
liability, whatsoever with respect to this Lease .
32. NO WAIVER OF RIGHTS. No failure or delay of Landlord to exercise any
right or power given it herein or to insist upon strict compliance by Tenant of
any obligation imposed on it herein and no custom or practice of either party
hereto at variance with any term hereof shall constitute a waiver or a
modification of the terms hereof by Landlord or any right it has herein to
demand strict compliance with the terms hereof by Tenant. No person has or shall
have any authority to waive any provision of this Lease unless such waiver is
expressly made in writing and signed by Landlord.
33. ENTIRE AGREEMENT AND EXHIBITS. This Lease constitutes and contains the
sole and entire agreement of Landlord and Tenant and no prior or contemporaneous
oral or written representation or agreement between the parties and affecting
the Premises shall have legal effect. The content of each and every exhibit
which is referenced in this Lease as being attached hereto is incorporated into
this Lease as fully as if set forth in the body of this Lease. Except as
otherwise provided herein, Landlord hereby disclaims any warranties and
representations as to the Building or Premises, whether express of implied.
34. NOTICES. Every notice, demand or request hereunder shall be in writing
and shall be deemed to have been properly given if delivered by courier, with
signed receipt, or if deposited with the United States Postal Service (or any
official successor thereto) designated certified mail, return receipt requested,
bearing adequate postage and addressed as follows:
If to Tenant: Management Company:
Net Bank, Inc. Kingston Group
9755 Dogwood Drive 5696 Peachtree Parkway
Suite 310 Suite 400
Roswell, GA 30075 Atlanta, GA 30092
Attention: Chief Financial Officer Phone # 770/242-2650
If to Landlord:
Windward Forest Partners, LLC
c/o Kingston Group
5696 Peachtree Parkway
Suite 400
Norcross, GA 30092
The foregoing addresses may be changed by thirty (30) days written notice from
time to time.
Tenant hereby appoints as his agent to receive the service of all
dispossessory or distraint proceedings and notices thereunder, the person in
charge of or occupying the Premises at the time, and if no
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person is in charge of or occupying same, then such service or notice may be
made by attaching the same on the main entrance to the Premises. A copy of all
notices under this Lease shall also be sent to Tenant's last address of which
notice was given to Landlord in accordance with this Paragraph 34, if different
from the Premises.
35. SUCCESSORS AND ASSIGNS: ATTORNMENT: The covenants, conditions and
agreements herein contained shall inure to the benefit of and be binding upon
Landlord, its successors and assigns, and shall be binding upon Tenant, its
heirs, executors, administrators, successors and assigns, and shall inure to
the benefit of Tenant and only such assigns of Tenant to whom the assignment
by Tenant has been consented to by the Landlord. Nothing contained in this
Lease shall in any manner restrict Landlord's right to assign or encumber
this Lease in its sole discretion. Should Landlord assign this Lease as
provided for above, or should Landlord enter into a security deed or other
mortgage affecting the Premises and should the holder of such deed or
mortgage succeed to the interest of Landlord, Tenant shall be bound to said
conditions of this Lease for the balance of the Term hereof remaining after
such succession, and Tenant shall attorn to such succeeding party as its
landlord under this Lease promptly under any such successions. Tenant agrees
that should any party so succeeding to the interest of Landlord require a
separate agreement of attainment regarding the matters covered by this Lease,
then Tenant shall enter into any such "attainment agreement", provided the
same does not modify any of the provisions of this Lease and has no adverse
effect upon Tenant's continued occupancy of the Premises.
Tenant shall with the execution of this Lease, execute the Subordination,
Non-Disturbance and Attornment Agreement attached hereto as Exhibit "E".
36. SUBORDINATION. Tenant agrees that this Lease shall automatically be and
remain subject and subordinate to all present and future mortgages, deeds to
secure debt or other security instruments (the "Security Deeds") affecting the
Premises. Tenant shall promptly, within five (5) days of request by Landlord,
execute and deliver to Landlord such certificate or certificates in writing as
Landlord may request, confirming the subordinate nature of the Lease to such
Security Deeds.
37. ESTOPPEL CERTIFICATE. Tenant shall upon request from Landlord at any
time and from time to time, and within five (5) days of such request, execute,
acknowledge and deliver to Landlord a written statement substantially in the
form of the Estoppel Certificate attached hereto as Exhibit "C", certifying
without limitation as follows, (i) that this Lease is unmodified and in full
force and effect (or if there has been modification thereof, that the same is in
full force and effect as modified and stating the nature thereof); (ii) that to
the best of its knowledge there are no uncured defaults on the part of Landlord
(or if any such default exists, the specific nature and extent thereof); (iii)
the date to which any rents and other charges have been paid in advance, if any;
and (iv) such other matters as Landlord may reasonably request. Tenant
irrevocably appoints Landlord as its attorney in fact, coupled with an interest
to execute and deliver, for and in the name of Tenant, any document or
instrument provided for in this paragraph, if Tenant fails to execute the
Estoppel Certificate within the time period permitted herein.
38. TIME IS OF THE ESSENCE. Time is of the essence with the respect to the
performance of each of the covenants and agreements of this Lease; provided,
however, that failure of Landlord to provide Tenant with any notification
regarding adjustments in Base Monthly Rental, or any other charges provided for
hereunder, within the time periods prescribed in this Lease shall not relieve
Tenant of its obligation to make such payments, which payments shall be made by
Tenant at such time as notice is subsequently given.
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39. CAPTIONS: GOVERNING LAW. The captions of this Lease are for convenience
of reference only and in no way define, limit or describe the scope or intent of
this Lease. The laws of the State of Georgia shall govern the validity,
performance and enforcement of this Lease.
40. DEFINITIONS. "Landlord" as used in this Lease shall include its heirs,
representatives, assigns and successors in title to Premises. "Tenant" shall
include its heirs and representatives, and if this Lease shall be validly
assigned or sublet, shall include also Tenant's assignees or sublessees, as to
premises covered by such assignment or sublease. "Agent" shall include its
successors, assigns, heirs, and representatives. "Landlord", "Tenant", and
"Broker", include male and female, singular and plural, corporation, partnership
or individual, as may fit the particular parties.
41. SEVERABILITY. If any clause or provision of this Lease is or becomes
illegal, invalid, or unenforceable because of present or future laws or any rule
or regulation of any governmental body or entity, effective during its term, the
intention of the parties hereto is that the remaining parts of this Lease shall
not be affected thereby, unless such invalidity is, in the sole determination of
Landlord, essential to the rights of both parties in which Landlord has the
right to terminate this Lease on written notice to Tenant.
42. RULES AND REGULATIONS. Tenant and Tenant's agents, employees,
contractors, licensees and invitees shall fully comply with all requirements of
the Rules and Regulations (as changed from time to time as hereinafter
provided). Landlord shall at all times have the right to change such Rules and
Regulations or to promulgate other rules and regulations in such reasonable
manner as Landlord, in its sole discretion, may deem advisable; provided,
however, that such changes shall not become effective and a part of this Lease
until a copy thereof shall have been delivered to Tenant. Tenant shall further
be responsible for compliance with such Rules and Regulations by Tenant's
agents, employees, contractors, licensees and invitees. Landlord shall
consistently apply and enforce such Rules and Regulations as to all tenants in
Building and within Windward Forest.
43. SPECIAL STIPULATIONS. The Special Stipulations, if any, attached hereto
by Landlord and Tenant are hereby incorporated herein and made a part hereof In
the event the Special Stipulations conflict with any of the foregoing provisions
of this Lease, the Special Stipulations shall control.
44. BROKERAGE COMMISSION. Kingston Group, Inc. represents Landlord and not
Tenant in this transaction. William Leonard & Co. represents Tenant and not
Landlord in this transaction. Tenant acknowledges that principals of Landlord
are licensed real estate brokers, and are receiving a real estate commission in
connection with the transaction contemplated hereby, Landlord agrees to pay
William Leonard & Co. a real estate commission in an amount agreed to between
Kingston Group, Inc., as co-Brokers, and William Leonard & Co. under a separate
agreement. In the event of a claim arising through Tenant or through any of
Tenant's agents for any commission or fee by any other broker, agent, sales
person or finder, Tenant hereby agrees to indemnify Landlord and all of
Landlord's agents from any and all such claims and any and all demands, costs,
expenses, and causes of action in connection therewith.
45. REMOVAL OF PERSONAL PROPERTY. Tenant may (if not in default hereunder)
prior to the expiration of this Lease, or any extension thereof, remove all
unattached and movable personal property and equipment which Tenant has placed
in the Premises, provided Tenant repairs all damages to Premises caused by such
removal. All Personal Property and Tenant's trade fixtures of Tenant remaining
on the Premises after the end of the Term shall be deemed conclusively
abandoned, notwithstanding that title to or a security interest in such Personal
Property may be held by an individual or entity other than Tenant, and Landlord
may dispose of such Personal Property in any manner it deems proper, in its sole
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discretion. Tenant hereby waives and releases any claim against Landlord arising
out of the removal or disposition of such Personal Property. Tenant shall
reimburse Landlord for the cost of removing such Personal Property.
46. SIGNAGE. Tenant shall not place any signs, decals, or other materials
upon the windows or suite doors of the Premises nor on the exterior walls of
Premises. Landlord agrees to provide Tenant, at Tenant's expense, one Building
standard suite door tenant identification sign. Any additional signage desired
by Tenant shall be approved, in writing, by Landlord and the management company
of the Building, which shall be granted in their sole discretion.
47. CORING OF FLOOR. Landlord shall do any and all coring of floor that may
need to be done. Tenant shall not core the floor under any circumstances.
48. EFFECT OF TERMINATION OF LEASE. No termination of this Lease prior to
the normal ending thereof, by lapse of time or otherwise, shall affect
Landlord's right to collect rent for the period prior to termination thereof
49. RIGHTS CUMULATIVE. All rights, powers and privileges conferred
hereunder upon parties hereto shall be cumulative but not restrictive to those
given by law.
50. FORCE MAJEURE. In the event Acts of God, interruption of public
utilities, strike, lockout, labor trouble, civil commotion, or any other event
outside and beyond Landlord's control (collectively hereinafter called "Force
Majeure"), resulting in the impairment of Landlord's ability to perform any
obligation or provide any service hereunder, this Lease shall not terminate
except at Landlord's election, and Tenant's obligation to pay Base Monthly
Rental, Additional Rental and all other charges and sums due payable by Tenant
shall not be altered or excused and Landlord shall not be considered to be in
default under this Lease or liable in damages to Tenant in any manner.
51. TENANT CORPORATION, PARTNERSHIP OR INDIVIDUAL. If Tenant executes this
Lease as a corporation, each of the persons executing this Lease on behalf of
Tenant does hereby covenant, warrant and represent that Tenant is a duly
organized and validly existing corporation, that Tenant has and is qualified to
do business in Georgia, that the corporation has full right and authority to
enter into this Lease, and that each and all persons signing on behalf of the
corporation were authorized to so do. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord confirming
the foregoing covenants and warranties. If Tenant executes this Lease as a
limited liability company, each of the persons executing this Lease on behalf of
Tenant does hereby covenant, warrant and represent that tenant is a duly
organized and validly existing limited liability company, that Tenant has and is
qualified to do business in Georgia, that the limited liability company has full
right and authority to enter into this Lease, and that each and all persons
signing on behalf of the limited liability company were authorized to do so.
Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties. If
Tenant executes this Lease as a partnership, Tenant does hereby covenant,
warrant and represent that all of the persons who are general or managing
partners in said partnership have executed this Lease on behalf of Tenant, or
that this Lease has been executed and delivered pursuant to and in conformity
with a valid and effective authorization therefor, by all of the general or
managing partners of such partnership, and is and constitutes the valid and
binding agreement of the partnership and each and every partner therein in
accordance with its terms. Also, it is agreed that each and every present and
future partner of Tenant shall be and shall remain at all times jointly and
severally liable hereunder, and that the death, resignation, or withdrawal of
any partner shall not release the liability of such partner under the terms of
this Lease unless and until Landlord
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consents in writing to such release. If Tenant executes this Lease as an
individual, Tenant does hereby covenant, warrant and represent that his legal
residence address is that set forth below his signature on this Lease.
52. SUBMISSION OF LEASE. The submission of this Lease for examination does
not constitute an offer to lease nor a reservation of space even if said lease
is executed by Landlord, and this Lease shall be effective only upon execution
hereof by Landlord and Tenant and delivery of a counterpart thereof to Landlord
and Landlord's acceptance and final approval thereof
(This space intentionally left blank)
(Signatures are on the following page)
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Agreement under seal as of the day and year first above written.
Signed, sealed and delivered in the presence of: TENANT:
Net Bank, Inc.
/s/ Dianne D. Chapin By: /s/ D.R. Grimes
- ------------------------------- -------------------------
Notary Public/Witness
Name: D.R. Grimes
---------------------
Notary Public, Cobb County, Georgia
My Commission Expires March 18, 2001 Title: CEO
----------------------
/s/ Dianne D. Chapin Attest: /s/Robert E. Bowers
- ------------------------------- ----------------------
Notary Public/Witness
Name: Robert E. Bowers
----------------------
Notary Public, Cobb County, Georgia
My Commission Expires March 28, 2001 Title: CFO
----------------------
Signed, sealed and delivered in the presence of: LANDLORD:
Windward Forest Partners, Inc.
/s/ M. Helen Falk By: /s/ C. Parker Day
- ------------------------------- -------------------------
Notary Public/Witness
Name: Manager
-----------------------
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SPECIAL STIPULATIONS
1. DELAY IN POSSESSION
Notwithstanding anything herein to the contrary, if possession of the Premises
is not delivered to Tenant by January 14, 1998, for any reason other than those
caused by Tenant, then Landlord shall promptly pay to Tenant $100.00 per day for
every day of delayed occupancy. If possession of the Premises is not delivered
to Tenant by June 15, 1998 for any reason other than those caused by Tenant and
force majeure as provided elsewhere in this Lease, Tenant may, at its option,
cancel this Lease and Landlord shall return all monies paid to Landlord and have
no further claim against Tenant.
2. OPERATING EXPENSE EXCLUSIONS
Notwithstanding anything in Paragraph 5 to the contrary, Operating Expenses
shall in no event include the items listed below:
a. the cost of any work or service performed for any tenant
(including Tenant) at such tenant's cost;
b. salaries of officers and executives of Landlord;
c. the cost of any items to the extent Landlord is reimbursed by
insurance;
d. interest on debt or amortization payments on any mortgage and
rental under ground lease or other underlying lease;
e. all leasing expenses, including any real estate brokerage
commissions incurred in procuring tenants;
f. any costs included in operating costs representing an amount
paid to a corporation related to Landlord which is in excess
of the amount which would have been paid in the absence of
such relationship;
g. charges (including applicable taxes) for electricity, steam
and other utilities consumed by other tenants in quantities
above Building Standard levels which are not separately
metered an paid for by any such tenant to the applicable
utility company;
h. any cost of painting or decorating of any tented part of the
Building excluding common areas;
i. the cost of any repair in accordance with the provisions
hereof relating to casualty or condensation;
j the cost and expenses related to a refinancing or sale of the
Property; and
k. the cost of removing any asbestos from the Building or Land,
or the cost of complying with any governmental rules,
regulations and statutes affecting the Building or Land.
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3. REPAIRS AND MAINTENANCE
Notwithstanding anything herein to the contrary, Landlord shall maintain and
keep in good repair the Building, including but not limited to all structural
repairs, roof, building exterior, parking, walkways, landscaping, plumbing,
electrical, mechanical and heating and air conditioning systems in the Premises
and Building and maintain the common areas in a manner consistent with other
similar buildings in the area.
4. DESTRUCTION OR DAMAGE
Notwithstanding anything contained in Paragraph 21 herein, if the Premises are
not restored and possession delivered to Tenant within one hundred eighty (180)
days from the date of the decision by Landlord to rebuild the Premises, then
Tenant may, at its option, terminate this Lease and Landlord shall have no
further claim against Tenant.
5. CONDEMNATION
Notwithstanding the provisions of Paragraph 23 of the Lease, Tenant shall be
entitled to retain any condemnation proceeds which are separately awarded to
Tenant or which are otherwise available under applicable law, including but not
limited to the value of Tenant's interest in the lease, moving costs and other
costs of relocation, the interruption of or damage to Tenant's business, and the
loss of good will, provided that any such award to Tenant shall in no way reduce
the proceeds awarded to Landlord.
6. COMPLIANCE WITH BUILDING CODES
Notwithstanding anything herein to the contrary, Landlord hereby represents and
warrants to Tenant that the Premises have been constructed and completed in
compliance with all applicable federal, state and municipal laws, ordinances,
and regulations, and building and fire codes.
7. CONSTRUCTION WARRANTY
All workmanship and materials used in construction of the Building and Premises
shall be free of any material defect(s) for a period of one (1) year from Term
Commencement Date. Upon notification in writing by Tenant to Landlord of
defect(s), Landlord shall promptly repair or cause to be repaired same.
8. RESERVED
9. ENVIRONMENTAL
To the best of Landlord's knowledge, information and belief, the Property is
free of hazardous substances, underground storage tanks, contaminants, oil
radioactive, or other dangerous materials including, without limitation,
asbestos and PCBs.
10. ASSIGNMENT AND SUBLETTING
Notwithstanding the provisions of Paragraph 10 of this Lease, Tenant shall have
right, without the prior consent of the Landlord, to assign this Lease or sublet
the whole or any part of the Premises to a corporation or entity which: 1) is
Tenant's parent corporation; or 2) is a wholly-owned subsidiary of Tenant or
Tenant's parent corporation; or 3) is a corporation of which Tenant or Tenant's
parent corporation owns in excess of fifty percent (50%) of the outstanding
capital stock; or 4) as a result of consolidation or merger with Tenant and/or
Tenant's parent corporation. Any transfer pursuant to 1, 2, 3 or 4 above, shall
be subject to the following conditions: a) Tenant shall remain fully liable
during the unexpired term of this Lease; and b) any such assignment, sublease or
transfer shall be subject to all of the terms, covenants and conditions of this
Lease, and such assignee, sublessee or transferee shall expressly assume the
obligations of Tenant under the Lease by a document reasonably satisfactory to
Landlord.
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11. QUIET ENJOYMENT
So long as Tenant is not in default, Landlord and its successors and assigns
shall not interfere with Tenant's quiet use and enjoyment of the Premises.
12. RENEWAL OPTION
If Tenant is not in default under any of the provisions of this Lease, Landlord
hereby grants Tenant an option to extend the Lease Term for one additional five
(5) year term by giving written notice to Landlord eight (8) months prior to the
expiration of the original Lease Term. Except as otherwise provided herein, the
Base Monthly Rental during the renewal term will be the market rates prevailing
for similar quality office space located in the North Fulton submarket of
Atlanta, Georgia. Market Rate shall be defined as the then fair market rental
value of the Premises as of the date of commencement of the renewal term,
determined in accordance with the provisions set forth below. The fair market
rental value of the Premises shall mean the rental that would be agreed to by a
landlord and a tenant, each of whom is willing, but neither of whom is
compelled, to enter into the lease renewal transaction. The fair market rental
value shall be determined on the basis of the assumptions that (1) the operating
expense stop shall be updated on the first full calendar year under the renewal
based on the actual expenses for the previous year, and (2) the fair market
rental value shall be projected to the commencement date of the applicable
renewal term. The fair market rental value to be determined shall not take into
account any special tenant improvements or any special uses or rights afforded
to Tenant under the Lease in connection with the Premises, but shall take into
account the following factors:
i. Rental for comparable premises in comparable existing buildings,
(taking into consideration, but not limited to, use, location
and/or floor level within the applicable building, quality, age
and location of the applicable buildings);
ii. The rentable area of the premises being leased;
iii. The length of the rental term as it pertains to the renewal
exclusive of the length of the initial Term;
iv. The extent to which the improvement allowance, rent credit, tenant
improvement allowances, space planning allowance, or similar
inducements given to Tenant are less, or greater, than that which
would have been given to a comparable tenant in a comparable
building.
Within thirty (30) days of receipt of such notice from Tenant exercising this
option, Landlord shall notify Tenant of the Base Monthly Rental and other terms
of the renewal term. If the Landlord and Tenant are unable to agree upon the
fair market net rental value, then Tenant may rescind its exercise of this
renewal option by giving Landlord notice no later than 180 calendar days prior
to the expiration of the lease term and shall have no further obligation to
renew this Lease.
13. TENANT IMPROVEMENTS-Common Area Restrooms
Landlord at its sole cost shall install common area restrooms which shall be
accessible to Tenant. They shall be constructed to all applicable building and
handicapped codes in effect at the time of construction.
14. RENTAL ABATEMENT
Notwithstanding anything herein to the contrary, the first two (2) full months
of occupancy shall be rent free.
15. AUDIT RIGHTS
Landlord agrees that it shall allow Tenant or Tenant's representatives to
inspect and audit the books and records of Landlord that pertain to payments by
Tenant of Tenant's share of Operating Expenses, at any reasonable time at the
office of the Landlord or any reasonable location within the Atlanta metro area
that
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said books might be maintained, and upon at least (10) days prior written
notice to Landlord, to determine the reasonableness and fairness of such
charges, provided that Landlord shall not be required to maintain its books and
records for inspection or audit by Tenant for more than twelve calendar months
after the due date of such charges to which they pertain. Tenant shall have the
right to reasonably contest such charges, and tenant may not inspect more than
once in any calendar year.
16. Reserved
17. AFTER HOURS SECURITY
An after hours roving security guard service will be provided by Landlord for
the security of all tenants in the Building.
18. ACCESS
The building can be accessed 24 hours a day, 365 days per year.
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RULES AND REGULATIONS
1. "Normal business hours" shall mean the days Monday through Friday, inclusive,
except legal holidays, during the hours from 8:00 a.m. to 6:00 p.m., and
Saturdays, except legal holidays, from 8:00 a.m. to 1:00 p.m. At all other times
every person, including Tenant, Tenant's employees, agents clients, customers,
invitees and guests entering and leaving the Building may be questioned by a
security guard as to that person's business therein, and may be required to sign
such person's name on a form for registering such person. Landlord reserves the
right to exclude from the Building between the hours of 6:00 p.m. and 8:00 a.m.
and at all hours on Saturdays, Sundays, and holidays all persons who are not
occupants or their accompanied guests. Tenant shall be responsible for all
persons for whom it allows to enter the building and shall be liable to Landlord
for all acts of such persons. Landlord reserves the right to exclude or expel
from the Building any persons who, in the opinion of Landlord, are or appear to
be intoxicated or under the influence of liquor or drugs or who is in violation
of any of the rules and regulations of the Building. Landlord shall in no case
be liable for damages for error with regard to the admission to or exclusion
from the Building of any person. During the continuance of any invasion, mob,
riot, public excitement or other circumstances rendering such action advisable
in the opinion of Landlord, Landlord reserves the right to prevent access to the
Building by closing the doors, or otherwise, for the safety of the occupants and
protection of the Building and property in the Building.
2. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the outside of the
Premises or Building or on corridor walls. Signs on the door or doors of the
Premises shall conform to Building standard signs. Signs on doors shall, at
Tenant's expense, be inscribed, painted or affixed by sign makers approved by or
on behalf of Landlord. In the event of the violation of the foregoing by Tenant,
Landlord may remove same without any liability, and may charge the expense
incurred by such removal to Tenant.
3. The sidewalks, entry passages, corridors, and halls shall not be obstructed
by Tenant, or used for any purpose other than for ingress and egress. Tenant
shall not be allowed to move in or move out of Premises during normal business
hours Monday through Friday. Tenant will insure that movers take necessary
measures required by Landlord to protect Building (e.g., windows, carpets,
walls, and doors) from damage. The halls, passages, exits, and entrances, are
not for the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence, in
the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building and its occupants, provided that
nothing herein contained shall be construed to prevent such access to persons
with whom Tenant nominally deals in the ordinary course of Tenant's business
unless such persons are engaged in illegal activities. The toilet rooms,
toilets, urinals, wash bowls and other apparatus shall not be used for any
purpose other than that for which they were constructed and no foreign substance
of any kind whatsoever, including, but not limited to, coffee grounds shall be
thrown therein, and the expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the Tenant, Tenant's
employees, agents, clients, customers, invitees and guests, who shall have
caused it.
4. No curtains, draperies, blinds, shutters, shades, screens or other coverings,
awnings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with, any window or door of the Premises without the prior
written consent of Landlord. In any event with the prior written consent of
Landlord all such items shall be installed inboard of the Building standard
window blinds and shall in no way be visible from the exterior of the Building.
Tenant shall not remove the Building standard window blinds installed in the
Premises. No articles shall be placed or kept on the window sills so as to be
visible
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from the exterior of the Building. No articles shall be placed against glass
partitions or doors which might appear unsightly from outside Tenant's Premises.
5. No Tenant shall do or permit to be done in said Premises, or bring to keep
anything therein, which shall in any way obstruct or interfere with the rights
of other occupants or in any way injure or annoy them. Tenant and Tenant's
employees, agents, clients, customers, invitees and guests shall maintain order
in the Building, shall not make/permit any improper noise in the Building or
interfere in any way with other occupants or those having business with them.
Nothing shall be thrown by Tenant, Tenant's employees, agents, clients,
customers, invitees and guests out of the windows or doors, or down the passages
of the Building. No rooms shall be occupied or used as sleeping or lodging
apartments at any time. No part of the Building shall be used or in any way
appropriated for gambling, immoral or other unlawful practices, and no
intoxicating liquor or liquors shall be sold in the Premises or Building without
the written consent of Landlord.
6. Tenant shall not, without the written consent of Landlord, put up or operate
any fans, electric heaters, machinery or stove upon the Premises, or carry on
any mechanical business thereon, or use or allow to be used upon the Premises,
oil, burning fluids, camphene, gasoline or kerosene for heating, warming or
lighting. No cooking except by microwave oven shall be done or permitted by
Tenant on the Premises except in conformity with law and then only in the
utility kitchen, if any, as set forth in Tenant's layout, which is to be
primarily used by Tenant's employees for heating beverages and light snacks. No
article deemed extra hazardous on account of fire and no explosives shall be
brought into the Premises. No offensive gases or liquids will be permitted.
7. No bicycles, vehicles, birds or animals (except seeing eye dogs) of any kind
shall be brought into or kept in or about the Premises.
8. No painting shall be done, nor shall any alterations be made, to any part of
the Premises or Building by putting up or changing any partitions, doors or
windows, nor shall there be any nailing, boring or screwing into the woodwork or
plastering, nor shall any connection be made to the electric wires or electric
fixtures, without the consent in writing on each occasion of Landlord. No
sunscreen or other films shall be applied to the interior or exterior surface of
any window glass. All glass, locks and trimmings in or upon the doors and
windows of the Building shall be kept whole and, when any part shall be broken,
the same shall be immediately replaced or repaired and put in order under the
direction and to the satisfaction of Landlord, and shall be left whole and in
good repair. Tenant shall not injure, overload or deface the Building, the
woodwork or the walls of the Premises.
9. No additional lock, latch, bolt or access device of any kind shall be placed
upon any door or any changes be made in existing locks or mechanism thereof by
Tenant without the consent of Landlord. Notwithstanding anything to the
contrary, it is understood that Tenant may have confidential areas which may
need special security and which may require locks to which Landlord may not
receive keys. Any request for such locks shall not be unreasonably withheld,
delayed, or denied by Landlord. Tenant acknowledges that janitorial service may
have to be an extra charge to Tenant in such rooms if access is denied
Landlord's janitorial staff during their regular hours of duty. Upon
commencement of this Lease, Landlord shall provide, at no expense to Tenant, two
entrance door keys. The cost of providing additional keys to Tenant shall be
borne by Tenant. At the termination of this Lease, Tenant shall return to
Landlord all keys to doors in the Building furnished to Tenant by Landlord and
those keys otherwise procured by Tenant. Tenant may place security cameras on
the outside of the property in reasonable locations with Landlord's permission,
which shall not be unreasonably withheld, delayed, or denied.
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10. Tenant assumes any and all responsibility for protecting Premises from theft
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed. On multiple-tenancy floors, all occupants shall
keep the door or doors to the Building corridors closed at all times except for
ingress and egress.
11. Tenant shall not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which is
allowed by law. Tenant, Tenant's employees, agents, clients, customers, invitees
and guests, shall not bring in or take out, position, construct, install or move
any safe, business machine or other heavy office equipment without first
obtaining the consent of the Landlord. In giving such consent, Landlord shall
have the right in its sole discretion, to prescribe the weight permitted and the
position thereof, and the use and design of plunks, skids or platforms to
distribute the weight thereof. All damage done to the Building by moving or
using any such heavy equipment or other office equipment or furniture shall be
repaired at the expense of Tenant. The moving of all heavy equipment or other
office equipment or furniture shall not occur during normal business hours
Monday through Friday and the persons employed to move the same in and out of
the Building must be acceptable to Landlord. Safes and other heavy office
equipment will be moved through the halls and corridors only upon steel bearing
plates or other methods approved by Landlord.
12. The Landlord will post on the Building directory Tenant's name only at no
charge. All additional names winch Tenant shall desire put upon the directory
shall, if approved by the Landlord, be placed on the Building's directory. A
charge by the Landlord to Tenant will be made for each such additional listing
representing Landlord's actual cost to purchase and install such directory
listings.
13. No Tenant shall employ any person or persons other than the janitor of the
Landlord (who will be provided with pass-keys into the offices) for the purpose
of cleaning Premises. Except with the written consent of the Landlord, no person
or persons other than those approved by the Landlord shall be permitted to enter
the Building for the purpose of cleaning same. Tenant shall not cause any
unnecessary labor by reason of such Tenant's carelessness or indifference in the
preservation of good order and cleanliness of the Premises. Landlord shall in no
way be responsible to Tenant for any loss of property on the Premises, however,
occurring, or for any damage done to the effects of Tenant by the janitor or any
other employee or any other person. Tenant shall at the end of each business day
leave the Premises in a reasonably tidy condition for the purpose of the
performance of cleaning.
14. Without the prior written consent of Landlord, Tenant shall not use the name
of the Building in connection with or in promoting or advertising the business
of Tenant except as Tenant's address. Landlord shall each have the right to
prohibit any advertising by Tenant which, in the opinion of Landlord, tends to
impair the reputation of the Building or its desirability as a building for
offices, and upon written notice from Landlord, Tenant shall refrain from or
discontinue such advertising.
15. Except as expressly provided to the contrary herein, Landlord, and
Landlord's respective agents, employees and contractors shall have the right to
enter the Premises at all reasonable hours, for the purpose of making any
repairs, alterations, or additions which it shall deem necessary for the safety,
preservation, or improvement of the Building; and Landlord, and Landlord's
respective agents, employees and contractors shall be allowed to take all
material into and upon said Premises that may be required to make such repairs,
improvements, and additions, or any alterations for the benefit of the Tenant
without in any way being deemed or held guilty of an eviction of the Tenant; and
the rent reserved shall in no way abate while said repairs, alterations, or
additions are being made; and the Tenant shall not be entitled to maintain a
setoff or counterclaim for damages against the Landlord, and Landlord's
respective agents, employees and contractors by reason of loss or interruption
to the business of the Tenant because of the prosecution of
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any such work. All such repairs, decorations, additions, and movements shall be
done during normal business hours, or, if any such work is at the request of the
Tenant to be done during any other hours, the Tenant shall pay for all overtime
work.
16. Tenant shall observe and obey all parking and traffic regulations as imposed
by Landlord. The parking facilities shall be used by vehicles that may occupy a
standard parking area only. Moreover, the use of the parking facilities shall be
limited to normal business parking and shall not be used for a continuous
parking of any other vehicle regardless of size.
17. The requirements of Tenant will be attended to only upon application to the
management of the Building. Building employees shall not perform any work or do
anything outside of their regular duties, unless under special instruction from
the management office.
18. Canvassing, soliciting, distributing of handbills or any other written
material, and peddling in the Building are prohibited and Tenant shall cooperate
to prevent the same. Tenant shall not make room-to-room solicitation of business
from other occupants in the Building.
19. Tenant shall not waste electricity, water or air-conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air-conditioning. Tenant will observe strict care and
caution that all water faucets or water apparatus are entirely shut off before
the Tenant, Tenant's employees, agents, clients, customers, invitees and guests
leave the Premises, and that all utilities shall likewise be carefully shut off
so as to prevent waste or damage, and for any default or carelessness, the
Tenant shall make good all injuries sustained by other occupants of the
Building. Tenant will comply with all energy conservation, safety, fire
protection and evacuation procedures and regulations established by Landlord or
any governmental agency.
20. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, Tenant shall first obtain, and comply with, the instructions of
Landlord in their installation. The Landlord will direct electricians as to
where and how telephone, telegraph and electrical wires are to be introduced or
installed. No boring or cutting for wires will be allowed without the prior
written consent of the Landlord. The location of burglar alarms, telephones,
call boxes or other office equipment affixed to the Premises shall be subject to
the written approval of Landlord. Tenant shall not install any radio or
television antenna, loudspeaker or any other device on the exterior walls or the
roof of the Building. Notwithstanding anything to the contrary herein, any
consent or approval required for this section shall not be unreasonably
withheld.
21. Tenant shall store all trash and garbage within the interior of the
Premises. No materials shall be placed in the trash boxes or receptacles if such
materials are of such nature that they may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in this area
without violation of any law or ordinance governing such disposal. All trash,
garbage and refuse disposal shall be made only through entryways and provided
for such purposes and at such times as Landlord may designate.
22. Tenant shall provide and maintain hard surface protective mats under all
desk chairs which are equipped with casters to avoid excessive wear and tear to
carpeting. It Tenant fails to provide such mats, the cost of carpet repair or
replacement made necessary by such excessive wear and tear shall be charged to
and paid for by Tenant.
23. Tenant shall give prompt notice to Landlord of any accidents to or defects
in plumbing, electrical fixtures, or heating apparatus so that such accidents or
defects may be attended to properly.
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24. Tenant shall be responsible for the observance of all of the foregoing Rules
and Regulations by Tenant's employees, agents, clients, customers, invitees and
guests. These Rules and Regulations are in addition to and as a supplement of,
and shall not be construed to in any way otherwise modify, alter or amend, in
whole or in part, the terms, covenants, agreements and conditions of the Lease
Agreement.
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EXHIBIT A
FLOOR PLAN
[Diagram of floor space appears here]
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EXHIBIT B
TENANT FINISH AGREEMENT
WINDWARD FOREST
This Agreement, made this 15th day of September, 1997, Windward Forest
Partners, L.L.C., a Georgia limited liability company (hereinafter referred to
as "Landlord") and Net Bank, Inc., a Georgia corporation (hereinafter referred
to as "Tenant").
W I T N E S S E T H
WHEREAS, the undersigned Landlord and Tenant have executed and delivered a
certain Lease Agreement (hereinafter referred to as the "Lease") to which this
Agreement is attached, and into which this agreement is fully incorporated by
reference, as Exhibit "B";
WHEREAS, the Lease provides for the leasing of space (the "Premises")
within Windward Forest Office Building, 950 Northpoint Parkway, Alpharetta,
Fulton County, Georgia (hereinafter referred to as the "Building");
WHEREAS, terms which are defined in the Lease when used herein shall have
the same meanings ascribed thereto as set forth in the Lease; and
WHEREAS, Landlord and Tenant desire to set forth herein their respective
agreements regarding the improvements of the Premises;
NOW THEREFORE, in consideration of the foregoing recitals, the execution
and delivery of the Lease by the parties hereto, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant, intending to be legally
bound, hereby agree as follows:
Section 1. Tenant Improvements
Section 1.01 Tenant Improvements
The term "Tenant Improvements" shall mean all improvements constructed or
installed in or on the Premises in accordance with the Drawings and
Specifications, as hereinafter defined.
Section 1.02 Base Building Condition
The term "Base Building Condition" shall mean the condition of the Premises
after Landlord's substantial completion of construction of the Building in
accordance with those certain plans and specifications of the project manual and
construction drawings dated October 7, 1996, provided that Landlord shall be
entitled to make changes, modifications and alterations in said plans and
specifications from and after the date hereof. It is acknowledged that upon
completion of construction of the Building by Landlord, Base Building Condition
shall include only building shell, as defined further in Section 1.03 below, and
shall not include any tenant finish improvements or other items whatsoever above
and beyond building shell. Except as provided for in the Lease, Tenant hereby
accepts Base Building Condition of the Building and Premises as so constructed
by Landlord "As Is".
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Section 1.03 Building Shell
The term "Building Shell" shall include all those items in the building
which are not particular to any tenant but support all tenants such as roof,
exterior walls, windows and doors, common area bathrooms, hallways, exit
corridors, mechanical rooms and closets, telephone rooms and closets, janitor
rooms and closets, fire sprinkler risers and building standard sprinkler grid,
and any other common areas typical of a comparable office building in this
submarket of Atlanta. Not included within the Base Building Condition and as
part of the Building Shell, but to be provided for through Landlord's Allowance
for Tenant improvement Costs, as hereinafter defined, or paid for directly by
Tenant to Landlord as Tenant Costs, as hereinafter defined, shall be the
following labor and materials which shall be required to be specified by
Tenant's Architect, as hereinafter defined, in all construction documentation
with respect to the Premises concerning such matters:
(1) Acoustic Ceiling
(a) Grid: 2'x2'x15/16th recessed grid: USG Donn
"DX-Intermediate Duty" grid with white enamel finish.
Grid system to be installed throughout Premises.
(b) Tile: 5/8 inch thick 2'x2' regular tile for recessed
grid: Armstrong Georgian Minatone.
(2) Mechanical (HVAC)
(a) Furnish and install mechanical HVAC equipment to generate heat
and air conditioning to Tenant's Premises consistent with
comparable buildings in this submarket of Atlanta, which shall
be installed on the roof above the Premises and within
premises as needed.
(b) Provide and install controls for HVAC equipment.
(c) Furnish and install interior zone supply ductwork and return
air ducts, from rooftop units to Premises.
(d) Balance the mechanical installation (fire dampers, spinins,
flex supply diffusers, return air grills, HVAC controls, final
test and balance) as needed.
(e) Provide engineering drawings for permitting with the proper
authorities.
(3) Electrical and Lighting
(a) Electrical systems to all common area building elements
normally requiring electricity for their operation and
electrical distribution panels to provide electrical service
to those systems for 110 volt utility outlets, lighting, and
other permitted electrical uses by Tenant. This electrical
load for each tenant shall not exceed five (5) watts per
square foot for lighting, normal business machine (110 volt)
outlets, and all other direct electrical consumption by
Tenant.
(b) Standard 2'x4' lay-in fixture to be Lithonia 2pm4gb34018dl20es
with parabolic lenses and 3 cool white lamps, or equal.
(c) Standard downlight to be Halo 5" diameter with DAR-30 lamp and
black step baffle reflector.
(d) All Tenant exit lights, emergency power packs, and electrical
panels to be provided by Tenant as part of Tenant
Improvements.
(e) Electrical Panels to be Siemans, Square "D", ITE, or equal.
(f) Provide engineering drawings as required for permitting, to
record drawings, and submittals for permitting, which shall
indicate panel layout and fixtures controlled by each circuit.
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(4) Sprinkler Head Grid
The standard delivery of unfinished space shall include all those
sprinkler heads installed on a grid pattern sufficient to satisfy the
appropriate governmental authorities as to the fire safety of the Building for
occupancy thereof Included in the Tenant's cost of Tenant Improvements shall be
the relocation of any of those existing sprinkler head locations and the
addition of any new sprinkler head locations caused by Tenant's design and
layout of the Premises. With respect to those tenant's whose construction
documents are completed prior to the construction of the initial grid's
placement, those tenants shall not be responsible for the cost to relocate, but
only for the additional heads and the costs of their placement to the extent it
falls outside the grid as it would have been installed in the Base Building
Condition.
(5) Drywall partitions
(a) Tenant Demising and Corridor Walls
(1) Construction: One (1) layer of 5/8" fire rated
drywall on office side over 25 gauge 3 5/8"
metal studs at 24" O.C. with 1 layer 1/2"
drywall on office side. Wall cavity to contain
3 1/2" batt insulation and built and sealed
to roof deck to obtain a fire rating of 1 hour
(U.L. Design U465).
(b) Standard Office Partitions
(1) Construction: 25 gauge 3 5/8" metal studs at
24" O.C. with 1 layer 1/2" drywall on each
side. Walls to be 9' high or as needed to
fit abutment to windows.
(c) Finishing Out of Exterior Walls in Finished Area
(1) Construction: 25 gauge 3 5/81' metal studs
at 24" O.C. with 1 layer 1/2" drywall on
office side. Wall cavity to have 3 1/2" batt
insulation. Height to be 9' high or as
needed to fit window conditions of Shell Building.
(6) Doors and Hardware
(a) Tenant entry doors: storefront doors to match building shell per
storefront manufacturer.
(b) Standard tenant door: 3'-0" x 8'-0", 1 3/4 " thick, solid core
birch door.
(c) Building Services door: 3'-0" x 8'-0", 1 3/4 " thick, solid core
birch door.
(d) Frame: Knockdown hollow metal, painted.
(e) Hardware sets:
(1) Schlage heavy duty mortise locks L9000 series with 07
lever US26B except USS32B at public corridors
(2) Closers: LCN 1460 US26B at public corridor doors
(f) Typical interior door hardware:
(1) Hinges: 1 1/2 pair 4 1/2x4 US26D
(2) Hardware sets: Schlage AL Series cylinder lock sets US25D
with "Jupiter" lever.
(3) Closers: Not applicable
(g) "B" label door: Same as Building Services door above except it has
1 hr. fire rating, 1 each lever lock set and closer. Frame shall
be welded to have I hr. fire rating.
(h) "C" label door: Same as Building Services door above except it has
20 min. fire rating, 1 each lever lock set and closer.
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(7) Window Treatment
Horizontal blinds to be Bali/Graber 1" mini blinds which shall
be furnished and installed by Landlord as part of Building Shell.
(8) Floor Covering (the following are suggestions and will be used
for all preliminary pricing, but in no way are intended to suggest use or limit
Tenant's ability to chose any floor covering desired by Tenant).
(a) Carpet:
(1) Offices, Open areas: Shaw Commercial Shoal
Creek H 36 oz. or equal $12.00 per yard of
material and installation cost.
(2) Reception, Corridor, Conference: Carnegie
or equal at $20.00 per yard material and
installation cost.
(b) Vinyl composite tile: Kitchen, Break Room/Area, Work
Room: Armstrong or equal at $ 1.10 per square foot
material and installation cost.
(c) Rubber cove base: Roppe or equal 4" standard color at
1.00 linear foot material and installation cost.
(9) Wall Covering (the following are suggestions and will be used for
all preliminary pricing, but in no way are intended to suggest use or limit
Tenant's ability to chose any floor covering desired by Tenant).
(a) Standard tenant wall covering allowance: Corridor,
$1.40 per square foot material and installation cost.
(b) Tenant wall covering allowance upgrade: Reception/
Conference Rooms, etc.: $3.00 per square foot material
and installation cost.
(10) Painting (the following are suggestions and will be used for all
preliminary pricing, but in no way are intended to suggest use or limit Tenant's
ability to chose any floor covering desired by Tenant).
(a) Walls: 2 coats Porter Paints, Duron or approved equal latex
flat paint.
(b) Wood doors: color stained with three coat precatalyze
conversion varnish finish, M. L. Campbell "Magnalac" or
approved equal.
(c) Metal doors: alkyd gloss paint
(d) Door frames: alkyd gloss paint.
(11) Millwork (if applicable) (the following are suggestions and will
be used for a preliminary pricing, but in no way are intended to suggest use or
limit Tenant's ability to chose any floor covering desired by Tenant).
(a) Cabinets
(1) Flush construction cabinets with face frame and
plastic laminate finish complying with AWI Section
400 for "Custom" Grade Cabinets.
(2) Plastic laminate on all exposed surfaces by
Nevamar, Wilsonart, or equal.
(3) Melamine on all interior surfaces: white unless
noted otherwise.
(b) Reception desk and other casework:
(1) Comply with AWI Section 400 and 400A for "Premium"
grade casework and cabinets with natural finish.
(2) Finish to be custom color stain with three coat
precatalyzed conversion varnish, M.L. Campbell
"Magnalac".
(c) Cabinet Hardware
(1) Hinges: Blum concealed clip hinge 125 degrees
full overlay #Blum 77M-558.
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(2) Slides: Blum, epoxy coated European slide 4 Blum
230 M-550 3/4 extension, 100 lb. white bottom
mount.
(3) Pulls: $3.00 allowance per pull.
(d) Countertops: All countertops to be high pressure decorative laminate
complying with AWI standards for "custom grade" countertop from a full range of
manufacturers standard color, patterns and finishes from Laminart, Wilson Art,
Nevamar, Formica, or equal.
(12) Plumbing
(a) Standard breakroom sink to be Polar 4955-5 or equal, with
Kohler double blade handle faucet with 8" spread.
(b) Electric water heaters to be A.O. Smith Model #ELJ-6 or
equal.
(c) Provide riser diagram and other engineering drawings
necessary for permitting. Provide record drawings and
submittals.
Section 2. Drawings and Specifications
Section 2.01. Definition
The term "Drawings and Specifications" shall mean the final drawings,
specifications, and finish schedules for the Tenant Improvements which shall be
prepared and approved by Landlord and Tenant in accordance with the following
procedure:
(a) As soon as possible after execution of this Tenant Finish
Agreement, but in no event later than ten (10) days thereafter, Tenant
shall either inform Landlord that Tenant desires to use the Architect
designated by Landlord ("Landlord's Architect") to prepare final
working drawings as necessary to commence construction of the Tenant
Improvements or inform Landlord of the identity of the architect or
other design specialist whom Tenant desires to use for such work.
Landlord shall have the right of approval over any architect or other
design specialist selected by Tenant and shall advise Tenant promptly
of Landlord's decision either approving or disapproving the person or
firm selected by Tenant.
(b) If Tenant elects to use Landlord's Architect as provided in
subsection (a) above, Tenant shall commence working with said architect
promptly so that final working drawings and specifications can be
prepared for Landlord's approval. If Tenant elects to use an
independent architect or design specialist and if the same is approved
by Landlord, Tenant agrees to commence working with such professional
promptly and further agrees that such work shall be performed in
accordance with professional standards for design and construction
criteria. The architect selected by Tenant, whether Landlord's
Architect or other architect or design specialist selected by Tenant
with Landlord's approval, shall hereinafter be referred to as the
"Tenant's Architect".
(c) As soon as reasonably possible, but no more than thirty (30) days
after making its election under subsections (a) and (b) above, Tenant
shall deliver to Landlord Tenant's proposed final working drawings and
specifications for the Tenant Improvements. Landlord shall promptly
review and resubmit the same to Tenant, either with Landlord's
approval, or with Landlord's approval subject to comments, or with
Landlord's disapproval. If Landlord fails to respond within thirty (30)
days after receiving such proposed final drawings and specifications,
Landlord shall be deemed to have given its disapproval. Tenant shall
resubmit any such draw' s and specifications which are returned by
Landlord without complete approval as promptly as possible, and such
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<PAGE>
resubmitted drawings and specifications shall contain the information
or changes required by Landlord. Once Landlord then satisfies itself
that such drawings and specifications are acceptable, Landlord shall so
notify Tenant and the same shall constitute the "Drawings and
Specifications" for purposes of this Tenant Finish Agreement.
(d) Promptly after receipt of the Drawings and Specifications, Landlord
shall obtain from a contractor designated by Landlord ("Landlord's
Contractors") price estimates for the Tenant Improvements and shall
submit the same to Tenant for its selection and approval. If Tenant
disapproves such price estimate, Tenant agrees to work promptly with
Tenant's Architect to value engineer and redraw and reissue
Construction Drawings, which shall be rebid by Landlord's contractors.
Upon receipt of final bids, Tenant shall select Contractor. Selection
of the winning bid shall be based on the lowest price unless Tenant
(with Landlord's reasonable agreement) shall select a high bidder
("Landlord's Contractor" hereinafter). The aggregate cost for the
Tenant Improvements, once approved by Tenant, shall hereinafter be
referred to as "Tenant Improvement Costs". Upon determination of the
Tenant Improvement Costs, Tenant shall be deemed to have given final
approval to the Drawings and Specifications and Landlord shall be
deemed to have been authorized to proceed with the work of constructing
and installing the Tenant Improvements in accordance with the Drawings
and Specifications. See Exhibit "B-I" for the Schedule which outlines
the agreed to dates for this process.
Section 3. Payment of Costs
Section 3.01 Reserved
Section 3.02 Landlord's Allowance for Tenant Improvement Costs.
Landlord shall pay the Tenant Improvement Costs up to, but not
exceeding, the amount of $136,000.00 (the "Landlord's Allowance for Tenant
Improvement Costs") (calculated at the rate of $20.00 per usable square foot of
the Premises, as outlined on Exhibit "A" and attached to this lease).
Section 3.03 Tenant's Costs
Tenant shall pay to Landlord, as additional rental, the following:
(a) The Tenant Improvement Costs over and above the Landlord's
Allowance for Tenant Improvement Costs;
(b) The cost (including fees for architects, engineers, interior
designers and other professionals) for preparing and finalizing all
drawings and specifications as set forth in Sections 2.01 (a) through
(d), and
(c) The cost of making any and all changes in and to the Drawings and
Specifications and any and all increased costs in the Tenant
Improvement Costs, including construction management fees, resulting
therefrom.
The aggregate of all costs described above in subsections (a) through
(c) of this Section 3.03 are hereinafter referred to collectively as "Tenant's
Costs".
Section 3.04 Payment Schedule for Tenant's Costs.
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Tenant shall pay to Landlord the Tenant's Costs as follows:
(a) Fifty percent (50%) of the amount of Tenant's Costs then known to
Landlord and Tenant shall be paid prior to the commencement of any work
of constructing and installing the Tenant Improvements;
(b) Forty percent (40%) of the amount of Tenant's Costs then known to
Landlord and Tenant shall be paid within thirty (30) days after the
commencement of the work of constructing and installing the Tenant
Improvements; and
(c) The balance of Tenant's Costs shall be paid immediately upon
Landlord's notification to Tenant that the work of constructing and
installing the Tenant Improvements has been substantially completed,
and upon the approval of work by Tenant, such approval not to be
unreasonably withheld.
Section 3.05 Changes in Drawings and Specifications
If at any time after the Tenant Improvement Costs are determined Tenant
desires to make changes in the Drawings and Specifications, Tenant shall submit
to Landlord for approval working drawings and specifications for any and all
such desired changes. The process of finalizing and approving such drawings and
specifications shall be in the same manner as set forth in Section 2 above. Once
any and all changes and modifications are approved, Landlord shall promptly
submit the same to Landlord's Contractor for pricing. The procedure for
determining an approval cost for such changes shall be set as set forth in
Section 2 above. Once a cost for such changes has been approved, a references in
this Agreement to "Drawings and Specifications" shall be to the Drawings and
Specifications adopted pursuant to the procedures of Section 2 above, as changed
and modified pursuant to this Section 3.05, and all references to "Tenant
Improvement Costs" shall be deemed to include the aggregate approved costs for
the changes as determined in this Section 3.05. Once the changes and the costs
thereof have been approved, Tenant shall be deemed to have the given full
authorization to Landlord to proceed with the work of constructing and
installing Tenant Improvements in accordance with the Drawings and
Specifications, as changed and modified. Landlord shall have the optional right
to require Tenant to pay one lump sum to Landlord, in advance of commencement of
any work for any and all increases in the Tenant Improvement Costs which result
from approved changes to the Drawings and Specifications.
Section 3.06 Failure to Pay Tenant Costs
Failure by Tenant to pay Tenant's Costs in accordance with this Section
3 will constitute a failure by Tenant to pay rent when due under the Lease and
shall therefore constitute a default by Tenant under the Lease, and Landlord
shall have all of the remedies available to it under the Lease and at law or in
equity for nonpayment of rent.
Section 3.07 Landlord's Disbursement Obligations
Landlord agrees to disburse the Landlord's Allowance for Tenant
Improvement Costs and the Tenant Costs (to the extent deposited by Tenant with
Landlord) to pay the Tenant improvement Costs as and when the same become due
and payable. Landlord shall be entitled to rely on the accuracy of any and all
invoices and fee statements for labor and materials performed on or furnished to
the Premises in
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connection with the Tenant Improvements and to rely, to the extent submitted,
on any and all certifications as to Tenant Improvement Costs submitted by
Landlord's Contractor and/or Tenant's Architect.
Section 3.08 Finish Work in Addition to Tenant Improvements
All work in or about the Premises which is not within the scope of the
work necessary to construct and install the Tenant Improvements, such as
delivering and installing furniture, telephone equipment, wiring, and office
equipment, shall be furnished and installed by Tenant entirely at Tenant's
expense. Tenant shall adopt a schedule for performing such additional work
consistent with the schedule of Landlord's Contractor and shall see that such
work is conducted in such a manner as to maintain harmonious labor relations and
as not to interfere unreasonably with or to delay the work of constructing or
installing the Tenant improvements. Tenant agrees further that such additional
work shall be conducted and accomplished so as not to interfere with Landlord's
ability to obtain a certificate of occupancy for the Premises, and the costs
associated with curing or correcting such interference, if any, shall be part of
Tenant's Costs. Landlord shall give to Tenant and its contract parties
performing such additional work access and entry to the Premises and reasonable
opportunity and time to enable Tenant and such contract parties to perform and
complete such work. All of such additional work and Tenant's use (and the use by
its contract parties) of the Premises for such purposes shall be entirely in
accordance with the Lease, including without limitation this Agreement.
Section 3.09 Schedule
Subject to the terms of this Agreement and the other provisions of the
Lease, Landlord and Tenant agree to use their best efforts to comply with the
Schedule for planning, Pricing and Construction of Tenant Improvements, attached
hereto as Attachment "B-1".
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date and year first above stated.
LANDLORD:
Windward Forest Partners, L.L.C., a Georgia limited liability company
By: /s/ C. Parker Day
------------------------------------
Title: Manager
---------------------------------
TENANT:
Net Bank, Inc.
-------------------
a Georgia corporation
--------------------------------------
By: /s/ D.R. Grimes
------------------------------------
Title: CEO
---------------------------------
By: Robert E. Bowers
Title: CFO
---------------------------------
[CORPORATE SEAL)
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EXHIBIT B-1
SCHEDULE FOR PLANNING, PRICING AND CONSTRUCTION OF
TENANT IMPROVEMENTS
ALL DATES 1997, unless noted otherwise and are deadlines, but to the extent any
can be moved forward (only) through efforts of both parties.and their
subcontractors, these dates flexible:
Done Selection of Tenant's Architect
October 15 Delivery of Construction Drawings
October 16 Issue Documents to three (3) Contractors for Bids
October 26 Receive Bids
October 27-29 Review Bids and Value Engineer
October 30-Nov.3 Redraw Construction Drawings, if Needed
November 4 Reissue to Contractors for Bid Rework
November 6 Receive Reworked Bids
November 7 Select Contractor
November 10 Begin Construction
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EXHIBIT C
ESTOPPEL CERTEFICATE
NOTE: THE FOLLOWING EXHIBIT IS ATTACHED FOR EXAMPLE ONLY. IT IS NOT TO BE FILLED
OUT FOR LEASE SIGNATURE, BUT WILL BE FILLED OUT AT THE TIME OF NEED.
To: ___________________________
___________________________
___________________________
___________________________
Re: Lease Agreement ("Lease") dated _______________ 199___, of __________ square
feet of space known as Suite No. 350 in Windward Forest Office Building, located
at 950 Northpoint Parkway, City of Alpharetta, Fulton County, Georgia
("Premises") between Windward Forest Partners, L.L.C. ("Landlord"), as Landlord,
and Net Bank, Inc. ("Tenant") as Tenant.
Gentlemen:
Tenant hereby certifies to ________________________________ as follows:
1. The term of the Lease commenced on ____________________, 19___, and will
terminate on _____________________, _______.
2. The Lease, as described above, is true, correct and complete, and has
not been modified or amended except as described above, and is in good standing
and is in full force and effect.
3. Tenant is paying monthly rental under the Lease in the amount of
$__________ ($__________ for base monthly rental and $__________ for additional
rent), and such rent has been paid for the period ending on _______________,
19___.
4. Tenant paid a security deposit under the Lease in the amount of
$____________.
5. As far as is known to Tenant, there are no defaults of Landlord under
the Lease, and there are no existing circumstances which with the passages of
time, or notice, or both, would give rise to a default under the Lease.
6. Construction of all tenant improvements required under the Lease has
been satisfactorily completed, and Tenant has accepted and is occupying the
Premises.
7. Tenant has not and will not generate, store, handle or otherwise deal
with any hazardous or toxic waste, substance or material, or contaminants, oil,
pesticides, radioactive or other materials on the Premises, the removal of which
is required or the maintenance of which is prohibited, regulated or penalized by
any local, state or federal agency, authority, or governmental unit.
8. Tenant has no charge, lien, claim of set-off or defense against rents or
other charges due or to become due under the Lease or otherwise under any of the
terms, conditions, or covenants contained therein.
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9. Tenant has not received any concession (rental or otherwise) in
connection with renting the Premises except as follows: ____________________.
10. Tenant has received no notice from any insurance company of any defects
or inadequacies in the Premises or in any part thereof which would adversely
affect the insurability of the Premises.
11. There are no pending suits, proceedings, judgments, bankruptcies, hens
or executions against Tenant or any affiliate of Tenant.
12. Tenant does not have any rights or options to purchase the building in
which the Premises are located.
13. Tenant does not have any rights or options to renew the Lease or to
lease additional space in any building owned by the Landlord except as follows:
_____________________________________.
14. Tenant has not paid, and from and after the date hereof shall not pay,
any rent under the Lease more than one month in advance of its due date.
[The following two paragraphs are appropriate for an estoppel certificate
to be delivered to a lender, but not for a purchaser:]
15. Tenant has no knowledge of any assignment by Landlord of its interest
in the Lease other than to __________________________________________.
16. Upon written notice of the default of Landlord under any of the loan
documents held by ___________________________ and assignment of Landlord's
interest under the Lease by Landlord to _______________________ Tenant shall
recognize ____________________________ as the landlord under the Lease and will
thereafter pay rent and other sums to _______________________________ in
accordance with the terms of the Lease.
17. The certifications contained herein are made with the knowledge that
_______________ _________________________as prospective [purchaser/lender] of
the Premises, will place substantial reliance thereon.
Very truly yours,
Net Bank, Inc.
By:_______________________
Title:____________________
Date:_____________________
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EXHIBIT D
DEFINITION OF OPERATING EXPENSES
"Operating Expenses" shall mean the operating costs and expenses for the
Building delineated as follows:
Building Management and Services
Building Management and Services related to the Common Area expenses
and management of the Building and are billed monthly.
Security
Provide labor, equipment, communication devices, remote central
monitoring, periodic inspections, and office surveys for Building
security.
Landscaping
Provide labor, equipment and supplies necessary for mowing, sweeping,
edging, pruning, fertilizing, spraying and weeding the exterior
grounds. Provide labor, equipment and supplies necessary for watering,
fertilizing and treating the interior landscaping in the Building.
Maintenance and Misc.
Provide labor, equipment and tools necessary for routine maintenance of
electrical, plumbing, lighting, heating and air conditioning systems in
any Building common areas as herein defined, mailroom.
Costs and expenses of maintaining Building common areas and of
redecorating and painting common areas.
Provide labor and materials for annual cleaning of the exteriors of the
office windows.
Provide for any miscellaneous operational cost not covered elsewhere in
this breakdown.
Janitorial Maintenance and Supplies
Provide labor, equipment and supplies to clean the Building common
hallways, restrooms, and mailroom.
Remove trash and deliver to containers for such.
Provide periodic maintenance on a weekly, monthly and quarterly basis.
Provide supervision and periodic inspections of all janitorial
functions and personnel.
Janitorial Maintenance and Supplies are based on occupied square feet.
Provide labor, equipment and supplies to clean offices, and restrooms
five nights a week.
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Remove trash from offices and deliver to the dumpster. Supply hand
towels, toilet tissue, hand soap and plastic liners for trash cans.
Provide supervision and periodic inspections of all janitorial
functions and personnel.
Administration
As an adjunct to building management to provide administrative labor,
accounting and related reports for the Landlord, ad valorem tax review
and reporting, insurance claims and administrative services, utilities
cost review and billing, common area inspections and reports, building
services contracts administration, and occupant surveys and relations
programs.
Electricity
All charges, costs and expenses for electrical power consumed in the
Premises and, without limitation, a pro rata share of Common Area
electrical costs based on the electrical usage in the Premises. (Common
area electrical costs include lights, heating and air conditioning in
the Building common area hallways and restrooms, and parking lot
lighting.)
Water and Sewer
Pay costs of water consumption and sewer for the Building.
Provide trash removal for all occupants of the Building, including all
hauling, landfill fees, and maintenance.
Insurance
The full hazard and extended coverage insurance and comprehensive
liability insurance will be maintained for the Building and all common
areas, but exclusive of insurance on Tenant's improvements or its
personal property.
Taxes
All ad valorem taxes of whatsoever nature assessed against the Premises
and all portions thereof but excluding any taxes on personal property
of Tenant.
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<TABLE>
<CAPTION>
EXHIBIT D-1
PROJECTED 1997 OPERATING EXPENSES FOR WINDWARD FOREST
(Dollars Per Square Foot)
<S> <C>
BUILDING MANAGEMENT .58
LANDSCAPING, TRASH REMOVAL AND PARKING LOT .34
MAINTENANCE AND MISC. .23
JANITORIAL MAINTENANCE AND SUPPLIES .62
ADMINISTRATION .15
UTILITIES 1.50
INSURANCE .05
TAXES 1.01
OWNERS ASSOCIATION FEE .02
TOTAL PROJECTED 1997 OPERATING EXPENSES $4.50
</TABLE>
ALL OF THE ESTIMATES SET FORTH ABOVE ARE BASED ON INFORMATION BELIEVED TO BE
ACCURATE AND RELIABLE, BUT NO GUARANTEES OR WARRANTIES, EXPRESS OR IMPLIED, ARE
MADE AS TO THESE ESTIMATES OR PROJECTIONS.
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<PAGE>
EXHIBIT E
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
This AGREEMENT is made as of this 15th day of September, 1997, between Net
Bank, Inc. ("Tenant") and SUNTRUST BANK, ATLANTA, ("Lender").
Reference is made to the following facts:
A. Under a Lease Agreement (the "Lease") dated September 15, 1997 by
and between WINDWARD FOREST PARTNERS, LLC ("Landord") and Tenant, Tenant win
occupy certain premises (the "Leased Premises") located in Fulton County,
Georgia and more particularly described in Exhibit "A" attached hereto and made
a part hereof (such property being hereinafter referred to as the "Property").
B. Lender has made or has been requested to make a loan (the "Loan") to
Landlord secured by a Deed to Secure Debt and Security Agreement (the "Security
Agreement") encumbering the Property.
C. A condition of making the Loan by Lender to Landlord is that the
Lease be subordinated to the Security Agreement and that Tenant agree to attorn
to Lender.
D. Tenant has agreed that Tenant will subordinate the Lease to the
Security Agreement and attorn to Lender, provided Tenant is assured of continued
and undisturbed occupancy of the Leased Premises under the terms of the Lease.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth below, the parties hereto agree as follows:
1. The Lease and any extensions, renewals, replacements or
modifications thereof, and all right, title and interest of Tenant in and to the
Leased Premises, are and shall be subject and subordinate to the Security
Agreement and all other documents and instruments evidencing, securing or
relating to the Loan (the Security Agreement and such other documents and
instruments being hereinafter collectively referred to as the "Loan Documents"),
to all of the tem-is and conditions contained therein and to any renewals,
modifications, replacements, consolidations and extensions thereof.
2. Lender agrees with Tenant that, in the event the interest of
Landlord in the Property and the Lease shall be acquired by Lender (the term
"Lender" as used in this Paragraph 2 and Paragraphs 3 and 4 following shall
include any purchaser of the Property at a foreclosure sale or other proceeding
brought to enforce the rights of the holder of the Security Agreement or by any
other method) by reason of foreclosure of the Security Agreement or other
proceeding brought to enforce the rights of the holder thereof, by deed in lieu
of foreclosure or by any other method, or in the event of any other action
pursuant to the Loan Documents, then in any such event:
(a) Tenant shall not be joined as a party defendant
in any such foreclosure proceeding which may be instituted by Lender;
and
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(b) The Lease shall not be terminated or affected by any such
action and Lender will recognize Tenant's rights under the Lease, and
Tenant shall peaceably hold and enjoy the Leased Premises for the
remainder of the unexpired term of the Lease and any extensions thereof
upon the same provisions that are set forth in the Lease, except as set
forth in Paragraph 3 below, and without any hindrance or interruption
by Lender so long as Tenant shall not be in default in the performance
of its obligations under the Lease, beyond any applicable period for
notice and cure.
3. In consideration of the foregoing covenants by Lender, Tenant agrees
with Lender that in the event the interest of Landlord in the Property and the
Lease shall be acquired by Lender by reason of foreclosure of the Security
Agreement or other proceeding brought to enforce the rights of the holder
thereof, by deed in lieu of foreclosure or any other method, Tenant shall,
attorn to and recognize Lender as its landlord for the remainder of the
unexpired term of the Lease. Upon any such attornment, the Lease shall continue
in full force and effect as a direct lease between Tenant and Lender and upon
all terms, covenants and conditions contained therein, except that Lender shall
not be:
(a) liable for any breach, act or omission of any prior
landlord;
(b) subject to any offsets, claims or defenses which
Tenant may have against any prior landlord;
(c) bound by any rent or additional rent or other payment in
lieu of rent which Tenant might have paid to any prior landlord more
than thirty (30) days in advance of its due date under the Lease, and
all such rents shall remain due and owing notwithstanding any such
advance payment;
(d) bound by any amendment or modification of the
Lease made without Lender's prior written consent;
(e) liable for any security deposit or other sums held by any
prior landlord, unless actually and separately received by Lender; or
(f) personally liable with respect to performance of the
obligations of the landlord under the Lease.
4. The provisions of Paragraphs 2 and 3 above shall be effective and
self-operative immediately upon Lender's succeeding, as provided above, to the
interest of Landlord under the Lease without the execution of any further
instruments on the part of any of the parties hereto.
5. Tenant agrees to give prompt written notice ("Default Notice") to
Lender of any default by Landlord of its obligations under the Lease which would
entitle Tenant to terminate the Lease or reduce rents, or to credit or offset
any amounts against rents or other payments, specifying the nature of the
default. After receipt of, a Default Notice, Lender shall have the right (but
not the obligation) to correct or cure the default of Landlord within thirty
(30) days, unless the default is of such a nature that cannot be cured within
such thirty (30) day period, in which case no default shall occur so long as
Lender shall commence the curing of the default within such thirty (30) period
and shall diligently and promptly prosecute the curing of the default, but in no
event shall such cure period exceed ninety (90) days unless the default is of
such a nature that Lender cannot cause same to be cured within such period.
Until the expiration of such period within which Lender may correct or cure the
default, Tenant agrees to take no action to terminate the Lease or reduce rents
or to credit or offset any amounts against rents or other
49
<PAGE>
payments due under the Lease. Nothing in this Paragraph shall be deemed to
impose any obligation on Lender to correct or cure any such default by Landlord.
6. Tenant hereby affirms that the Lease has not been modified or
amended. Tenant agrees not to enter into a modification or amendment of the
Lease without obtaining Lender's prior written consent.
7. Landlord hereby directs Tenant, and Tenant agrees, that after
receiving notice from Lender that the Property is subject to the ownership or
control of the Lender or that Lender has become entitled to collect rents
pursuant to rights granted to Lender in the Loan Documents, Tenant shall pay to
Lender, or to such other person or entity as may be designated by Lender, all
rent, additional rent or other monies and payments due and to become due to the
Landlord under the Lease.
8. Whenever any notice, demand or request is required or permitted
hereunder, such notice, demand or request shall be hand delivered in person or
sent by United States mail, registered or certified, postage prepaid, to the
addresses set forth below:
If to Lender: Suntrust Bank, Atlanta
Real Estate Finance Dept. 081
P.O. Box 4418
Atlanta, Georgia 30302
Attention: C. Paul Henry
If to Tenant: Net Bank, Inc.
9755 Dogwood Road
Suite 310
Roswell, GA 30075
Attention: Chief Financial Officer
Any notice, demand or request which shall be served upon either of the
parties in the manner aforesaid shall be deemed sufficiently given for all
purposes hereunder (i) at the time such notice, demand or request is
hand-delivered in person or (ii) on the third (3rd) day after mailing of such
notice, demand or request in accordance with the preceding portion of this
Paragraph.
9. As used herein, the word "Lender" includes any persons claiming by,
through or under Lender or the Security Agreement, (including but not limited to
any purchaser at foreclosure sale or other proceeding brought to enforce the
rights of the holder of the Security Agreement or by any other method), and the
words "Tenant" and "Landlord" shall include their respective successors and
assigns.
10. This Agreement shall be governed by and construed in accordance
with the laws of the State in which the Leased Premises are located.
50
<PAGE>
EXECUTED UNDER SEAL on the day and year first above written.
LENDER:
Signed, sealed and SUNTRUST BANK, ATLANTA
delivered in the
presence of
/s/ Jean Hanna
- -------------------------------
Unoffficial Witness By: /s/ Paul Henry
-------------------------
Title: First Vice President
----------------------
/s/ Dawn E. McGill
- ---------------------------------
Notary Public [BANK SEAL]
My commission expires:
Notary Public, Gwinnett County, Georgia
My Commission Expires April 7, 1998
[NOTORIAL SEAL]
TENANT:
Net Bank, Inc.
Signed, sealed and ---------------------------
delivered in the
presence of:
/s/ Robert E. Bowers
- -------------------------------
Unofficial Witness By: /s/ D.R. Grimes
-----------------------
Its: CEO
-----------------------
/s/ Dianne D. Chapin
- -------------------------------
Notary Public
My commission expires:
Notary Public, Cobb County, Georgia
My Commission Expires March 18, 2001
[NOTORIAL SEAL]
51
<PAGE>
EXHIBIT F
LEGAL DESCRIPTION
All that lot, tract or parcel of land situate, lying and being in Land Lot
numbered 1260 of the 2nd District, 2nd Section, and in Land Lot 1243 of the 2nd
District, 1st Section, City of Alpharetta, Fulton County, Georgia, being more
particularly described as follows:
Begin at the point of intersection of the westerly line of said Land Lot 1243
with the northwesterly line of the 60-foot right of way of Webb Bridge Road;
from said point of beginning run north 02 degrees 09 minutes 05 seconds east a
distance of 26.90 feet to a one-half inch rebar iron pin found in concrete; run
thence north 89 degrees 44 minutes 10 seconds west a distance of 372.42 feet to
an iron pin set lying on the easterly line of the right of way of North Point
Parkway (which right of way varies in width); run thence north 02 degrees 29
minutes 13 seconds west, along the easterly line of the aforesaid right of way
of North Point Parkway, a distance of 796.34 feet to a point; running thence on
an arc to the right a distance of 311.88 feet to an iron pin set (said arc
having a radius of 586.62 feet and being subtended by a chord 308.22 feet in
length and bearing north 12 degrees 28 minutes 49 seconds east; thence leave the
right of way of North Point Parkway and run south 43 degrees 52 minutes 14
seconds east a distance of 29.42 feet to a one-half inch open top pin found; run
thence south 73 degrees 46 minutes 43 seconds east a distance of 61.86 feet to a
one inch crimp top iron pin found; run thence south 77 degrees 12 minutes 27
seconds east a distance of 126.76 feet to a one-half inch rebar iron pin found;
run thence north 85 degrees 01 minutes 17 seconds east a distance of 136.83 feet
to a one-half inch rebar iron pin found; run thence south 59 degrees 41 minutes
39 seconds east a distance of 33.66 feet to an iron pin set lying on the line
dividing Land Lot 1178, 2nd District, 1st Section, Fulton County, Georgia, from
said Land Lot 1260, 2nd District, 2nd Section, Fulton County, Georgia; run
thence south 01 degrees 25 minutes 28 seconds west, along said land lot dividing
line, a distance of 260.40 feet to a three-quarter inch crimp top iron pin found
lying at the intersection of the easterly line of said Land Lot 1260 with the
southwesterly corner of said Land Lot 1178 and the northwesterly corner of Land
Lot 1243, 2nd District, 1st Section, Fulton County, Georgia; run thence south 01
degrees 32 minutes 07 seconds west, along the line dividing said Land Lot 1260
from said Land Lot 1243, a distance of 547.91 feet to an iron pin found; run
thence south 01 degrees 30 minutes 57 seconds west, continuing along the line
dividing said Land Lot 1260 from said Land Lot 1243, a distance of 84.43 feet to
an iron pin found; thence leave said land lot dividing line and run south 88
degrees 49 minutes 45 seconds east a distance of 272.88 feet to an iron pin set
lying on the northwesterly line of the 60-foot right of way of Webb Bridge Road;
run thence south 60 degrees 51 minutes 47 seconds west, along the northwesterly
line of the aforesaid right of way of Webb Bridge Road, a distance of 319.27
feet to the point of beginning.
The above-described property contains 10.283 acres, and is shown on that certain
plat of survey prepared for Windward Forest Partners, LLC, by Rochester &
Associates, Inc., certified by James C. Jones, Georgia Registered Land Surveyor
No. 2298, dated April 16, 1996, last revised May 6, 1996 (Job No. 96057-2443),
which plat of survey is incorporated herein by this reference and made a part of
this description.
52
<PAGE>
EXHIBIT G
COMMENCEMENT LETTER
Re: Commencement Letter with respect to that certain Lease dated September 15,
1997 by and between WINDWARD FOREST PARTNERS, LLC., as Landlord, and Net Bank,
Inc., as Tenant, for 7,480 square feet of Rentable Area in Suite 350 of the
Building located at 950 Northpoint Parkway, Alpharetta, Georgia 30005.
In accordance with the terms and conditions of the above referenced Lease,
Tenant hereby accepts possession of the Premises and agrees as follows:
1. The Commencement Date of the Lease is____________________.
2. The Termination Date of the Lease is ____________________, subject to
extension or renewal as provided for in the referenced lease.
3. All Tenant Improvement work has been completed.
4. Paragraph 34, Notices, shall be amended to change the official notice address
to:
Net Bank, Inc.
950 Northpoint Parkway
Suite 350
Alpharetta, GA 30005
Attention: Chief Financial Officer
Please acknowledge your acceptance of possession and agreement to the terms set
forth above by signing all three (3) copies of this Commencement Letter in the
space provided and returning two (2) fully executed copies of the same to my
attention.
Agreed and Accepted:
Tenant: Net Bank, Inc.
By: ____________________________
Name: __________________________
Title: _________________________
Date: __________________________
<PAGE>
EXHIBIT 10.10
Confidential portions of this exhibit have been redacted
pursuant to the rules and regulations of the Securites and Exchange Commission
CHECKFREE CORPORATION
ELECTRONIC COMMERCE SERVICE
AGREEMENT
This Agreement ("Agreement") is made by and between CheckFree Corporation
("CheckFree"), a Delaware Corporation, with its principal office at 4411 East
Jones Bridge Road, Norcross, Georgia, 30092, and Atlanta Internet Bank
("Client"), with its principal office at 7000 Peachtree-Dunwoody Rd.,
Building 10, Suite 300, Atlanta, Georgia, 30328, and is as follows:
1. Scope of Agreement.
CheckFree agrees to implement the electronic commerce system for Client in
accordance with Schedule B attached hereto and to provide Client with the
electronic commerce services ("Services") described in Schedules A and C
attached hereto for elective use by Client's depositors and account holders
("Users") in such quantity or combination as Client may from time-to-time
elect and CheckFree is capable of providing.
2. Term of Agreement.
This Agreement shall be effective as of 10/31/97 ("Effective Date") and shall
remain in force for a period of five (5) years ("Initial Term"); and shall
automatically renew and extend for successive one (1) year terms, commencing
at the conclusion of the Initial Term or any renewal term, unless contrary
notice in writing is given by Client or CheckFree at least one hundred-eighty
(180) days prior to termination of the then current term. Upon termination,
the obligations of a continuing nature shall continue to be binding and in
full force and effect, including, without limitation, those reflected in:
paragraph 5, "Trade Secrets and Confidentiality"; subparagraph 12.4;
paragraph 16, "Warranty and Limitation of Liability"; paragraph 17,
"Indemnification"; and paragraph 18, "Default; Remedies Upon Default". If,
upon termination under this paragraph or under paragraph 4.5 Client has
chosen to continue to offer a like service without CheckFree as the provider
or during the term hereof, if Customer is converting a separate part of its
electronic banking service, which is not included in the Services, to a new
provider, CheckFree agrees to provide reasonable assistance to the Client to
accomplish the conversion to the new service provider, Client will pay all
expenses incurred by CheckFree to make any such conversion. CheckFree's
expenses will be calculated on a time and materials basis at CheckFree's
standard rates then in effect, and any out-of-pocket expenses will be
reasonable.
3. Forms.
All forms and other documents required for the proper utilization of the
Services shall be provided by Client at its expense. All such forms and
documents shall be consistent with those that CheckFree customarily uses in
providing such Services to its other clients. CheckFree shall have the right
to review and approve for technical accuracy all such forms and documents
prior to their use and at its request shall assist Client in the preparation
thereof. CheckFree shall be
<PAGE>
reimbursed by Client for the reasonable cost of time and materials for any
such assistance that shall be calculated in accordance with the System
Support Charges specified in Schedule E attached hereto, payable thirty (30)
days after receipt of the invoice therefor.
4. Charges.
4.1 For the Services utilized, Client shall pay to CheckFree monthly
(within thirty [30] days of receipt of the invoice) at its principal office
in Norcross, Georgia (or such other place designated by CheckFree), the
greater of (i) the total of the applicable charges incurred during the
preceding month in accordance with Schedule E or (ii) a monthly minimum
charge set forth in Schedule E during the Initial Term of the Agreement,
regardless of Client's actual usage of the Services during any such month.
Beginning with the first one (1) year renewal term of the Agreement, and for
renewal terms thereafter, such monthly minimum charge shall be adjusted to be
_________ percent of the average of the monthly processing fees for the
preceding twelve (12) month period, excluding sales or other taxes as
provided for in paragraph 4.3 below.
4.2 Except as provided in Schedule E attached hereto, charges for the
Services shall not be changed by CheckFree during the Initial Term.
Thereafter, however, such charges may be changed at any renewal with at least
ninety (90) days prior written notice to Client. Client may, by giving
written notice to CheckFree at least forty-five (45) days prior to the
effective date of any such changes, reject any of the Services affected,
whereupon the obligations of both parties with respect thereto shall
terminate. The Client's rejection of any service so affected, however, will
not reduce the monthly minimum charge as specified in paragraph 4.1 above.
Client shall furnish to Users at its expense all appropriate notices of such
changes in service and/or charges that may be required by law or by
CheckFree.
4.3 There shall be added to all invoices for the Services amounts equal to
any applicable sales or other taxes levied, based on, arising from or in any
way connected with the furnishing of the Services to Client or Users
hereunder, exclusive of taxes based on CheckFree's net income.
4.4 All invoices for the Services rendered hereunder shall be due and payable
thirty (30) days after receipt of the invoice. If Client fails to pay any
such amounts when due, CheckFree may, at its option, and after giving at
least ten (10) days prior written notice, discontinue furnishing the Services
unless and until all such arrearages are paid in full, all without impairment
of any other remedy that may be available to CheckFree. Client shall furnish
to Users at its expense all notices of such termination that may be required
by law or by CheckFree.
4.5 Client recognizes that CheckFree's level of personnel staffing, computer
equipment selections, hardware resource allocations, hardware and software
lease term selections, equipment and software purchases, and general resource
planning so as to fulfill its contractual obligations are based upon the
assumption that this Agreement will remain in effect for its full Initial
Term and any renewal term and that any prior termination hereof will result
in substantial damages to CheckFree. At the same time, however, CheckFree
recognizes that it is in the substantial interest of Client to have the right
to terminate this Agreement, other than as provided in paragraph 2 herein,
should it so desire. Client, therefore, is hereby granted the right at its
option to terminate this Agreement at any time after the first twelve (12)
months by giving ninety (90) days prior written notice of termination, and by
the payment to CheckFree of an amount in cash that shall be the product
resulting from multiplying the number of months remaining from the date of
termination until October 31, 2001, by either the average of the fees for the
six (6) months with the highest total invoice amounts or the monthly minimum,
if applicable, whichever is greater, it being agreed that such sum
constitutes reasonable liquidated damages to be
<PAGE>
sustained by CheckFree by reason of such early termination. If there have not
been six (6) months of fees in the current term, the calculation shall be
based on the number of months for which fees have been billed in the current
term plus the relevant number of months from the previous term which makes
the total six (6). 4.6 Notwithstanding any provision to the contrary in this
Agreement, in the event that the United States Postal Service raises its
postage rates, CheckFree may, without prior notice to Client, increase its
fees commensurately. Such increase in postal charges shall become effective
coincident with the effective date of the United States Postal Service
increase in such charges.
5. Trade Secrets and Confidentiality.
5.1. Client acknowledges that CheckFree claims that all computer programs,
data file content and organization, techniques, methods, rules, procedures,
protocols, forms, instructions, trade secrets, copyrights and any other
proprietary rights of CheckFree or third parties used in connection with or
in any way relating to the Services ("Products") are the exclusive and
confidential property of CheckFree or parties from whom CheckFree has secured
such Products. Unless such Products are (a) in the public domain; (b)
independently developed by Client; (c) known to Client prior to disclosure;
(d) obtained from a third party which is not subject to a nondisclosure
agreement with CheckFree; or (e) disclosed by Client with CheckFree's
permission, Client and its subsidiary or affiliated corporations shall treat
the Products as confidential and will not disclose or otherwise make
available same in any form to any person other than employees of Client, its
authorized agents, independent contractors, government officials, or its data
processor who need to know such information for rendition of the Services.
Client will instruct such employees and data processors to keep the same
confidential using the same care and discretion that Client would use with
respect to its own confidential property and trade secrets. Upon termination
of this Agreement for any reason, Client shall return to CheckFree any and
all Products in its possession or under its control and shall cease using
them in any way.
5.2 CheckFree shall treat as confidential and shall not disclose or
otherwise make available the personal account information or other data
received by CheckFree from Client ("Client's Data") or Users ("Users' Data")
to any person, other than authorized employees, agents or contractors of
CheckFree or Client. CheckFree shall instruct such employees, agents,
affiliates and contractors to keep the same confidential by using the same
care and discretion that CheckFree uses with respect to its own confidential
information.
6. Reliance on Information Provided.
CheckFree shall rely on the accuracy of all information provided to CheckFree
by Client. Client shall promptly inform CheckFree of any such incorrect data
or information, bear the cost of employee labor and out-of-pocket expenses
for such correction and pay any damages arising therefrom.
7. Availability of the Services.
CheckFree will maintain and operate the Services seven (7) days per week,
twenty-four (24) hours per day, except for scheduled or emergency maintenance
requirements.
<PAGE>
8. Use of the Services.
Client and Users shall use the Services in accordance with CheckFree's
current rules and such others as may be established from time-to-time. Such
rules shall be set forth in documentation materials furnished by CheckFree to
Client. CheckFree agrees to give Client at least thirty (30) days advance
written notice of any change in the rules.
9. Modifications in the Services.
9.1 If any modification to the Services shall be required by law or by
governmental regulation, CheckFree and Client shall use their best efforts to
comply. Client shall pay for any increase in CheckFree's costs and charges
therefor, but if it affects other clients of CheckFree, such costs and
charges shall be shared equitably by all affected CheckFree clients. Subject
to the provisions of paragraph 9.1 hereinabove, without prior notice to
Client, CheckFree at its expense may make any modifications, changes,
adjustments or enhancements to the Services that it considers to be suitable.
10. Use of Service Marks.
10.1 Client shall have no right to any copyrighted material, logos, trade
names, trademarks or service marks used by CheckFree in connection with the
Services. 10.2 Client shall submit all advertising and promotional materials
used in connection with the Services to CheckFree for its prior approval of
the description of the Services and proposed use thereof, that shall be given
in a timely manner and shall not be unreasonably withheld. 10.3 It is agreed
that Client may develop and use its own trade names, trademarks, logos or
service marks with respect to the Services and CheckFree shall have no
proprietary interest therein.
11. Communications Lines and Equipment.
11.1 CheckFree may order, on Client's behalf and after receiving Client's
specific written approval, the installation of appropriate telephone lines
and communications equipment to enable Client to access the Services. Client
shall pay for all costs of installation and use of telephone lines and
communications equipment used in connection with the Services. 11.2 CheckFree
shall not be responsible for the reliability or continued availability of
telephone lines and other communications equipment used by Client or Users in
accessing the Services.
12. File Security, Retention and Transfer at Time of Termination.
12.1 CheckFree shall provide reasonable security measures to ensure that
access to Client's computerized files and records are available only to
CheckFree and CheckFree's authorized agents or contractors and to Client and
Client's Users. CheckFree reserves the right to issue and change procedures
from time-to-time to improve or protect file security.
12.2 CheckFree shall take reasonable precautions to prevent the loss or
alteration of Client's computerized files and records accessed or retained by
CheckFree, but CheckFree cannot and does not guarantee against any such loss
or alteration. Accordingly, Client shall, at its expense, keep copies of the
source documents of the information delivered to CheckFree and shall maintain
a backup procedure for reconstruction of lost or altered Client computerized
files and records to the extent deemed necessary by Client.
<PAGE>
12.3 CheckFree shall, at Client's expense, retain Client's computerized files
and records in accordance with Schedule C attached hereto and made a part
hereof.
12.4 At the time this Agreement is terminated, if Client is not then in
default of any provisions herein, Client shall be entitled to receive from
CheckFree records or lists equivalent in content to CheckFree's standard
Authorized Vendor/Payee List for each of Client's Users on CheckFree's file.
All such records and lists shall be in a form agreeable to both CheckFree and
Client. Client shall bear the cost of all programming and processing that may
be necessary to render the information usable to Client.
13. Government Regulation.
13.1 Each party shall, as the case may be: (i) be responsible for
compliance with all applicable laws, rules, and regulations (including,
without limitation, Regulation E of the Board of Governors of the Federal
Reserve System ("Regulation E"), the Electronic Fund Transfer Act and the
rules of any applicable national or regional Automated Clearinghouse
Association; (ii) establish, maintain, and be responsible for error
resolution procedures required by Regulation E and the Electronic Funds
Transfer Act; and (iii) be responsible for delivering to the Users any
required disclosures and/or any provisional credits in connection with the
error resolution procedure that may be required by Regulation E and the
Electronic Funds Transfer Act. The parties will cooperate with one another in
the investigation and resolution of any alleged errors.
13.2 Client shall provide all required notices and disclosures to the
appropriate regulatory authorities and to affected Users concerning the
initiation or termination of this Agreement or of Services, or of any
substantial changes in the Services being provided to Client or Users.
CheckFree agrees that any and all Users' data maintained by it for Client
shall be available for inspection by the appropriate regulatory authorities
and Client's internal auditors and independent public accountants, upon
reasonable prior written notice to CheckFree.
13.3 Client agrees to pay CheckFree for all costs incurred in the
preparation of data for inspection, examination or audit (pursuant to
subparagraph 13.2) at CheckFree's standard rates then in effect. 13.4 Client
shall be solely responsible for the preparation and delivery to its Users of
the monthly activity statements that will display the Services and the
transactions that have been performed for Users.
14. Client's Agreement With Depositors.
14.1 Client shall be solely responsible pursuant to Regulation E for
ensuring that Users receive adequate disclosure of the terms and conditions
governing their use of the Services and for error resolution procedures.
14.2 Client shall include the following notice, or its equivalent, in
agreements with Users and in Client's promotional material for the Services:
"Depositors should allow at least five (5) business days from the date
payment is scheduled for such payments to be delivered to payees." "Business
days" as used in this Agreement shall mean Monday through Friday of each week
exclusive of Saturday, Sunday and bank holidays.
14.3 Client shall be responsible for notifying Users of all applicable
rules and procedures (and changes therein) to be observed in connection with
the furnishing of the Services by CheckFree.
<PAGE>
15. Insurance.
CheckFree shall, at its expense, during the entire term of this Agreement,
keep in full force and effect, policies of insurance, meeting or exceeding
the following specifications:
A. Crime insurance, including Employee Dishonesty and Computer Fraud
coverage for theft of money or securities that CheckFree holds, or for which
CheckFree is legally liable, arising out of dishonest acts committed by the
employees of CheckFree or its subcontractors, acting alone or in collusion
with others, or through the use of CheckFree's computer system to
fraudulently cause a transfer, in a minimum amount of twenty-five million
dollars ($25,000,000) with a maximum deductible of one million dollars
($1,000,000).
B. General Liability and Errors or Omissions Liability insurance in a
minimum amount of twenty-five million dollars ($25,000,000). CheckFree may
elect, in its sole discretion, to self-insure in any manner all or a portion
of any such coverage, including, without limitations deductibles,
self-insured retentions or retrospective rating programs in an amount not to
exceed one million dollars ($1,000,000) of loss applicable to any insurance
coverage.
CheckFree shall be the named insured and provide a Certificate of Insurance
as evidence thereof. All certificates shall provide for thirty (30) day
cancellation notice from the insurance carrier and the most current financial
rating for the insurance carrier. Also CheckFree shall immediately notify
Client of any cancellation notice by the insurance carrier.
16. Warranty and Limitation of Liability.
16.1 CheckFree warrants that it will exercise reasonable care in the
performance of its obligations under this Agreement and that it has all the
requisite authority to enter into this Agreement. CheckFree further warrants
that it will not infringe upon the intellectual property rights of any third
party in the performance of the services. CHECKFREE MAKES NO OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE
SERVICES PROVIDED HEREUNDER. Because of the extreme difficulty of fixing
actual damages for any failure of a party to perform its obligations
hereunder, or from any failure of a party to perform any obligations imposed
by law, the parties agree that the liability of a party hereunder for an
uninsured loss, if any, shall be limited to liquidated damages in the amount
of the Fees paid by Client to CheckFree for the six (6) calendar months
immediately preceding the month in which the event occurred that gave rise to
the damages. The provisions of this paragraph apply even though the loss or
damage, irrespective of cause or origin, results, directly or indirectly,
either from performance or nonperformance of obligations imposed by this
Agreement. The parties agree that a breach of the terms of Section 5 as well
as the breach by CheckFree of the intellectual property rights of a third
party are excluded from the limitation of liability portion of this
paragraph.
16.2 IN NO EVENT WILL EITHER PARTY BE RESPONSIBLE FOR (A) ANY INCIDENTAL,
INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES OF ANY KIND,
INCLUDING LOST REVENUES OR PROFITS OR LOSS OF BUSINESS REGARDLESS OF WHETHER
IT WAS ADVISED, HAD REASON TO KNOW, OR IN FACT KNEW OF THE POSSIBILITY
THEREOF; OR (B) FOR ANY LOSS OR
<PAGE>
DAMAGE TO THE OTHER PARTY OR TO USER, DIRECT OR CONSEQUENTIAL, ARISING OUT OF
OR IN ANY WAY RELATED TO ACTS OR OMISSIONS OF THIRD PARTIES INCLUDING, BUT
NOT LIMITED TO, VARIOUS COURIER SERVICES, THE FEDERAL RESERVE BANK, OTHER
BANKS WITH WHICH THE OTHER PARTY OR USER DEALS OR THE EMPLOYEES OR AGENTS OF
SUCH BANK OR ANY FINANCIAL INSTITUTION WHICH RECEIVES OR ORIGINATES ENTRIES
OR PAYS ELECTRONIC DEBITS FROM USER ACCOUNTS.
Neither party shall be liable for any delay or other failure of performance
caused by factors beyond its reasonable control, such as, but not limited to,
strikes, insurrection, war, fire, lack of energy, acts of God, governmental
acts or regulation, or acts of third parties. If, after the date of this
Agreement, any law, regulation, or ordinance, whether federal, state, or
local, becomes effective that substantially alters the ability of either
party to perform Services hereunder, the affected party shall have the right
to terminate this Agreement upon thirty (30) days written notice to the other
party.
17. Indemnification.
CheckFree agrees to indemnify Client, its officers, directors, and employees
from and against any and all loss, liability, cost and expense, including
punitive damages and reasonable attorneys fees, incurred by any one or more
of them by reason of any and all claims, demands, suits, or proceedings made
or brought against any one or more of them arising from or related to any act
or omission of CheckFree or the Services or the breach of any obligation,
responsibility, warranty, or representation of CheckFree to Client related to
the development, operation, promotion, or use of the Services. Client agrees
to indemnify CheckFree, its officers, directors, and employees from and
against any and all loss, liability, cost and expense, including punitive
damages and reasonable attorneys fees, incurred by any one or more of them by
reason of any and all claims, demands, suits or proceedings, made or brought
against any one or more of them arising from or related to any act or
omission of Client or the breach of any obligation, responsibility, warranty,
or representation of the Client to CheckFree related to the operation,
promotion, or use of the Services pursuant to this Agreement.
18. Default; Remedies Upon Default.
18.1 Should either party (i) default in the payment of any sum of money
hereunder, (ii) default in the performance of any of its other obligations
under this Agreement, (iii) become the subject of any proceeding under the
Bankruptcy Code or become insolvent, or (iv) have any substantial part of its
property become subject to any levy, seizure, assignment, application or sale
for or by any creditor or governmental agency, the non-defaulting party, at
its option, may, upon at least ten (10) days advance written notice thereof,
terminate this Agreement and declare all amounts immediately due and payable.
The remedies contained in this paragraph 18.1 are cumulative and are in
addition to all other rights and remedies available to the non-defaulting
party under this Agreement or at law or in equity.
18.2 In the event either party defaults in the performance of this
Agreement, the other not in default shall have such remedies, including
cancellation of this Agreement, as may be appropriate at law or in equity;
provided, however, that no legal action shall be brought by either party
unless: (i) the other shall have been given at least thirty (30) days notice
in writing specifying the alleged breach thereof and (ii) the alleged breach
is continuing.
<PAGE>
18.3 All expenses incurred by the non-defaulting party in terminating the
relationship under this Agreement shall be home by the defaulting party.
19. General.
19.1 The parties acknowledge that they have not been induced to enter into
this Agreement by any representation or warranty not set forth in this
Agreement. This Agreement contains the entire agreement of the parties with
respect to its subject matter and supersedes all existing agreements and all
other oral, written or other communications between them concerning its
subject matter. This Agreement shall not be modified in any way unless it is
in written form and signed by both parties.
19.2 This Agreement may not be assigned by Client, in whole or in part,
without the prior written consent of CheckFree, which consent shall not be
unreasonably withheld or delayed. Client agrees to give CheckFree notice of
any such intended assignment of its rights and obligations under this
Agreement.
19.3 This Agreement may not be assigned by CheckFree, in whole or in part,
without the prior written consent of Client, which consent shall not be
unreasonably withheld or delayed. CheckFree agrees to give Client notice of
any such intended assignment of its rights and obligations under this
Agreement.
19.4 This Agreement shall be binding upon and shall inure to the benefit of
CheckFree and Client and their respective successors and permitted assigns.
19.5 If any provision of this Agreement (or any portion thereof) shall be
held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder hereof, shall not in any way to be affected
or impaired thereby.
19.6 The headings in this Agreement are intended for convenience of
reference and shall not affect its interpretation.
19.7 The individuals executing this Agreement on behalf of CheckFree and
Client do each hereby represent and warrant that they are duly authorized by
all necessary action to execute this Agreement on behalf of their respective
principals.
19.8 In the performance of all work, CheckFree is an independent
contractor, with sole right to supervise, manage, control and direct the
performance of the details of said work to be performed by CheckFree. Client
is interested only in the results obtained and the prompt performance by
CheckFree of its obligations and agreements hereunder.
19.9 This Agreement is made in the County of Gwinnett, State of Georgia,
and shall be construed and interpreted in accordance with the laws of the
State of Georgia without regard to choice of law principles.
19.10 The parties do not intend the benefits of this Agreement to inure to
any third party, and nothing contained herein shall be construed as creating
any right, claim or cause of action in favor of any such third party against
either of the parties hereto.
19.11 The form, substance and timing of any press release or other public
disclosure of matters related to this Agreement shall be mutually agreed to
by CheckFree and Client in writing that consent shall not be unreasonably
withheld, except to the extent of disclosure for which CheckFree or Client is
required by law to make, in which instance, the parties shall consult prior
to making such public disclosure.
19.12 CheckFree warrants that the Services provided hereunder and used by
Client prior to, during or after the calendar year 2000 include or shall
include, at no additional cost to Client, design and performance capabilities
so that Client shall not experience abnormally ending and/or
<PAGE>
invalid and/or incorrect results from its use in the operation of the
business of Client. Furthermore, CheckFree represents and warrants that the
Services will under normal use and service, record, store, process and
present calendar dates falling on or after January 1, 2000, in the same
manner, and with the same functionality, data integrity and performance, as
the Services record, store, process and present calendar dates on or before
December 31, 1999. CheckFree warrants that the Services will lose no
functionality with respect to the introduction of records containing dates
failing on or after January 2, 2000, and ensures that the Services will be
interoperable with Software used by Client which may deliver records to the
Services or receive records from the Services, or interact with the Services,
including and not limited to back-up and archived data, date data, century
recognition calculations which accommodate same century and multi-century
formulas and date values, and date data interface values that reflect the
century. 19.13 The parties agree that all obligations that, by their nature
are continuing, including, without limitation the indemnification and
warranty obligations, shall survive termination of the Agreement.
20. Arbitration.
20.1 Any controversy or claim between or among the parties hereto
including, but not limited to, those arising out of or relating to this
Agreement or any related agreements or instruments, including any claim based
on or arising from an alleged tort, shall be determined by binding
arbitration in accordance with the Federal Arbitration Act (or if not
applicable, the law of Georgia), the Rules of Practice and Procedure for the
Arbitration of Commercial Disputes of Judicial Arbitration and Mediation
Services, Inc. (J.A.M.S.), and the Special Rules set forth below. In the
event of any inconsistency, the Special Rules shall control. Judgment upon
any arbitration award may be entered in any court having jurisdiction. Any
party to this Agreement may bring an action, including a summary or expedited
proceeding, to compel arbitration of any controversy or claim to which this
Agreement applies in any court having jurisdiction over such action.
20.2 The arbitration shall be conducted in Atlanta, Georgia, and
administered by J.A.M.S. which will appoint an arbitrator; if J.A.M.S. is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety (90) days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty (60) days.
20.3 Nothing in this Agreement shall be deemed to limit the applicability of
any otherwise applicable statutes of limitation or repose and any waivers
contained in this Agreement.
21. Contingency Back-up
21.1 CheckFree agrees to provide contingency backup of Services at a
separate location for CheckFree's use in resuming Services for Client (and
others), in the event that a disaster should prevent CheckFree's performance
of Services at CheckFree's primary site such that, by transferring the backup
system programs and datafiles and switching of Client's dataline network to
the backup site, Services for Client can thereupon be resumed. Such Services
shall be resumed on a best efforts basis.
<PAGE>
22. Notices.
Service of all notices under this Agreement shall be in writing and sent by
U.S. Certified Mail, return receipt requested, postage paid, addressed to the
party to be served notice at the following address:
CheckFree Corporation
8275 North High Street
Columbus, Ohio 43235
Attention: William C. Buckham, Assistant General Counsel
Atlanta Internet Bank
7000 Peachtree-Dunwoody Road
Building 10, Suite 300
Atlanta, Georgia 30328
Attention: President
EXECUTED in multiple originals on the dates shown below.
ATLANTA INTERNET BANK CHECKFREE CORPORATION
By: /s/ Donald S. Shapleigh By: /s/ Kenneth Benvenuto
---------------------------- ---------------------------
Print: Don Shapleigh Print: Kenneth Benvenuto
---------------------------- ---------------------------
Title: President Title: Executive Vice President
---------------------------- ---------------------------
Date: 10/30/97 Date: 10/31/97
---------------------------- ---------------------------
<PAGE>
LIST OF SCHEDULES
Schedule A - Description of CheckFree Bill Payment Services
Schedule B - CheckFree Service Standards
Schedule C - CheckFree Standard Operating Procedures
Schedule D - CheckFree Standard Bill Payment Operating Procedures
Schedule E - Pricing
Schedule F - Description of CheckFree User Interface BankStreet Touch Tone
(Columbus)
Schedule G - Description of CheckFree Level 2 ROLA/Customer Service
<PAGE>
SCHEDULE A
Description of CheckFree Bill Payment Services
CheckFree provides an electronic bill payment service which can be accessed
through various User-Interface Devices.
A. DEFINITIONS
"Service" is defined as CheckFree's bill payment service as further described
in Schedule A that the financial institution (Client) offers to its customers
(Users).
"Client" is defined as the financial institution and/or third party that
provides the Service to its customer base.
"User" is defined as a customer of the financial institution that will access
the Service provided by CheckFree.
"Account" is defined as the demand deposit (DDA) account(s) that a User
designates as the account(s) from which Service transactions are made.
"System" is defined as the software, data base, voice response unit, and
other production and delivery equipment comprising the Service provided by
CheckFree.
"Payee" is defined as individuals or businesses that Users select in advance
to receive payments through the Service.
"User-Interface Device" is defined as the product the User uses to access the
Service.
B. BELL PAYMENT SERVICE
1. General
The Service is an electronic payment system which permits Users to
initiate and authorize payments from their Accounts to Payees who Users
have selected in advance to receive payments by means of the Service.
2. Obligations of CheckFree
CheckFree will provide the Service to Users who have been approved
for enrollment pursuant to procedures agreed to between CheckFree and
the Client. CheckFree will make every reasonable effort to have the
Service available to Users seven (7) days a week, three hundred and
sixty-five (365) days a year for the ratio of hours referred to in
Schedule F.
a. User Enrollment
CheckFree will provide a standard bill payment enrollment form to
the Client to be customized and distributed to the Client's
prospective Users.
<PAGE>
b. Bill Payment Remittance
CheckFree agrees to execute the delivery of all bill payments as
instructed by the User unless one or more of the following
conditions occurs: (1) erroneous or incomplete information is
provided by the User; (2) insufficient funds are available in the
User's DDA Account; (3) a Payee cannot or will not accept a
payment delivered by CheckFree; (4) the User does not follow
CheckFree's operating instructions referred to in Schedule E.
CheckFree will determine the method of payment for delivery of
User bill payments. These methods include but are not limited to
the following: the Automated Clearing House Network, MasterCard
International's Remittance Processing System, direct Payee
transfer, paper checks drawn on CheckFree's Corporate Account, or
paper drafts drawn on User Accounts. CheckFree may issue a paper
draft drawn on the User's Account if one or more of the following
conditions applies: (1) the Client elects not to allow CheckFree
to secure funds from the User Account prior to payment remittance
to the Payee; (2) the Payee is unable to receive electronic
payments; (3) the Payee has not agreed to accept reversal
transactions from CheckFree; (4) the dollar amount of the payment
exceeds the User's credit amount.
It is understood and agreed that CheckFree will conduct standard
credit screening on the Users if the Client elects not to allow
CheckFree to secure funds from User Accounts prior to payment
remittance to the Payee. CheckFree reserves the right to set
credit and check limits on all User Accounts. CheckFree shall
comply with the Fair Credit Reporting Act and any other applicable
laws and regulations.
c. Authorizing Payments
CheckFree agrees to authorize and secure funds for User payments
via a POS (Point of Sale) network. See "Settlement" referred to in
this Schedule A for the settlement of authorized payments.
d. Debiting User Accounts
If it is agreed between the Client and CheckFree that CheckFree
will debit User Accounts, CheckFree will debit via the Automated
Clearing House Network.
e. Systems Network
If Client elects Direct Debit processing, CheckFree agrees to
provide the Client's Data Center with a dedicated connection
through CheckFree's Frame Relay Network. CheckFree's Frame Relay
Network supports both SNA and TCP/IP communication protocols. This
network solution is owned and implemented by CheckFree. CheckFree
will be responsible for monitoring and support of the Frame Relay
Network.
3. Obligations of Client
a. General
Client agrees to: (1) comply with applicable laws, rules, and
regulations governing electronic funds transfers, including
providing regulatory notices and disclosures to
<PAGE>
Users and complying with error resolution procedures required by
law; and (2) require Users to follow CheckFree's standard
operating procedures and terms and conditions with respect to use
of the Service as described by CheckFree from time to time.
b. User Enrollment
Client is responsible for obtaining authorization from its Users
to process bill payment transactions.
c. Marketing
Client agrees to develop and utilize a promotional and marketing
program for the promotion and marketing of the Service.
d. Customer Service
If Client elects to have CheckFree provide First-Tier customer
service, Client agrees to: (1) verify accuracy, completeness, and
readability of all account information provided by the User on the
form prior to delivery to CheckFree; (2) not to contact Payees at
any time on behalf of Users; and (3) perform other duties as
agreed to between the Client and CheckFree.
4. Settlement Options
Please check only one of the following:
User Debit/CheckFree Assumes Risk
For each remittance processing day, CheckFree debits Client's
Users via an ACH debit. CheckFree assumes risk for funds which are
not available and assumes all collection responsibilities.
User Debit/Client Assumes Partial Risk
For each remittance processing day, CheckFree debits Client's
Users via ACH debit. Client assumes partial risk for a specific
dollar amount per payment; Client agrees to provide CheckFree with
the agreed upon amount per payment if funds are not available in
the User's account. The specific dollar amount per payment is
decided upon between CheckFree and the Client.
Direct Debit/Client initiates Settlement Credit
Client must provide CheckFree with a reconciliation file each day.
Client is required to transfer funds via ACH or wire to a
CheckFree settlement account, in an amount sufficient to cover its
Users' authorized Tandem transactions from Client's previous day.
Client designates the cut off time for a given business day.
CheckFree is responsible for balancing to Client's settlement
total.
<PAGE>
Direct Debit/ CheckFree initiates Settlement Debit
CheckFree must provide Client with a reconciliation file each day.
CheckFree is required to debit funds via ACH or debit wire from
Client's settlement account, in an amount sufficient to cover
Client's Users' authorized Tandem transactions from CheckFree's
previous day. CheckFree designates the cut off time for a given
business day. Client is responsible for balancing to CheckFree's
settlement total.
Batch Online Same Day Settlement (BOE)
Client will transmit electronically User payment instructions to
CheckFree. On the same day, Client must initiate an ACH credit to
a CheckFree settlement account for an amount sufficient to cover
Client's Users' payments transmitted that day. For any payments
not processed by CheckFree due to payment exception circumstances,
CheckFree must credit Client's settlement account within a
specific number of days agreed upon between CheckFree and the
Client.
Batch Online Next Day Settlement (Client initiates Settlement Credit)
Client will transmit electronically User payment instructions to
CheckFree. CheckFree will provide Client with settlement amount
based on payments processed. Client must initiate an ACH credit or
wire to a CheckFree settlement account the next day for the amount
deemed by CheckFree sufficient to cover Client's Users' processed
payments.
Batch Online Next Day Settlement (CheckFree initiates Settlement Debit)
Client will transmit electronically User payment instructions to
CheckFree. CheckFree will provide Client with the settlement
amount based on payments processed. CheckFree must initiate an ACH
debit or wire to Client's settlement account the next day for the
amount deemed by CheckFree sufficient to cover Client's Users'
processed payments.
Batch File/Client initiates Settlement Credit
For each remittance processing day, CheckFree agrees to transmit
an ACH format to the Client. The Client agrees to transmit back to
CheckFree, payments approved for processing. Client is required to
wire funds to a CheckFree settlement account, in an amount
sufficient to cover its Users' payments for the prior processing
day. The settlement amount will equal the net dollar amount
(debits less credits) of transactions processed the previous
business day as described in this Schedule. Client must also
provide CheckFree with a reconciliation file each day.
<PAGE>
SCHEDULE B
CheckFree Service Standards
CheckFree will provide a monthly report to the Client which will include the
tracking of data related to all of the Service Standards defined in this
document.
A. Telephone Bill Payment Voice Response Unit (VRU) Availability
The ratio of hours the CheckFree VRU is able to accept payment instructions
(excluding regularly scheduled weekly maintenance) to the total number
of hours in a month shall not be less than 99% on a rolling three-month
basis.
B. Systems Availability
The ratio of hours the CheckFree bill payment and banking systems are able
to accept payment instructions and banking transactions (excluding
regularly scheduled weekly maintenance) to the total number of hours in
a month shall not be less than 99% on a rolling three-month basis.
C. New Application Setup, New Touch Tone Payee Setup and User Account
Maintenance
CheckFree will complete 94% of all User applications, touch tone Payee adds,
and account maintenance within two business days of receipt on a rolling
three-month basis.
Note: Only applicable when CheckFree is providing first-tier customer
service.
D. Telephone Service Factor
The ratio of calls answered to calls offered by Users during hours of
coverage shall not be less than 95% on a rolling three-month basis.
Note: Only applicable when CheckFree is providing first tier customer
service.
E. Payment Inquiry Rate
The ratio of inquiries requiring Payee contact initiated by Client and/or
Client's Users to the total number of payment transactions originated by
Client's Users shall not exceed 1.25% on a rolling three-month basis.
F. Initial Resolution of Non-Urgent Payment Inquiries
CheckFree will reach an initial resolution on 95% of all "non-urgent" user
inquiries within three business days of receipt at CheckFree. Initial
resolution is defined as any of the following:
1. Determining whether any mechanical problems occurred at
CheckFree during remittance of the payment (i.e. ACH files
rejecting, checks not being sent, etc.).
2. Contacting the Payee to determine whether the payment has
been received and, if not, requesting that the Payee note the
User's account that the payment was initiated by the User and
that research is under way.
<PAGE>
3. Initiating research and actions as necessary by either
CheckFree or the Payee in order to have the payment posted to
the User's account.
4. Notifying either the Client or the User that the Payee has
been contacted and research is under way.
G. Initial Resolution of Urgent Payment Inquiries
"Urgent" inquiries are defined as very late rent or mortgage payments,
payments to accounts that are pending immediate cancellation or shut
off, or inquiries requested by specified/authorized Client personnel to
CheckFree customer service supervisory personnel.
CheckFree will initiate 100% of all "urgent" Payee inquiries on the business
day of receipt, meaning the Payee will be contacted to review its
records.
H. Final Resolution of Payment Inquiries
Resolving payment inquiries frequently requires that research be performed by
the Payee involved. CheckFree will always work with the Payee to resolve
the inquiry promptly. After initial resolution, all payment inquiries
will be entered into continuous five business day proactive follow up
until the payment posting problem is resolved. Proactive follow up will
consist of the following:
1. Providing the Payee with check copies, ACH or RPS transmittal
confirmations, etc., as necessary for the Payee to complete
their research and post the payment correctly.
2. Contacting the Payee every five business days until the
payment has posted correctly in order to monitor and
determine the status of the payment research.
3. Notifying either the Client or the User regarding the status
of the inquiry.
Note: In order to reduce the impact of potential statistical fluctuations
that can occur when a user base is relatively small, the Payment Inquiry
Rate, Telephone Service Factor and Average Speed of Answer service standards
will not apply until the Client has more than 2,000 active Users. However,
CheckFree will always seek to provide the same consistent level of service
regardless of the number of Users.
<PAGE>
SCHEDULE C
CheckFree Standard Operating Procedures
The following document outlines CheckFree's general operating procedures.
CheckFree reserves the right to adjust or alter these operating procedures as
necessary based upon the changing needs of our Clients and Clients' Users
and/or changes in the bill payment, banking, and brokerage industries.
A) Hours of Support
CheckFree Customer Care telephones are staffed twenty-four (24) hours per
day, seven (7) days per week, except for New Years Day, Easter Sunday,
Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas.
Technical Support telephones are staffed 8am - midnight, Monday - Friday
except for the holidays listed above. Technical support is available on
Saturdays and Sundays at an additional cost.
B) Network Support
CheckFree's Client Technical Assistance Center ("CTAC") supports all network
and system technical issues. CTAC is staffed twenty-four (24) hours per
day, seven (7) days per week, except for the holidays listed above.
C) File Retention Schedule
Austin Data Center:
The following files will be retained by CheckFree: (1) all program
libraries; (2) all documented libraries; (2) all JCL libraries; (3) all
online master files; (4) all online transaction files; (5) month-to-date
batch files. The frequency of back up is as follows: (1) daily - all
files listed above; (2) month end files #1 through #4 listed above; (3)
year end - files #1 through #4 listed above. The retention cycle is as
follows: (1) daily files - seven (7) days; (2) month end files - one (1)
year; (3) year end files minimum of seven (7) years.
Columbus Data Center
The frequency of back up is as follows: (1) daily - Server; (2) Partial
backups daily - Mainframe; (3) Weekly full back up - Tandem, Alpha, and
Mainframe; (4) Partial backups on Monday and Thursday - Tandem; (5)
Incremental backups on Saturday, Sunday, Monday, Tuesday, Wednesday and
Thursday - Alpha
The retention cycle is as follows: (1) 4MM (Server backups) - eight (8)
days; (2) Tandem files - three hundred and sixty-five (365) days;
ALPHA incremental backups - eight (8) days and full backups - fourteen (14)
days; (4) Mainframe - fifteen (15) days; (5) P.C. backups thirty (30)
days.
All full backups are placed in fireproof containers and stored an additional
three (3) months when returned from the warehouse.
All file backup and retention for both locations is on industry standard
magnetic tape. All files listed above are stored off premises in an air
conditioned and fire protected bonded warehouse. Files are transferred
from the CheckFree Data Centers to the off premises
<PAGE>
location by noon of the business day following backup; access to the off
premises location is restricted to authorized CheckFree employees.
D) Time Zone
The processing time and schedule will be dependent upon the time zone of the
heckFree Processing Center designated for the Client.
E) Customer Care Escalations
If the Client contacts a CheckFree Customer Care supervisor or manager to
escalate a User inquiry, a representative from the CheckFree Customer
Care Management Team will respond to the Client within twenty-four (24)
hours.
F) Training/Quality Monitoring
CheckFree Customer Care associates are thoroughly trained in a classroom
setting for two weeks, which is followed by monitored one-on-one
training with an experienced associate in a "live" environment. New
Customer Care associates are closely monitored until they are deemed
sufficiently trained for unsupervised User contact. Regular and periodic
retraining is conducted to assure each associate maintains
state-of-the-art competency. In addition, associates are monitored on a
weekly basis by supervisors. Each associate must maintain a benchmark
percentage of quality and if unable to do so, is coached one-on-one.
G) Account Changes
All Account changes for Users wherein CheckFree is providing First-Tier
Customer Care must be sent to the Processing Center in writing (either
from the User or a Client representative) via U.S. Mail or fax. The
written request must contain the User's Service Account Number, User's
signature, and effective date of change. If the Account change is
received by the Client, the written request must contain the User's
Service Account Number, printed name and signature of the Client
representative along with his/her job title; and must be on Client
letterhead. Account changes include but are not limited to the
following: name, address, telephone numbers, Account number, and request
to inactivate or cancel the Service account.
(See H for Personal Security Code Changes)
H) Personal Security Code Changes
All Personal Security Code changes for Users wherein CheckFree is providing
First-Tier Customer Care must be sent to the Processing Center in
writing from the User (only) via U.S. Mail or fax. The written request
must contain the User's Service Account Number, New Personal Security
Code, User's signature, and effective date of change.
I) Users Accessing the Service Outside the U.S.
CheckFree Customer Care does not mail software, reference manuals, letters,
Customer Care letters or any product related materials outside of the
U.S. (APO, FPO, Guam, and the Virgin Islands are considered within the
U.S.)
J) Identifying User over the Telephone
CheckFree Customer Care will only provide account information to the User.
For Client representatives, spouses, and relatives, CheckFree will only
verify information on the
<PAGE>
account such as the Service Account number, Account number, Payee
account number, and payment information.
K) Security
CheckFree conducts comprehensive background checks on all associates that
includes but is not limited to police records, credit records, previous
job records and references.
L) Security Access Limits on CheckFree System
CheckFree associates are assigned individual security access to the CheckFree
on line Customer Care system. Access to specific security fields such as
the User's PIN, Account number, Routing Transit number, and account
number with Payees requires the associate to perform an additional
function on the system to view this information. This additional
function creates an audit stamp each time this information is viewed,
which allows CheckFree to track this access. Update access to these
fields is restricted to Customer Care management and a group of
associates specifically trained in the area of Account Maintenance.
M) Report Package Not Related to Service Standards
CheckFree will provide a monthly report to the Client based upon the
User-Interface Devices being used by the Client's Users which will
include specific data/statistics not related to the Service Standards
defined in this document. These standard statistical reports will
include the following:
1. User Reports:
a. Daily Touch Tone Call Statistics Report - Number of daily
calls placed to the telephone bill payment demo and
production VRU lines.
b. Daily PC Call Statistics Reports - Number of daily calls
placed to Customer Care from PC users. c. Daily E-Mail
Statistics - Number of E-mails received each day. d Daily
Status Activity Report - Number of User enrollments and
cancellations by day, week, and month.
e. Daily Usage Report - Calculates cumulative percentage of
payments processed. f. Reason Code Report - Reasons Users
called Customer Care.
2. Operation Reports:
a. VRU Call Volume - Defines peak hour on the system (includes
six (6) month summary).
3. Reconciliation Reports: a. Summary - Total fees collected.
b. Actual Charges - Daily fees collected. c. Suppressed Charges
- Daily fees waived.
d. Other Charges - Fees collected for miscellaneous services.
e. Free Users - Users receiving free pricing. f Inactive Users
- Users in inactive status.
g. Excess Fee - If applicable, fees collected for excess
transactions (fees over the base number of transactions
allowed).
<PAGE>
h. Transaction Report - Fees billed to financial institution for
banking transactions processed. i. Refunds Processed - Fees
refunded to the User.
j. Added Users - List of Users added during the month.
k. Deleted Users - List of Users deleted (canceled service)
during the month.
<PAGE>
SCHEDULE D
CheckFree Standard Bill Payment
Operating Procedures
The following document outlines CheckFree's standard electronic bill payment
operating procedures. CheckFree reserves the right to adjust or alter these
operating procedures as necessary based upon the changing needs of our
Clients and Clients' Users and/or changes in the bill payment industry.
A. Acceptance of Payment Inquiries
CheckFree will accept User payment inquiries as early as five (5) business
days after the scheduled payment date in a Due Date Processing
environment and ten (10) business days in a Direct Debit Processing
environment.
B. Late Fees
CheckFree has confidence in the reliability of its processing capabilities,
the extent of its Payee database, its large volume of payments, and the
extent to which it has become a significant originator of Payee
payments. Provided that the payment resulting in such a fee was
scheduled in accordance with the approved product literature, CheckFree
will cover any Payee imposed late fees up to $50.00 per payment which
have been incurred by any User and which a Payee will not waive or
reverse.
This commitment does not apply to prohibited payment types such as payments
to settle securities purchases, payments to interest bearing accounts,
tax payments and court ordered payments, or payments scheduled in the
grace period.
C. Stop and Reissues
To expedite the resolution of payment inquiries involving check payments that
have not been cashed by the Payee and are believed to be lost in the
mail, CheckFree will place a stop payment on the original remittance and
issue a replacement remittance as follows:
CheckFree Corporate Single Checks
Due Date Processing: beginning ten (10) business days after the
User's scheduled payment due date.
Process Date Processing: beginning fifteen (15) business days
after the User's scheduled payment process date.
CheckFree Corporate Consolidated Checks
Due Date Processing: beginning thirty-one (31) calendar days after
the User's scheduled payment.
Process Date Processing: beginning thirty-five (35) calendar
days after the User's scheduled payment process date (i.e.
after the payment is at least one (1) month late to the Payee).
<PAGE>
Laser Checks
Due Date Processing: beginning ten (10) business days after the
User's scheduled payment due date .
Process Date Processing: beginning fifteen (15) business days
after the User's scheduled payment process date.
Note: Laser Checks are drawn directly from the User's account,
similar to a User's personal check. Therefore, these
procedures only apply to those financial institutions who
cooperate in placing the stop payment on the laser check.
D. Outstanding Corporate Checks
CheckFree periodically reviews the clearing of all corporate checks. Funds
resulting from any uncashed corporate checks are electronically credited
back to the User.
E. Global Payee Address Changes
CheckFree reserves the right to make global Payee address changes which will
change Payee addresses on User Accounts. Global address changes may be
made for either of, but not limited to, the following reasons: if the
Payee requests a specific payment exception address or if the Payee
changes the payment processing address.
F. Operator Assisted Payment Instructions
CheckFree Customer Care will not manually enter payment instructions on the
CheckFree System on behalf of the User, nor will CheckFree Customer Care
enter payment instructions on the User's behalf on any of the
User-Interface products.
<PAGE>
SCHEDULE E
ATLANTA INTERNET BANK PRICING FOR TOUCH TONE AND EDIFY BILL
PAYMENT
<TABLE>
<CAPTION>
<S> <C>
Implementation Fee $_____ (waived)
Fee to move Frame Relay Connection $_____
Customer Service Training $_____ (in Columbus)
(These fees are payable upon contract signing) $_____ (in Atlanta)
Monthly Minimum (Begins upon contract signing.
Months 1-6 $_____
7-60 increasing at $___ per month
User Fees For Edify Bill Payments $____ per month
Due date/non-guaranteed funds
(This fee applies to all enabled users (includes 10 payments, of
regardless usage during a particular additional payments $___)
month)
Process date/guaranteed funds environment $___ per month
(additional payments $____)
Telecommunications $____ per month
(Per Frame Relay connection, TCP/IP protocol,
includes routers, DSU's, 7x24 monitoring,
telecom, encryption key maintenance, etc.
TT/VRU access through 1-800# $____/minute
User Guides and Fulfillment for Touch Tone
CheckFree fulfills $_____
CheckFree prints and fulfills $_____
Miscellaneous Fees
ROLA User Ids: $___ / User ID / month (i.e.: $___/FI Rep
using ROLA / mo.).
NSF - EFT / ISO Debit off-line: $_____ each
NSF - EFT / ISO Debit on-line, in session: $_____ each
NSF - ACH Debit $_____ each
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Stop and Reissue: $_____ each (requested outside of normal Stop &
Reissue guidelines).
Overnight Delivery: $_____ each (requested by user or FI).
Touch Tone Merchant Lists: $_____ / list (FI selects frequency).
Touch Tone Monthly Statements: $_____ / statement (optional - FI determines).
Supplemental Training
(Above and beyond standard training included in implementation fee)
On-site at FI (per trainer): $_____ first day; $_____ each additional day.
(includes travel & living expenses)
At CheckFree (per trainer): $_____ first day; $_____ ea. additional
day (space permitting)
CheckFree Resource Time
(For special requests made by FIs, including providing estimates, queries,
custom development, conversions, etc)
Customer Service Rep: $_____ / hour
(data entry, customer service, research, etc)
Non-Systems Professionals: $_____ / hour
(Account Managers, Implementations Managers, Product
Management, Customer Service Managers, etc.)
Systems Professionals: $_____ / hour
(developers, architects, systems analysis,
programming, etc.)
Computer Time: $_____ / hour
Additional UI Branding / Customization:
(as supported by individual UIs) $_____ / hr or $_____ / day
</TABLE>
<PAGE>
SCHEDULE F
Description of CheckFree User Interface
BankStreet Touch Tone (Columbus)
BankStreet Touch Tone (Columbus) user interface is available on a Conversant VRU
which offers bill payment features.
A. DEFINITIONS
"Service" is defined as CheckFree's bill payment service as further described
in Schedule C that the financial institution (Client) offers to its customers
(Users).
"Client" is defined as the financial institution and/or third party that
provides the Service to its customer base.
"User" is defined as a customer of the financial institution that will access
the Service provided by CheckFree.
"Account" is defined as the demand deposit (DDA) account(s) that a User
designates as the account(s) from which Service transactions are made.
"System" is defined as the software, data base, voice response unit, and
other production and delivery equipment comprising the Service provided by
CheckFree.
"Payee" is defined as an individual or business that Users selects in advance
to receive payments through the Service.
"User-Interface Device" is defined as the product the User uses to access the
Service.
B. BANKSTREET TOUCH TONE (COLUMBUS)
1. Touch Tone Demo
CheckFree will provide a touch tone bill payment demo script which
allows the User to hear a demonstration of a typical bill payment
session. The User is prompted to enter a payee date and amount.
The *0 command can transfer the prospective User to a sales
department (either to CheckFree or the Client).
2. Bill Payment Features
a. Payment Scheduling
Users can pay anyone, from anywhere in the U.S., twenty-four (24)
hours a day, seven (7) days a week. Users can also schedule
payments up to one (1) year in advance.
<PAGE>
b. Debiting the User
Funds for payments are deducted from an Account on the day
specified by the User.
c. Speech recognition
The BankStreet Touch Tone allows the User to voice the commands
rather than use the touch tone key pad
d. QuickStart Program
CheckFree provides a QuickStart guide for the BankStreet Touch
Tone User to walk the User through the easy steps to access the
Service and begin paying bills.
e. Bill Payment Types
BankStreet Touch Tone permits Users to initiate and authorize
payments from their Accounts to Payees who Users have selected in
advance to receive payments by means of the Service. Users will
have the option of setting up Payees as one of two bill payment
types: (1) Recurring Payments are of a fixed amount that are paid
on a regular time interval, such as monthly (i.e. rent, mortgage,
etc.). Once a Recurring Payment is set up by the User, CheckFree
will automatically execute bill payments according to User
instructions until the User cancels or changes those instructions;
(2) Variable Payments vary in amount and/or date (i.e. utility,
credit card, etc.). Once a Variable Payment is set up by the User,
CheckFree will execute the bill payment instructions according to
User instructions for each individual payment.
f. Additional Payment Scheduling
The Touch Tone Conversant system allows the User to schedule a
Variable Payment to a Payee who is already set up as recurring.
g. Payee List
BankStreet Touch Tone allows the User to hear a list of all active
Payees along with their respective Payee number.
h. Payee List Request
BankStreet Touch Tone allows the User to request a paper Payee
list in a bill payment session.
i. Automated Payee Add
BankStreet Touch Tone allows the User to add or delete Payees
electronically during a bill pay session. (When adding Payees, the
Columbus Conversant System contains a list of over 400 common
Payees for the User to choose from.)
Users can schedule Recurring Payments to a Payee in the same bill
pay session during which the Payee is added.
j. Automated Payee Credit Card Add
BankStreet Touch Tone allows the User to add MasterCard and Visa
Payees with even more convenience by only requiring the User to
enter its account number with the
<PAGE>
Payee.
k. Express Bill Pay
BankStreet Touch Tone provides a simplified bill payment script
separate from the main script. This express system allows the User
to schedule Variable Payments only.
l. Payee History
BankStreet Touch Tone allows the User to hear the last payment
sent and the last payment approved for selected payees.
m. Monthly Statement
CheckFree provides an optional itemized monthly bill pay
statement. Budgetary charts are also included to help Users
monitor and categorize expenses.
n. Customer Service
BankStreet Touch Tone provides quick, easy access to customer
service throughout the bill payment system.
3. VRU
CheckFree will provide a Conversant VRU. Customized greetings
using the Client's name can be set up in the CheckFree VRU.
The Client has the option of a flash hook from its VRU to the
CheckFree VRU. In this instance, the User dials the Client's VRU
number and selects a bill pay option set up by the Client; the
Client's VRU then dials the CheckFree VRU and the customer begins
the bill pay session.
CheckFree provides an 800 number for the Client's Users to access
the VRU.
4. Obligations of Client
a. Product and Service Branding
Client agrees to: (1) provide CheckFree with all custom components
for BankStreet Touch Tone; and (2) provide CheckFree with custom
letterhead and signatures.
<PAGE>
Level 2 is defined as Client providing full support for bill payment
processing. CheckFree provides Remote On Line Access (ROLA) to Clients who
select to provide full support for bill payment processing.
A. DEFINITIONS
"Service" is defined as CheckFree's bill payment service as further described
in Schedule A that the financial institution (Client) offers to their
customers (Users).
"Client" is defined as the financial institution and/or third party that
provides the Service to their customer base.
"Client Representative" is defined as the financial institution's employed
personnel who will access CheckFree's ROLA.
"User" is defined as a customer of the financial institution that will access
the Service provided by CheckFree.
"Account" is defined as the demand deposit (DDA) account(s) that a User
designates as the account(s) from which bill payment transactions are made.
"System" is defined as the software, data base, voice response unit, and
other production and delivery equipment comprising the Service provided by
CheckFree.
"ROLA" or "ROLA System" is defined as CheckFree's account tracking system
that contains bill payment User data.
"Payee" is defined as individuals or businesses that Users select in advance
to receive payments through the bill payment service.
"First Tier" is defined as customer support responsibilities which include
but are not limited to (1) adding User to ROLA system; (2) answering incoming
calls and incoming e-mail from Users; (3) opening payment inquiries on ROLA;
(4) research requests on ROLA.
"User-Interface Device" is defined as the product the User uses to access the
Service.
B. CUSTOMER SERVICE
1. General
Client will provide support directly to the Client's Users. This
includes, but is not limited to, incoming telephone calls, written
correspondence, and PC software technical support. CheckFree will
provide back-end support to Client for all bill payment inquiries
and network support.
<PAGE>
2. Obligations of CheckFree
a. Bill Payment Inquiries
CheckFree will research all bill payment inquiries received
from Client through ROLA. This research will include but may
not be limited to the following: (1) contacting the payee by
telephone on behalf of the User; (2) forwarding check copies to
payee on behalf of User; (3) forwarding electronic transmission
to payee on behalf of User; and (4) researching User's
transmittal reports to the Processing Center. All research
results will be sent to Client via ROLA.
b. E-Mail
CheckFree will receive and respond to incoming e-mail from
Users. Incoming e-mail also includes e-mails from Users
requesting technical support for any of CheckFree's
User-Interface Devices
c. Network Support
CheckFree will provide all network/technology support to
Client. CTAC monitors hardware, software, middleware,
networking, telephony and mainframe applications. This help
desk operates 24x7 and is available for the Client to report
technical problems such as not being able to access ROLA,
reports from customers not being able to access the VRU, etc.
3. Obligations of Client
a. ROLA
Client will use CheckFree's ROLA as defined in Schedule E to provide
customer service.
b. User Enrollment
Client will add Users via ROLA to the CheckFree system after
receiving enrollment forms from Users.
c. Incoming Calls
Client will answer all incoming calls from Client's Users. Incoming
calls may include but not be limited to the following: (1) payment
cancellations; (2) User-Interface device instructions; (3) bill
payment inquiry; (4) technical support for User-Interface devices;
(5) account changes; and (6) payee information changes.
d. Inquiry Tracking
Client agrees to log all incoming calls from Users.
e. Bill Payment Inquiries
Client will forward via ROLA all bill payment inquiries received
from Users which require payee contact or research to resolve.
Client understands all payee contact is CheckFree's responsibility
and Client agrees not to contact payees at any time on behalf of
Users.
<PAGE>
C. ROLA
1. General
CheckFree's ROLA is an account tracking system which allows the
client to perform virtually every type of customer support for a
User of CheckFree's bill payment processing service.
2. Obligations of CheckFree
a. System Availability
CheckFree will make every reasonable effort to provide access
to ROLA 24 hours a day, 365 days a year, outside of regularly
scheduled maintenance and processing download times.
b. Network Access
CheckFree provides total dial up access to Client. Networking
is owned and implemented by CheckFree.
c. Implementation
CheckFree will to implement ROLA approximately 60 days after
Client completes the ROLA form accurately.
d. Training
CheckFree will provide full customer service and ROLA training
to the Client. This training will be designed as a "train the
trainer" session. This training includes but is not limited to
(1) ROLA system; (2) bill payment processing; (3) customer
service procedures. The location of training will be agreed
upon between CheckFree and the Client.
e. Upgrades
CheckFree will provide all upgrades to ROLA system
automatically to Client.
f. Security Access
CheckFree provides ROLA security access form to Client on line.
CheckFree processes all requests and provides Client with User
IDs. Client's Representatives will choose individual password
when signing on to ROLA. CheckFree ROLA system will require
Client's Representatives to change the passwords each month.
CheckFree reserves the right to change or alter security
procedures established for ROLA.
g. Secured Data
User Personal Security Codes, account number with Payees, and
if applicable, banking information are not readily available to
view on line. CheckFree will require Client's Representative to
perform an additional function on line to view this
information. This additional function creates an audit stamp
each time this
<PAGE>
information is viewed, which allows CheckFree to track this
access. This additional function may be restricted by
individual Client Representative.
h. Technical and Network Support
CheckFree's Client Technical Assistance Center ("CTAC")
supports all network and system technical issues. CTAC is
staffed 24 hours per day, 7 days per week, except for New Years
Day, Easter Sunday, Memorial Day, July 4th, Labor Day,
Thanksgiving, and Christmas.
i. Viewing User Data
CheckFree ROLA will provide Client the following information
that can be viewed on line:
1. User Information which includes User name, address,
telephone number, Source Code, Price Code, Service Account
Number, Personal Security Code, and if applicable, User's
banking information and software version.
2. User Payee List which includes all payees added by the
User and/or Client. Payee files will contain payee name,
address, telephone number, User account number, schedule
payment date and amount.
3. User Payment History which includes payee name, payment
date, payment amount, and payment method used by CheckFree.
4. User Inquires which include User calls and User e-mails,
tracked by Client and/or CheckFree.
j. Updating User Data
CheckFree ROLA will provide Client the following information
that can be updated on line:
1. User Payee information can be added, deleted and changed.
2. User Information can be added changed, deleted and changes.
3. User Pending Payments (payments not yet processed by
CheckFree) can be scheduled, changed or canceled.
4. Log and track all User inquiries.
5. Send User inquires on line to CheckFree customer support.
3. Obligations of Client
a. General
Client agrees to comply with applicable laws, rules, and regulations
governing electronic
<PAGE>
funds transfers, including providing regulatory notices and
disclosures to Users and complying with error resolution procedures
required by law.
b. Equipment Access
Client agrees to provide Client Representative with PC containing
3270 software and or 3270 terminal.
c. Security Access
Client agrees to establish and monitor internal procedures which
limit one User ID to one Client Representative. User IDs and
passwords are not to be shared.
d. ROLA Operating and Security Procedures
Client agrees to comply with CheckFree's standard operating rules
and security procedures.
<PAGE>
EXHIBIT 10.11
Confidential portions have been redacted pursuant to the rules
and regulations of the Securities and Exchange Commission
EDIFY SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Services Agreement (this "Agreement") is
entered into and made effective as of September 26, 1997 (the "Effective Date"),
by and between Edify Corporation, with corporate offices at 2840 San Tomas
Expressway, Santa Clara, CA 95051 ("Edify") and Atlanta Internet Bank, with
corporate offices at 7000 Peachtree-Dunwoody Road, Building 10, Suite 300
Atlanta, GA 30328 ("Customer").
1. DEFINITIONS.
1.1 "Intellectual Property Rights" means patent rights (including
patent applications and disclosures), copyrights, trade secrets, know-how and
any other intellectual property rights recognized in any country or jurisdiction
in the world.
1.2 "Order Schedule" means the document by which Customer orders
Products licenses and Services. Customer may acquire either Products licenses or
Services separately.
1.3 "Products" means Edify's software development tools and application
products ("Application Products") in object code form and related documentation
specified in an Order Schedule issued pursuant to this Agreement, including any
error corrections and updates thereto provided by Edify to Customer under this
Agreement.
1.4 "Services" means the maintenance and support services, consulting
services, installation services, and/or training services specified in an Order
Schedule issued pursuant to this Agreement.
2. LICENSE.
2.1 Grant of License. Subject to the terms and conditions of this
Agreement, Edify grants to Customer, and to Customer's agents, independent
contractors and government officials solely for the benefit of Customer, a
nonexclusive, nontransferable, perpetual license to use each of the Products
specified in an accepted Order Schedule on a single CPU, only for Customer's
internal use, and with respect to Customer's customers Edify grants the right to
access the on-line banking services provided by Customer using the Products.
2.2 License Restrictions. Customer has no right to transfer, sublicense
or otherwise distribute the Products to any third party. Customer may not: (a)
modify, disassemble, decompile or reverse engineer the object code of the
Products nor permit any third party to do so; (b) copy the Products, except for
a reasonable number of backup copies; or (c) use the Products in any manner to
provide service bureau, timesharing or other computer services to third parties.
Edify acknowledges that Customer will be using the Products to provide on-line
banking services to third parties and that such use is not a violation of
2.2(c).
<PAGE>
2.3 Third-Party License Restrictions. If Customer purchases a Product
license for Edify's Visa ADMS Application Product (the "Visa Module"), then
Customer may use the Visa Module solely for the purpose of obtaining electronic
banking and financial services from Visa Interactive, Inc. through the
communication access services and systems that Visa Interactive, Inc. operates.
2.4 Development Kit Restrictions. If Customer purchases a Product
license for any Edify development kit ("Development Kit"), then Customer may use
the Development Kit for application development only and Customer expressly
agrees not to use the Development Kit or any component thereof in a production
application. In addition, Customer's use of the Development Kit is limited to a
maximum of three (3) Edify Software Agent Products.
2.5 Limited Rights. Customer's rights in the Products will be limited
to those expressly granted in this Section 2. Edify reserves all rights and
licenses in and to the Products not expressly granted to Customer under this
Agreement.
3. OWNERSHIP.
Edify and its licensors presently own and will continue to own
all worldwide right, title, and interest in and to the Products and all
worldwide Intellectual Property Rights therein, whether or not the Products are
incorporated in or combined with any other product. Customer will not delete or
in any manner alter the copyright, trademark, and other proprietary rights
notices of Edify and its licensors appearing on the Products as delivered to
Customer. Customer will reproduce such notices on all copies it makes of the
Products.
4. SERVICES.
4.1 Maintenance and Support Services. Edify will perform the
maintenance and support services specified in an accepted Order Schedule in
accordance with Edify's standard Software Maintenance Program, which Edify
publishes from time to time. Edify may modify its Software Maintenance Program
upon written notice to Customer, provided, however, that in no event may Edify
make any modifications to its Software Maintenance Program that would materially
reduce the level of maintenance and support services that Edify provides to
Customer hereunder during the then current term for which Customer has paid
maintenance and support fees. Edify will be obligated to provide maintenance and
support services only for Products installed at the Customer sites designated in
an accepted Order Schedule. Edify acknowledges that Customer will install the
Products at Bisys in Houston, Texas, as more specifically identified in the
Order Schedule, to be used solely for the benefit of Customer, with remote
access by Customer from its site in Atlanta, Georgia. The Product known as
Electronic Workforce will be available on Windows NT before the end of 1997, and
will be provided, free of charge, to Customer as an upgrade to the applicable
Products licensed, provided that Customer has a current maintenance agreement
for such Products, notwithstanding any terms to the contrary in the Software
Maintenance Program. In the event of Customer enters disaster mode, Edify agrees
to use the most expedient efforts possible to provide Edify resources (including
contractors) on site to assist Customer, at Customer's expense.
4.2 Term of Maintenance and Support Services. Edify will provide
maintenance and support services for each Product specified in an accepted Order
Schedule for an initial period of fifteen (15) months from the date of receipt
by Customer of such Product and for additional twelve (12) month periods
thereafter, provided that Customer pays Edify's then-current annual maintenance
and support service fees in accordance with the terms of Section 6.1. Either
party may elect to terminate maintenance and support services for a Product by
notifying the other in writing at least ninety (90) days prior to the expiration
of such initial fifteen (15) month period or of any twelve (12) month renewal
period thereafter. Customer may elect to renew maintenance and support services
with respect to some, but not all, of the
-2-
<PAGE>
Products or Customer sites. Reinstatement of lapsed maintenance and support
services is subject to payment by Customer of Edify's reinstatement fees in
effect on the date Customer re-orders maintenance and support services. For
obsoleted Products, Edify will provide maintenance and support in accordance
with its then current Product Obsolescense Plan.
4.3 Exclusions to Maintenance and Support Services. Edify shall have no
obligation of any kind to provide maintenance and support services for problems
in the operation or performance of the Products caused by any of the following
(each, "Customer-Generated Error"): (a) non-Edify software or hardware products;
(b) Customer's failure to properly maintain Customer's site and equipment on
which the Products are installed; or (c) alterations to Customer's site or
equipment made by Customer or a third party after Edify's completion of
installation services pursuant to Section 4.4. Notwithstanding the foregoing
sentence, Edify will use commercially reasonable efforts, at Edify's
then-current time and materials rate, to assist Customer in trouble-shooting
problems in the operation or performance of the Products caused by the
situations described in 4.3(a), (b) and (c). If Edify determines that it is
necessary to perform maintenance and support services for a problem caused by a
Customer-Generated Error, Edify will notify Customer thereof as soon as Edify is
aware of such Customer-Generated Error and Edify will have the right to invoice
Customer at Edify's then-current published time and materials rates for all such
maintenance and support services performed by Edify.
4.4 Installation Services. Edify will perform the installation services
specified in an accepted Order Schedule to install the Products on Customer's
equipment at Customer's site. Customer will be solely responsible for completing
all tasks that are required to prepare Customer's site and equipment for the
performance of such services by Edify, including without limitation all items
identified on Edify's Site Preparation Checklist, the terms of which are
incorporated into this Agreement by reference.
4.5 Other Services. Edify will perform for Customer the consulting
services and training services specified in an accepted Order Schedule in
accordance with the terms and conditions of this Agreement. In the event that
Customer needs to replace the Products with similar products from third parties
or has to replace the software Customer uses in connection or combination with
the Products, Edify agrees to provide, itself or through certified partners of
Edify, commercially reasonable assistance, subject to advance scheduling and
available resources, to assist Customer in migrating to the new software.
Customer will pay Edify Edify's or its certified partner's (as applicable) then
current time and material rates for such assistance.
4.6 Customer Security Procedures. Edify personnel who perform Services
at Customer's site will comply with Customer's reasonable security procedures,
provided that Customer furnishes Edify with such procedures in writing prior to
the date any Edify personnel begin performing such Services.
4.7 Source Code Escrow. For a one-time fee of five hundred dollars
($500), Customer may participate as a Licensee of Record under the Software
Deposit Agreement dated September 22, 1993 by and between Edify Corporation and
Brambles NSD, Inc. ("Escrow Agreement"). In the event the Product source code is
released pursuant to the Escrow Agreement, Edify hereby grants Customer the
right and license to use the source code solely for internal support and
maintenance purposes of existing Products. Notwithstanding anything to the
contrary in this Agreement, Customer agrees that the Product source code for the
Products is Confidential Information of Edify and shall be protected perpetually
until and unless one or more of the confidentiality exclusions occurs.
5. ORDERING AND DELIVERY.
5.1 Ordering. Customer may submit Order Schedules to Edify for the
purchase of Products licenses and Services. Each such Order Schedule must
reference this Agreement and must be signed by Customer. No Order Schedule will
be deemed accepted by Edify unless and until Edify accepts such
-3-
<PAGE>
Order Schedule in writing. Any terms and conditions of any Order Schedule that
are inconsistent with or in addition to the terms and conditions of this
Agreement will be deemed stricken from such Order Schedule, even if Edify
accepts any such Order Schedule.
5.2 Delivery. All Products will be shipped FOB Edify's site. Shipping
and handling charges will be invoiced with shipment.
6. PAYMENT.
6.1 License and Services Fees. Except for the payment of training
services fees pursuant to Sections 6.2, Customer will pay Edify the total fees
and expenses for all Products and Services specified in an accepted Order
Schedule within thirty (30) days after the date of Edify's invoice for such fees
and expenses.
6.2 Training Fees. Customer will pay Edify the training services fees
specified in an accepted Order Schedule when Customer enrolls in such training
services, but in no event later than two (2) weeks prior to the scheduled date
for such training services. Edify's then-current cancellation policy will apply
to any cancellation by Customer of such training services.
6.3 Travel and Incidental Expenses. Customer will Reimburse Edify for
any reasonable out-of-pocket expenses Incurred by Edify in connection with
performing any Services at Customer's site.
6.4 Payment Terms and Taxes. Customer will pay all amounts due under
this Agreement in U.S. currency. All past due amounts will incur interest at a
rate equal to the lower of 1.5% per month or the highest rate permitted by law,
beginning as of ten (10) days after the applicable due date. Customer will be
responsible for, and will promptly pay, all taxes of any kind (including but not
limited to sales and use taxes) associated with this Agreement or Customer's
receipt or use of the Products and Services, except for taxes based on Edify's
net income.
7. WARRANTY.
7.1 Limited Product Warranty. Edify warrants that for a period of
ninety (90) days after the shipment date: (a) the medium on which each copy of
the Products is furnished will be free from defects in materials and workmanship
under normal use; and (b) the Products will function substantially in accordance
with the published documentation. As Customer's sole and exclusive remedy and
Edify's entire liability for any breach of the foregoing warranty, Edify will,
at its sole option and expense, promptly repair or replace any medium or
Products which fail to meet this limited warranty or, if Edify is unable to
repair or replace the medium or the Products, refund to Customer the applicable
license fees paid upon return of the nonconforming item to Edify.
7.2 Viruses and Year 2000. Edify warrants that to the actual knowledge
of Edify, the Products delivered to Customer under this Agreement are free of
viruses and other computer code that would materially interfere with Customer's
use of the Products. Edify represents that the Products delivered to Customer
under this Agreement are Year 2000 compliant. "Year 2000" compliant means that
the Products will be capable of recording, maintaining and processing accurate
dates for all dates including and following January 1, 2000, provided that all
other products used by Customer in connection or combination with the Products,
including without limitation hardware, software and firmware, properly exchange
date data with the Products.
7.3 Intellectual Property Warranty. Edify represents and wan-ants that
(i) the Products do not infringe any third party U.S. patent, copyright, or
trade secret, (ii) there are no pending claims against the Products, and (iii)
except as disclosed in Edify's 10K and 10Q filings with the Securities and
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<PAGE>
Exchange Commission, there are no threatened claims against the Products.
Customer's sole and exclusive remedy and Edify's sole and exclusive liability
for breach of this Section 7.3 is the infringement indemnity provided by Edify
under and pursuant to Section 8.
7.4 Title Warranty. Edify represents and warrants that it the right to
grant the rights granted herein, it has the full corporate power and authority
to grant the rights granted herein, and that the Products delivered hereunder
are free from any liens or encumbrances. To the extent a breach of the warranty
in this Section 7.4 pertains to intellectual property rights, then Customer's
sole and exclusive remedy and Edify's sole and exclusive liability for breach of
this Section 7.3 with respect to intellectual property is the infringement
indemnity provided by Edify under and pursuant to Section 8.
7.5 Disclaimer of Warranties. THE LIMITED WARRANTIES SET FORTH IN THIS
SECTION 7 ARE IN LIEU OF, AND EDIFY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESS,
IMPLJED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THOSE OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
8. INDEMNICATION.
8.1 Infringement Indemnity. Edify will defend any action brought
against Customer to the extent that it is based upon a claim that the Products,
as provided by Edify to Customer under this Agreement and used within the scope
of this Agreement, infringe any U.S. patent, copyright or trade secret, and will
pay any costs, damages and reasonable attorneys' fees attributable to such claim
that are awarded against Customer, provided that Customer: (a) promptly notifies
Edify in writing of the claim; (b) grants Edify sole control of the defense and
settlement of the claim; and (c) provides Edify with all assistance, information
and authority required for the defense and settlement of the claim.
8.2 Injunctions. If Customer's use of any of the Products hereunder is,
or in Edify's opinion is likely to be, enjoined due to the type of infringement
specified in Section 8.1 above, Edify may, at its sole option and expense: (a)
procure for Customer the right to continue using such Products under the terms
of this Agreement; (b) replace or modify such Products so that they are
non-infringing and substantially equivalent in function to the enjoined
Products; or (c) if options (a) and (b) above cannot be accomplished despite
Edify's reasonable efforts, then Edify may terminate Customer's rights and
Edify's obligations hereunder with respect to such Products and refund to
Customer the unamortized portion of the license fees paid hereunder, based upon
a straight-line seven (7) year depreciation commencing as of the date of receipt
by Customer of such Products.
8.3 Exclusions. Notwithstanding the terms of Section 8.1, Edify will
have no liability for any infringement claim of any kind to the extent it
results from: (a) modification of the Products made other than by Edify; (b)
failure of Customer to use updated or modified Products provided by Edify to
avoid infringement; or (c) compliance by Edify with designs, plans or
specifications furnished by or on behalf of Customer.
8.4 Sole Remedy. THE PROVISIONS OF THIS SECTION 8 SET FORTH EDIFY'S
SOLE AND EXCLUSIVE OBLLGATIONS, AND CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES, WITH
RESPECT TO INFRINGEMENT OF INTELL-ECTUAL PROPERTY RIGHTS OF ANY KIND.
9. CONFIDENTIALITY.
9.1 Definition. "Confidential Information" means: (a) the Products; and
(b) any business or technical information of Edify or Customer, including but
not limited to any information relating to Edify's or Customer's product plans,
designs, costs, product prices and names, finances, marketing plans, business
opportunities, personnel, research, development or know-how that is designated
by the
-5-
<PAGE>
disclosing party as "confidential" or "proprietary" and, if orally disclosed,
reduced to writing by the disclosing party within thirty (30) days of such
disclosure.
9.2 Exclusions. Confidential Information does not include information
that: (a) is or becomes generally known to the public through no fault or breach
of this Agreement by the receiving party; (b) is known to the receiving party at
the time of disclosure without an obligation of confidentiality; (c) is
independently developed by the receiving party without use of the disclosing
party's Confidential Information; (d) the receiving party rightfully obtains
from a third party without restriction on use or disclosure; or (e) is disclosed
with the prior written approval of the disclosing party.
9.3 Use and Disclosure Restrictions. During the term of this Agreement,
and for a period of five (5) years after any termination of this Agreement, each
party will not use the other party's Confidential Information except as
permitted herein, and will not disclose such Confidential Information to any
third party except to employees and consultants as is reasonably required in
connection with the exercise of its rights and obligations under this Agreement
(and only subject to binding use and disclosure restrictions at least as
protective as those set forth herein executed in writing by such employees and
consultants). However, each party may disclose Confidential Information of the
other party: (a) pursuant to the order or requirement of a court, administrative
agency, or other governmental body, provided that the disclosing party gives
reasonable notice to the other party to contest such order or requirement; and
(b) on a confidential basis to legal or financial advisors.
10. LIMITATION OF LIABILITY.
10.1 Total Liability. EDIFY'S CUMULATIVE LIABILITY TO CUSTOMER, FROM
ALL CAUSES OF ACTION AND ALL THEORIES OF LIABILITY, WILL BE LIMITED TO AND WILL
NOT EXCEED THE AMOUNTS PAID TO EDIFY BY CUSTOMER FOR THE PRODUCTS AND SERVICES
PURSUANT TO THIS AGREEMENT.
10.2 Exclusion of Damages. IN NO EVENT WILL EDIFY BE LIABLE TO CUSTOMER
FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS
OF USE, DATA, BUSINESS OR PROFITS) ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR THE USE OR PERFORMANCE OF THE PRODUCTS OR SERVICES, WHETHER SUCH
LIABILITY ARISES FROM ANY CLAIM BASED UPON CONTRACT, WARRANTY, TORT (INCLUDING
NEGLIGENCE), PRODUCT LIABILITY OR OTHERWISE, AND WHETHER OR NOT EDIFY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE.
10.3 Basis of Bargain. The parties expressly acknowledge and agree that
Edify has set its prices and entered into this Agreement in reliance upon the
limitations of liability specified herein, which allocate the risk between Edify
and Customer.
11. TERMINATION.
11.1 Term. This Agreement will begin on the Effective Date and will
remain in effect thereafter unless terminated earlier in accordance with the
terms of this Agreement. The term of each Product license granted by Edify
hereunder will begin upon the date of receipt by Customer of the Product
specified in an accepted Order Schedule and will remain in effect thereafter
until Customer discontinues use of such Product, unless terminated earlier by
either party in accordance with the terms of this Agreement.
-6-
<PAGE>
11.2 Termination for Breach. Each party will have the right to
terminate this Agreement or any Product license granted hereunder if the other
party breaches any material term of this Agreement and fails to cure such breach
within thirty (30) days after written notice thereof.
11.3 Bankruptcy. Customer may, but is not obligated to terminate this
Agreement if: (a) Edify becomes the subject of any voluntary petition in
bankruptcy or any voluntary proceeding relating to insolvency, receivership,
liquidation, or composition for the benefit of creditors; or (b) Edify becomes
the subject of an involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing.
11.4 Effect of Termination. Upon any termination of this Agreement or
of any individual Product license granted hereunder, Customer will promptly
return to Edify or, at Edify's request, destroy, the applicable Products and all
copies and portions thereof, in all forms and types of media, and provide Edify
with an officer's written certification, certifying to Customer's compliance
with the foregoing.
11.5 Nonexclusive Remedy. Termination of this Agreement by either party
will be a nonexclusive remedy for breach and will be without prejudice to any
other right or remedy of such party.
11.6 Survival. The rights and obligations of the parties contained in
Sections 3, 6, 8, 9, 10, 11.4, and 11.5 will survive the termination of this
Agreement or of any individual Product license.
12. GENERAL.
12.1 Assignment. Customer will have no right to assign this Agreement,
in whole or in part, without Edify's prior written consent. Any attempt to
assign this Agreement, without such consent, will be null and void.
Notwithstanding the foregoing, Customer may assign this Agreement, without
Edify's consent, to any entity that controls, is controlled by, or is under
common control with, Customer; provided that the assignee agrees in writing to
be bound by the terms and conditions of this Agreement and the assignee is not a
competitor of Edify. For purposes of the preceding sentence, "control" means
having the ability to elect a majority of the board of directors or a similar
governing body.
12.2 Governing Law and Jurisdiction. This Agreement will be governed by
and construed in accordance with the laws of the State of California applicable
to agreements entered into, and to be performed entirely, within California
between California residents. Any legal action or proceeding arising under this
Agreement will be brought in the federal or state courts of the Northern
District of California and the parties hereby consent to the personal
jurisdiction and venue therein.
12.3 Severability. If for any reason a court of competent jurisdiction
finds any provision of this Agreement invalid or unenforceable, that provision
of the Agreement will be enforced to the maximum extent permissible and the
other provisions of this Agreement will remain in full force and effect.
12.4 Waiver. The failure by either party to enforce any provision of
this Agreement will not constitute a waiver of future enforcement of that or any
other provision.
12.5 Notices. All notices required or permitted under this Agreement
will be in writing and delivered by confirmed facsimile transmission, by courier
or overnight delivery service, or by certified mail, and in each instance will
be deemed given upon receipt. All communications will be sent to the addresses
set forth above or to such other address as may be specified by either party to
the other in accordance with this Section. Either party may change its address
for notices under this Agreement by giving written notice to the other party by
the means specified in this Section.
-7-
<PAGE>
12.6 Force Majeure. Neither party will be responsible for any failure
or delay in its performance under this Agreement due to causes beyond its
reasonable control, including but not limited to, labor disputes, strikes,
lockouts, shortages of or inability to obtain labor, energy, raw materials or
supplies, war, riot, act of God or governmental action.
12.7 Relationship of Parties. The parties to this Agreement are
independent contractors and this Agreement will not establish any relationship
of partnership, joint venture, employment, franchise, or agency between the
parties. Neither party will have the power to bind the other or incur
obligations on the other's behalf without the other's prior written consent.
12.8 Non-Solicitation. During the term of this Agreement and for a
period of one (1) year after the Effective Date, neither party will recruit or
hire any employee of the other party who has performed under or in connection
with this Agreement, without the other party's prior written consent.
12.9 Entire Agreement. This Agreement, including all schedules,
exhibits and attachments attached hereto, contains the complete understanding
and agreement of the parties and supersedes all prior or contemporaneous
agreements or understandings, oral or written, relating to the subject matter
herein. Any waiver, modification or amendment of any provision of this Agreement
will be effective only if in writing and signed by duly authorized
representatives of the parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the Effective Date by their duly authorized representatives.
CUSTOMER EDIFY CORPORATION
ATLANTA INTERNET BANK
By: /s/ Donald S. Shapleigh, Jr. By: /s/ Terrance A. Shough
---------------------------------- ---------------------------
Name: Donald S. Shapleigh, Jr. Name: Terrance A. Shough
Title: President Title: Vice President of Sales
<PAGE>
EDIFY
Purchase Order Form
This Purchase Order Form is made part of the Master Purchase Agreement between
Edify Corporation and Atlanta Internet Bank dated September 26, 1997. All Terms
and Conditions of the agreement apply to this purchase order.
<TABLE>
<CAPTION>
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Product List Discounts % Customer
Software Products No Qty. Price (if applicable) Price
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
EDS 371000 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Web Services 323250 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Interaction Editor 371030 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Dynamic Link Library 324020 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Bill Payment Module 371101 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Electronic Workforce Supervisor 141042 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Software Agents 302000 12
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Remote System Monitor 302011 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Host Access 324000 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Multi Database Access 324010 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Back up System
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Application Products
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Total Software Fees
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Product List Customer
Training & Installation Services No. Qty. Price Discount % Price
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Installation 34000A 2
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Total Training & Installation Fees
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Product List Customer
Maintenance No. Qty. Price Discount % Price
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Standard 81000A 1
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
Total Maintenance Fees
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
TOTAL PURCHASE PRICE:
- ---------------------------------------- ------------- ---------- ----------------- ------------------ --------------
</TABLE>
The above Agreement is approved and is authorized to be shipped and/or invoiced
to the "Customer" upon execution by customer below. All fees above exclude
travel expenses which will be billed under the below referenced P.O.
No., unless noted on this form.
<TABLE>
<S> <C> <C> <C>
Approved by Atlanta Internet Bank
- -----------
Signature: By: /s/ Donald S. Shapleigh, Jr. Billing Address: 7000 Peachtree Dunwoody Road
----------------------------- Building 10 Suite 300
Name: Donald S. Shapleigh, Jr. Atlanta, GA 30328
Title: President
Date:
-------------------------------------------- ----------------------------
Customer Purchase Order No.:
----------------------
(if no P.O. # is provided - invoices will be Ship-To: Tom Cable, Chief Technology Officer
reference the above signature Atlanta Internet Bank
7000 Peachtree Dunwoody Road
Building 10 Suite 300
Atlanta, GA 30328
</TABLE>
<PAGE>
EXHIBIT 10.12
Confidential portions of this exhibit have been redacted
pursuant to the rules and regulations of the Securities and Exchange Commission
NOVA
Financial Corporation
NOVA FINANCIAL CORPORATION'S
AGREEMENT FOR
BACKROOM SERVICES
AND
ORGANIZATIONAL EFFICIENCY
SERVICES
FOR:
ATLANTA INTERNET BANK
June 10, 1997
8601 Dunwoody Place Suite 146 Atlanta, GA 30350 (770) 992-1006
Fax (770) 992-1199
<PAGE>
AGREEMENT FOR DATA PROCESSING SERVICE
This Agreement, dated the 16th day of June, 1997 sets forth the terms and
conditions under which NOVA FINANCIAL CORPORATION ("NOVA") having its
principal place of business at 8601 Dunwoody Place, Suite 146, Atlanta, GA
30350, will provide computer and related services for the processing of
financial, banking or economic data ("Services") to Atlanta Internet Bank,
("Client") (collectively, the "Parties").
1. Term
This Agreement shall commence as of the date services are first used by
the Client, (the Effective Date), and shall continue for a period of
five (5) years. The Agreement shall automatically be renewed for
successive three year periods in the absence of written notice to
terminate given by either Party not less than one hundred eighty (180)
days prior to the expiration of the initial or any subsequent term.
2. Services
The Schedules identified below delineate the Services that are available from
Nova under this Agreement. These Schedules are attached hereto and are
incorporated herein by reference.
<TABLE>
<S> <C> <C>
(1) Schedule A: General Services and Pricing
(2) Schedule B: Disaster Recovery Services and Pricing
(3) Schedule C: Processing Services and Pricing
(4) Schedule D: Implementation Fee
(5) Schedule E: Back Office Processing
(6) Schedule F: Termination Charges
</TABLE>
3 Service Charges and Payment Terms
a. Nova's charges for Services performed under this Agreement are
indicated in the attached Schedules. All invoices shall be
accompanied by a report in such form and format and containing
such information as is reasonably required by Client to evidence
the manner in which the amounts due hereunder were calculated
and which permit Client to verify such amounts.
b. All charges will be invoiced monthly and paid within thirty (30)
days after the invoice date (Due Date). Nova will apply a
service charge of one and one-half percent (I 1/2%) per month or
the maximum rate allowable by law, whichever is lower, of any
unpaid balance not received at Nova, c/o Accounts Payable, 8601
Dunwoody Place, Suite 146, Atlanta, Georgia 30350 by the Due
Date. Should Nova's monthly charge remain unpaid for a period of
sixty (60) days after the Due Date, Nova shall have the right,
at Nova's sole discretion, to terminate this Agreement in
accordance with Section 6.a.
c. The charges shown in the attached Schedules may be revised,
provided Nova gives Client at least ninety (90) days written
notice prior to the Effective Date of such revision. No charge
shall be revised for twelve (12) months after the Effective Date
of this Agreement or for one (1) year from the Effective Date of
any such revision. Such
<PAGE>
revisions, if any, shall be limited to a maximum increase of ten
percent (10%) per year or the rise in the Consumer Price Index,
whichever is the lesser. Notwithstanding the foregoing,
processing charges as defined in Schedule C, Section 3 and will
remain fixed for twelve (12) months after the Effective Date of
this Agreement, unless modified by an addendum to this
Agreement.
d. The charges shown in the attached Schedules are exclusive of
taxes. Client shall pay all taxes applicable to Services
performed by Nova under this Agreement, other than taxes based
on Nova's net income.
e. If a good faith dispute arises between the Parties, Client shall
have the right to withhold any disputed payment due to Nova
pursuant to this Agreement for the forty (40) day time period
set forth in Section 15 for as long as Client follows the
dispute resolution procedures contained therein. Written notice
of such dispute and Client's intent to withhold payment shall be
provided to Nova within five (5) business days after Client's
receipt of Nova's invoice which contains the disputed charge and
from which payment is to be withheld. Client and Nova shall work
together to resolve any such dispute in accordance with Section
15. The provisions in subsection 3.b for late charges or
termination of Service shall not be invoked for any disputed
charge which is withheld in accordance with this subsection 3.e
and Section 15.
4. Confidential Data
a. Each Party (i) must receive and hold the Confidential
Information (as defined below in Section 4.c) of the other Party
in trust and in strictest confidence; (ii) must protect such
Confidential Information from disclosure and in no event take
any action causing, or fail to take the action necessary in
order to prevent, any such Confidential Information to lose its
character as Confidential Information; and (iii) must not use,
reproduce, distribute, disclose or otherwise disseminate the
Confidential Information of the other Party except to perform
the Services. Any and all reproductions of such Confidential
Information must prominently contain a confidentiality legend.
b. Disclosures of the Confidential Information of the other Party
may be made only to employees, agents or independent contractors
of the receiving Party (a) who are directly involved in
performing the Services and have a specific need to know such
information; and (b) whom the receiving Party has obligated
under a written Agreement to hold such Confidential Information
in trust and in strictest confidence and otherwise to comply
with the terms of this Agreement. The Parties agree to
diligently monitor each such employee, agent or independent
contractor and, upon request by the other Party, promptly to
furnish to the other Party a certified list of the receiving
Party's employees, agents and independent contractors having had
access to such Confidential Information.
c. As used herein, the term "Confidential Information" means
information related to the Services or the business of the
disclosing Party or its affiliates that (1) derives economic
value, actual or potential, from not being generally known to or
readily ascertainable by other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of
efforts by the disclosing Party or its affiliates that are
reasonable under the circumstances to maintain its secrecy,
including without limitation
-2-
<PAGE>
(I) marking any information reduced to tangible form clearly and
conspicuously with a legend identifying its confidential or
proprietary nature; (ii) identifying any oral presentation or
communication as confidential immediately before such oral
presentation or communication; or (iii) otherwise treating such
information as confidential. Assuming the criteria in clauses
(1) and (2) above are met, Confidential Information includes,
but is not limited to, technical and non-technical data related
to the formulas, patterns, designs, compilations, programs,
inventions, methods, techniques, drawings, processes, finances,
actual or potential customers and suppliers, research,
development and existing and future products, the existence,
nature and details of the relationship between the Parties, and
employees of the disclosing Party and its affiliates.
Confidential Information also includes information that has been
disclosed to Nova or Client by a third party that Nova or Client
is obligated to treat as confidential.
d. Confidential Information does not include any data or
information that (1) is already known to the receiving Party at
the time it is disclosed to the receiving Party by the
disclosing Party; (2) is disclosed by the receiving Party
pursuant to a requirement of a governmental agency or of law
without similar restrictions or other protections against public
disclosure or is required to be disclosed by operation of law;
provided, however, that the receiving Party shall have first
given written notice of such required disclosure to the
disclosing Party, made a reasonable effort to obtain a
protective order requiring that the Confidential Information so
disclosed be used only for the purposes for which disclosure is
required and taken reasonable steps to allow the other Party to
seek to protect the confidentiality of the information required
to be disclosed; or (3) before being divulged by the receiving
Party (i) has become generally known to the public through no
wrongful act of the receiving Party; (ii) has been rightfully
received by the receiving Party from a third party without
restriction on disclosure and without, to the knowledge of the
receiving Party, a breach of an obligation of confidentiality
running directly or indirectly to the disclosing Party; (iii)
has been approved for release to the general public by a written
authorization of the disclosing Party; (iv) has been
independently developed by the receiving Party without use,
directly or indirectly, of the Confidential Information received
from the disclosing Party; or (v) has been furnished to a third
party by the disclosing Party without restrictions on the third
party's rights to disclose the information.
e. That portion, if any, of the Confidential Information that
constitutes trade secrets shall be subject to this Section 4 for
such period as it shall qualify as trade secrets under
applicable law. The remainder of the Confidential Information
shall be subject to this Section 4 during the term and for a
period of two years after the expiration or earlier termination
of this Agreement.
f. During the course of this Agreement, either Party may gain
access to software and related documentation which is owned by
the other Party or, if licenses to the other Party, to the
extent such access is authorized under the applicable license.
Both Parties recognize the proprietary nature of such software
and related documentation, and agree to maintain the
confidentiality of and not to disclose such software and related
documentation to any third party and not to use such software or
related documentation for any other purpose not contemplated by
this Agreement. Provided, however, that the foregoing shall not
apply to information (a) that was within Client's possession
prior to disclosure by Nova,
-3-
<PAGE>
(b) which is or becomes known to the industry through no fault
of Client, and (c) which is disclosed to Client by a third party
having legitimate possession thereof and the right to make such
disclosure.
g. Nova will not be responsible for the security of data during
transmission via public communications facilities if the breach
of security occurred through access to the public communications
facilities, except to the extent that such breach of security is
caused by the failure of Nova to perform its security
obligations under this Agreement, or the negligent acts or
omissions of Nova.
5. Maintenance of Records and Examinations
a. Nova shall permit Client's duly authorized representative to
examine internal control and accounting related to Services
provided to Client under this Agreement, subject to the audit
procedures defined in Section 16.
b. Upon written request from Client, Nova shall provide to
regulatory authorities or other third parties, any reports or
summaries of information contained in, or derived from, the data
in the possession of Nova relating to Client.
c. Nova shall bill Client at the rates specified in the attached
Schedules for any Nova resources used in providing support or
information to Clients representatives or to regulatory agencies
requesting information pertaining to Client.
d. Client shall be responsible for confirmation that adequate
insurance coverage is in place to protect Client and Nova from
employee dishonesty while processing Client's data at levels
satisfactory to applicable banking regulatory authorities.
Client shall furnish proof of such insurance coverage within 30
days of the signing of this Agreement.
e. Client agrees that in the event Client requests programming
changes to the system for Client's specific benefit, Client
shall submit such request in writing, defining such changes
requested and duly authorize such changes be made. Provided such
changes are unique to client's own needs and, in Nova's
discretion, not made available to Nova's general client
population through a new release or version, Client will be
billed in accordance with the provisions of Schedule A, "General
Services and Pricing". Client shall have the right to propose
changes and enhancements which may be applicable to the general
client population through a new release or version. If such
changes are approved and incorporated into the software through
a new release or version, Client's charges will be limited to
the applicable rate increases to Nova's other clients; subject
to the provisions of Section 3.c hereof. Nova may offer new
products to its clients which may be the result of client input
and/or market research. Notwithstanding any provisions of this
Agreement, Nova reserves the right to offer such new products
and/or services to Client and Nova's other clients and to charge
for such products/or services at a price accepted by Client
and/or Nova's other clients. Neither Party will be restricted in
using any data processing or network management ideas, concepts,
know-how and techniques, (including without limitation, in the
development, manufacturing and marketing of its products and
services and in its operations) which are retained in the minds
of employees who have had access to the Confidential Information
of such Party without reference to
-4-
<PAGE>
any physical or electronic embodiment of such information,
unless such use shall infringe any of such Party's patent
rights, copyrights or mask work rights.
6. Termination
a. Nova may terminate its future obligations under this Agreement
at any time by twenty (20) days prior written notice to Client
in the event of failure of Client to make payments of amounts
due Nova in a timely manner, provided such failure is not cured
within ten (IO) days of Client's receipt of such notice. Should
termination be effected pursuant to this subsection 6.a.,
Client. agrees to pay the termination fees to be calculated as
set forth in Schedule G.
b. Either Party shall have the right to terminate this Agreement
upon the other Party's material breach of this Agreement,
provided the Party seeking to terminate provides written notice
to the other Party staffing the grounds for such termination in
full detail. The Party receiving such notice shall have forty
five (45) days in which to cure the default, or, if the default
is such that ft cannot be cured within forty five (45) days, to
take corrective measures satisfactory to the Party seeking to
terminate; provided, however, if any material breach by Nova
results, or is likely to result, in a material adverse effect on
Clients business operations, Nova shall have five (5) business
days, or other mutually agreed upon time, to cure such default.
c. If Client elects to terminate this Agreement for any reason
other than for material breach as set forth in Section 6.b,
Client may do so upon at least 180 days prior written notice to
Nova and payment of the applicable charges set forth in Schedule
F.
d. In the event of termination or expiration of this Agreement, and
in addition to any termination charges, Client shall reimburse
reasonable costs incurred by Nova at the then-current machine
and personnel rates for transition assistance in transferring
Client's data to another service center or directly to Client.
Nova *II fully cooperate and furnish assistance to such
transferring of Clients data on a timely basis. Nova will notify
Client of the estimated time and charges to transfer Client's
data to the other service center or to Client. Nova will bill
the estimated cost in three (3) equal installments during the
last three (3) months Client is being serviced by Nova, except
that the last billing will include a credit or additional charge
as necessary to reflect the actual costs incurred either below
or above the original estimate. If Client terminates with less
than three (3) months notice, Client will pay the estimate or
actual costs to transfer client's data prior to the completion
of data transfer.
e. Upon completion of Client's final day of production processing
at Nova, Nova shall prepare Client's final data for delivery to
Client in the format agreed to during the deconverstion period.
Nova shall also prepare a final invoice for services rendered up
to and including Client's final day of production processing and
shall advise Client of the amount due by telephone. Such amount
shall be due immediately upon delivery of Client's final data to
Client.
f. Should Client be subject to regulation by any federal and/or
state regulatory authority which requires notification of
termination of this Agreement, Client agrees to provide such
notification as required by such authority.
-5-
<PAGE>
g. Should this Agreement be scheduled to terminate and should
Client wish to extend the term of the Agreement for a limited
period on a month-to-month basis, Client may do so by requesting
such extension in writing. Nova will continue to provide
Services to Client beyond the originally scheduled termination
date at the rates then in effect under this Agreement plus an
extension surcharge equal to twenty percent (20%) of Client's
total monthly charge.
7. Limitation of Liability
a. Nova does not warrant that any advice, report, data or other
product delivered to Client will be error free. Subject to the
commitments contained in this Agreement, Nova does not assure
uninterrupted or error-free operation of any system. Client is
responsible for auditing, balancing, verifying the correctness
of calculation routines (such as interest and service charges)
and reconciling any out-of-balance condition, and for notifying
Nova of any errors in the foregoing within three (3) business
days after receipt of the incorrect information.
b. To the extent that Nova furnishes any items of hardware or
licenses for third party hardware or software pursuant to this
Agreement ("third party materials"), Nova agrees to pass on to
Client the manufacturer's or supplier's warranties to the extent
that Nova is contractually able to do so, Those third party
warranties are Client's exclusive remedies with respect to Third
Party Materials.
c. Except as expressly set forth in this Agreement, Nova makes NO
OTHER REPRESENTATIONS, WARRANTIES OR GUARANTEES, EXPRESS OR
IMPLIED, IN FACT OR IN LAW, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
d. Neither Party shall be liable to the other in contract, tort,
for breach of warranty or otherwise, for any special,
consequential, exemplary or punitive damages arising from any
act or omission of such Party, or its affiliates, officers,
agents and employees, even if ft has been advised of the
possibility of such losses or damages.
e. Nova shall maintain backup copies of Clients data in accordance
with good industry practice and the terms of this Agreement.
However, Nova shall in no circumstances have any liability for
the loss or destruction of, or for corruption or disclosure of
any of the Client's data caused by Client's acts or omissions,
the acts or omissions of third parties (excluding subcontractors
authorized to perform any of the Nova Services), circumstances
constituting force majeure, or circumstances arising from
transmission over public telecommunications lines or
transportation via commercial carriers.
f. Notwithstanding the form in which any claim or action may be
brought or asserted, Nova's total liability for any acts or
omissions arising from or relating to the performances of this
Agreement shall be limited to Nova furnishing the correct report
and/or to correct the applicable client files, provided that
Client promptly advises Nova hereof. Nova shall in no
circumstances have any other financial liability to Client
whatsoever. Client agrees that the provisions of this Section 7
limiting its remedies and
-6-
<PAGE>
liquidating its damages are reasonable in the circumstances
existing on the date of this Agreement.
g. The foregoing limitations shall not apply to Claims (defined
below) to the extent that they are covered losses under the Nova
comprehensive general liability or other applicable policy.
Nova's liability for such covered losses shall be limited to the
amount, if any, if and to the extent the loss is paid by the
policy carrier. Nova agrees that it is obligated throughout the
term of this Agreement to maintain insurance as set forth in
Section 13, so long as such coverage is available to insureds in
Nova's business at commercially reasonable rates.
h. Neither Party shall be responsible for any resulting loss if
fulfillment of any of the terms or provisions of this Agreement
is delayed or prevented by causes beyond that Party's reasonable
control including, but not limited to, fire, flood, earthquake,
act of God, war, insurrection, national emergency, or strike.
i. Client agrees to defend and indemnify Nova against any claims or
suits brought by any customer of Client resulting from or
arising out of services performed by Nova under this Agreement,
unless the liability in such claim or suit is determined to be
the result of Nova's negligence or breach of Nova's duties under
this Agreement. Provided, however, that (a) Nova notifies Client
in writing of any such claim or action within 15 days of the
date Nova becomes aware of the same, (b) Client has the right to
control the defense of such claim or action, or any settlement
thereof, and Nova reasonably cooperates with Client, at Client's
expense, in connection therewith; provided, further, that Nova
may participate in such defense at its own expense.
j. Upon expiration or termination of this Agreement, neither Party
may bring an action, regardless of form, arising out of this
Agreement more than two years after the cause of action has
arisen or the date of discovery of such cause, whichever is
later provided however, that Nova may bring an action for
nonpayment at any time.
8. Testing and Acceptance
Nova, in cooperation with Client, will provide all necessary data
conversion, and will implement and test Nova's computer systems used to
provide the Services.
9. Training: User Documentation
Nova will provide the training for the system at two levels as follows:
a. System Overview will present the overall system, general system
features, logon instruction, and main menu usage.
b. Features and Functions will present the capabilities of the
system from the perspective of a user department. Bankline
Mid-Ame6ca, Inc. documentation will be used as a reference.
Applicable employees will be presented with case studies which
require them to inquire and enter data in a test bank
environment using terminals. Course material includes
maintenance of the Central Information File, as well as material
specific to each application.
-7-
<PAGE>
All training will be presented by instructors on Client's premises. The
charge for training, except for out of-pocket expenses, is included in
the conversion fee as set forth in Schedule E. Nova will bill Client for
reasonable travel and living expenses for instructors teaching courses.
All course materials will be furnished by Nova.
Nova will also provide Client with all user and operational
documentation reasonably required to obtain and utilize the Services.
Client may make copies of such documentation for its own use, provided,
however, that it reproduces the copyright and other notices of Nova set
forth on such documentation.
Client agrees to distribute copies only to employees of Client and to
regulatory agencies, as required. Upon termination or expiration of this
Agreement, Client will return to Nova all documentation in the
possession of Client.
10. Ownership of Data
The Parties acknowledge that all data provided by Client to Nova, and
all data produced, compiled or otherwise provided by Nova for Client, in
any form or format, is the sole and exclusive property of Nova, and
copies thereof shall be provided to Client at its request from time to
time or at any time. Client shall reimburse Nova for its reasonable
costs for reproduction and delivery of such data to Client.
11. Infringement
Nova will defend, indemnify and hold harmless Client from and against
any and all loss, cost, claim, demand or expense arising out of any
claim or action that Client's use of the Services or Nova's provision of
the Services to Client infringes a United States patent, or any
copyright, trade secret right or other proprietary right of any person,
firm or entity. Provided, however, that (a) Client notifies Nova in
writing of any such claim or action within 15 days of the date Client
becomes aware of the same, (b) Client does not make any admission
without Nova's prior written consent, and (c) Nova has the right to
control the defense of such claim or action, or any settlement thereof,
and Client reasonably cooperates with Nova, at Nova's expense, in
connection therewith; provided, further, that Client may participate in
such defense at its own expense.
12. Regulatory Compliance
Nova represents and warrants that it will comply with all applicable
federal, state and local laws with respect to its performance of the
Services hereunder. Nova further represents and warrants that all the
Services, including, without limitation, all processing performed as
part of the Services, and all materials provided to Client or its
customers as part of the Services, will comply with all applicable
federal, state and local law.
13. Insurance
Without limiting any obligation of Nova under this Agreement, Nova shall
maintain the following insurance at levels satisfactory to applicable
banking regulatory authorities, together with any insurance required
under applicable federal or state law, rules or regulations: (a)
-8-
<PAGE>
employer's liability and workers' compensation insurance, (b)
comprehensive general liability insurance, personal injury and property
damage insurance, (c) errors and omissions insurance, and fidelity bond
insurance insuring against losses resulting from fraud, dishonesty,
conversion, forgery and other similar acts.
14. Additional Equipment
Except as otherwise provided in the Agreement, Nova warrants that ft
will obtain and maintain all computer equipment and peripherals
necessary to perform the Services as provided herein.
15. Dispute Resolution
a. Any dispute between the Parties either with respect to the
interpretation of any provision of this Agreement or with
respect to the performance by Nova or by Client hereunder shall
be resolved as follows:
(1) Upon the written request of either Party, each of the
Parties will designate a representative whose task it
will be to negotiate in good faith and to resolve such
dispute.
(2) If the designated representatives cannot resolve such
dispute within twenty (20) calendar days, then the
dispute shall be escalated to the President of Client
and the President of Nova, for their review and
resolution.
b. If the dispute cannot be resolved by such officers within twenty
(20) calendar days, then the Parties may initiate formal
proceedings; however, formal proceedings for the resolution of
any dispute may not be commenced until the earlier of:
(1) the designated representatives concluding in good faith
that amicable resolution through continued negotiation
of the matter in issue does not appear likely; or
(2) forty (40) days after the initial request to negotiate
such dispute; or
(3) thirty (30) days before the statute of limitations
governing any cause of action relating to such dispute
would expires.
c. Notwithstanding anything to the contrary contained in this
Section 15, the pendency of this dispute resolution procedure
shall not prevent either Party from seeking equitable relief
with respect to a dispute prior to such period.
16. Audits
a. EDP Audits. On an annual basis, Nova will engage an independent
and qualified firm to conduct an Electronic Data Processing
audit of Nova, based upon industry and regulatory standards.
Nova will provide a copy of such audit(s) to Client within 60
days of receipt by Nova.
b. Audit Procedures. Nova shall permit Client, or Client's
authorized representatives, to have access to Nova's records
regarding the Services provided under this Agreement in
-9-
<PAGE>
order to verify the amounts due hereunder. Such access will
require not less than two business days prior written notice to
Nova and will be provided during normal business hours, provided
that any audit does not interfere with Nova's ability to perform
the Services. Nova will provide access to information reasonably
necessary to perform the audit. Nova shall not allow Client, its
examiners or auditors access to Nova's proprietary data. Nova
will also assist Client's employees or auditors in testing
Client's data files and programs, including, without limitation,
installing and running audit software, subject to Client's
reimbursing Nova for its resulting expenses incurred.
17. Attorney's Fees and Costs
Should either Party be required to bring an action to enforce any of the
terms or provisions of this Agreement, the prevailing Party in such
action shall be entitled to reimbursement by the other Party of all
reasonable costs incurred as a result of such action, including
reasonable attorney's fees and other related costs.
18. Non-Employment Provision
Neither Party to this Agreement shall solicit for hire any employee of
the other contacted as a result of this Agreement during the term of
this Agreement and for a period of one year thereafter, except by
written consent of the other unless modified by an addendum to this
Agreement.
19. Use of Client's Name
Client hereby agrees to allow Nova to use Client's company name in press
releases, direct mail and other advertising related to the Services of
this Agreement. Client shall have the right to review and approve any of
the material using Client's name poor to its use and/or distribution.
20. General
a. This Agreement constitutes the entire agreement of the Parties
and supersedes all prior proposals or agreements, written or
oral, and all other communications and representations between
the Parties relating to the subject matter hereof.
b. Except as otherwise specifically provided herein, any notice
required or permitted to be given by a Party pursuant to this
Agreement must be given in writing and personally delivered or
mailed to the other Party by certified mail, return receipt
requested, at the address set forth below the signature of its
duly authorized officer on this Agreement or at such other
address as such Party will designate by written notice given in
accordance with this Section 20, Any notice complying with this
Section 20 will be deemed received upon three (3) days following
the post marked date, if sent by mail.
c. Except as set forth in this Section 20, all rights and
obligations of the Parties under this Agreement shall
immediately cease and terminate upon the termination of this
Agreement and Nova will have no further obligation to the Client
or its employees, agents or independent contractors with respect
to this Agreement.
-10-
<PAGE>
d. No modification or amendment of this Agreement shall be valid
unless such modification or amendment is in writing and duly
executed by both Parties.
e. The rights and obligations of the Parties pursuant to Sections
3, 4, 5, 7, 10, 11, 12, 1 5, 1 7, 18 and 20.k of this Agreement
will survive expiration or termination of this Agreement and
such expiration or termination shall not relieve either Party of
its obligations to observe. keep and perform those surviving
covenants, terms and conditions.
f. If any term, provision, covenant, or condition of this Agreement
is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the provisions shall remain
in full force and effect and shall in no way be affected,
impaired or invalidated.
g. The rights and obligations of the Parties herein are not
assignable without the express written consent of the other
Party. Such consent shall not be unreasonably withheld.
h. Nothing in this Agreement shall be construed so as to constitute
any Party hereto as a partner or joint venturer, or agent of any
other Party hereto.
i. The waiver by one Party of a breach of any provision of this
Agreement by the other Party will not operate or be construed as
a waiver of any subsequent breach of the same or any other
provision by the other Party.
j. To the extent that any of the terms and conditions of this
Agreement conflict with any of the terms and conditions
contained in any Schedule hereto, the terms and conditions of
this Agreement control.
k. This Agreement shall be construed in accordance with, and
governed by, the laws of the State of Georgia.
21. Miscellaneous
In the event that Client is unsuccessful in establishing an independent
charter in Georgia as contemplated, the Client shall be entitled to
terminate this Agreement upon written notice to Nova. Clients then
obligations hereunder shall be limited to fees paid for services
rendered under this Agreement to date and any expenses incurred by Nova
to date.
NOVA FINANCIAL CORPORATION ATLANTA INTERNET BANK
BY:/s/ BY:/s/ Belinda L. Morgan
- ------------------------------- -----------------------------
TITLE: President TITLE: Director of Operations
- ------------------------------- --------------------------
DATE: June 16, 1997 DATE: June 13, 1997
- ------------------------------- --------------------------
-11-
<PAGE>
SCHEDULE A
GENERAL SERVICES AND PRICING
1. Client Services
a. An assigned Account manager who will provide the following
services:
- Scheduled visits to Client's site at least on a monthly
basis
- Participation in project planning and status review
- Problem resolution
- Assistance in meeting Client's needs
- Awareness of Nova capabilities and industry trends in
application development
- Available and on-call to Client executive management
b. Complete problem management capabilities, including:
- Customer Support staff
- Problem tracking
- Executive escalation
- On demand status reporting
Standards for telephone problem resolution will include the
following:
(1) Telephone support will be available from 8:00 a. m. to
5:00 p. m., Eastern Standard Time, Monday through
Friday, except for holidays.
(2) Telephone support will be offered on an emergency basis
after normal hours and on weekends.
(3) Calls will be handled as quickly as possible, with the
goal being to respond to all calls in one hour or less.
(4) Operational assistance of non operating system nature in
the event of system downtime.
(5) Classification of reference manual material.
2. Online Service
a. Regular Service Hours (Eastern Standard Time):
<TABLE>
<CAPTION>
From To
<S> <C> <C>
Monday 0800 1800
Tuesday 0800 1800
Wednesday 0800 1800
Thursday 0800 1800
Friday 0800 1800
Saturday 0800 1300
</TABLE>
-12-
<PAGE>
In order to meet these time schedules, Client work must be received in
Nova's processing center not later than 6:00 p.m. daily. In the event of
delay, client may experience a delay in availability of on-line access.
Subject to Nova receiving Client's work on a timely basis and except for
system failure due to reasons beyond Nova's control, Nova warrants that
it will provide on-line service to Client of at least 95% of the regular
service hours set forth herein.
Should Client remote capture its data, Client must transmit balanced
files to Nova not later than 6:30 p.m., Eastern Standard Time. In the
event of delay in transmission, Client may experience a delay in
availability of on-line access. Subject to Nova receiving Client's
balanced files on a timely basis and except for system failure due to
reasons beyond Nova's control, Nova warrants that it will provide online
service to Client of at least 95% of the regular service hours set forth
herein.
b. Extended Service Hours:
Time requested to compensate for host site downtime which
occurred that same day (not to exceed a period of time equal to
the outage):
c. Other Service Hours:
Nova will, as scheduling permits, provide and bill for online
service hours outside those defined as "Regular Service Hours".
All such charges below shall be prorated to the nearest 10
minutes.
(1) Additional time scheduled at least 24 hours in advance:
$_____ per elapsed hour.
(2) Additional time scheduled within 24 hours of request:
$_____ per elapsed hour.
(3) Sunday and Holiday time scheduled. (Holidays for which
Nova assesses a surcharge are Washington's Birthday,
Memorial Day, Independence Day, Veteran's Day, Columbus
Day, Labor Day, Thanksgiving Day, Christmas Day, and New
Years Day):
Minimum of 8 hours at $_____ per day.
3. Software Development
All Nova activity requested and approved by Client will be billed at the
rates shown below unless the client and Nova have agreed to a fixed
price for a specific project.
a. Professional Rates: $_____ per hour
b. Resource Utilization Rates: See Schedule C
-13-
<PAGE>
4. Forms
All custom forms will be billed at ________ as Nova is invoiced by the
forms vendor. Client reserves the right to provide all custom forms or
contract independently for forms subject to specifications acceptable to
Nova.
5. Third Party Services
Client shall pay all reasonable travel and associated expenses incurred
by Nova as a result of services provided under this Agreement.
6. Third Party Services
a. All Third Party Services not specifically addressed elsewhere in
this Agreement will be billed to Client at _________ as Nova is
invoiced by each vendor.
b. Should Client request that Nova contract with a third party
vendor for an extended term in order to obtain more favorable
rates for any lines, modems or other equipment, Nova and Client
shall enter into an Addendum to this Agreement relative to such
third party contract.
c. Third party services contracted by Client and invoiced directly
to Client shall not be subject to surcharge by Nova. If
contracted services are billed through Nova a surcharge of
_____% will be assessed to Client.
7. Special Results
Should Client require services other than those specifically addressed
in this Agreement, Client should request such service in writing from
Nova. Nova will prepare a proposal relative to the provision of such
service. Generally, these proposals are provided without charge. In some
cases, the complexity of the request may require Nova to assess a charge
for preparation of the proposal but only in the event the proposal is
rejected by Client. Prior to developing any complex proposal, Nova will
notify Client that there will be a charge for development of the
proposal, but that such charge will be assessed only if the proposal is
rejected.
-14-
<PAGE>
SCHEDULE B
DISASTER RECOVERY SERVICES
SOLV(TM) 2000
1. To safeguard its client and its Data Center, Nova provides the services
listed below to all of its clients at no extra charge.
a. Tape Backup and Off-Site Storage:
Nova performs full-pack backups of all client data, programs,
and user libraries on a weekly basis. These backups are
performed each weekend after processing and are moved to
off-site storage on the next business day. The off-site storage
rotation is three generations with the oldest copy returned to
Nova.
b. Data Center Support System:
Nova maintains support systems for the Data Center to reduce the
threat of the loss of normal business functions. These support
systems include:
- Smoke and heat detectors throughout the building
- Emergency power system (Uninterruptible Power
- Supply) Secured limited access program in effect
2. Nova's responsibility for disaster recovery is limited to that specified
in Section 1. However, should Nova's data processing facility be
substantially damaged or destroyed to the extent that Nova is no longer
capable of providing data processing services to Client under this
Agreement, Nova will assist client in locating and obtaining an
alternate processing site to enable Client to resume processing. Client
shall not incur any cost of recovery in the event Nova's security and/or
operation center is destroyed, In the event of a disaster, Nova agrees
to provide limited access to a backup system within 24 hours .
Processing will be re-established according to disaster plan within the
24 hour time span.
<PAGE>
SCHEDULE C
PROCESSING SERVICES AND PRICING
SOLV(TM)
1. Back Office Processing (monthly fee):
Nova offers complete back office processing in the Atlanta Data Center.
The fees for the first year's service described in Schedule E is as
follows:
<TABLE>
<S> <C> <C>
Month 1-3 $_____
Month 4-6 $_____
Month 7-9 $_____
Month 10-12 $_____
</TABLE>
There after (Month 13 through the remaining term of the Agreement) the
fees will be $_____ per month or Schedule E whichever is greater.
In addition to the monthly fees, a $_____ per day transmission fee will
be charged for transmitting the transaction file to your processor.
<PAGE>
SCHEDULE D
IMPLEMENTATION FEE
The implementation fees associated with the start up of the Bank will be $_____.
Implementation fees shall be billed upon execution of this Agreement and will be
payable upon the approval of transfer and establishment of the charter for
Atlanta Internet Bank. In the event Atlanta Internet Bank is unsuccessful in
establishing an independent entity in Georgia, as contemplated, Nova will bill
Atlanta Internet Bank fees equal of $_____ per day for efforts expended in
setting up for implementation of the Bank's outsourced item processing. Client
agrees to reimburse Nova for reasonable out-of-pocket expenses.
ORGANIZATIONAL EFFICIENCY SERVICES
The Organizational Efficiency Services will be provided for $_____ and shall be
billed and payable upon execution of this Agreement. The services are generally
described as follows:
1) Establishing the General Ledger Chart of Accounts, with
consideration given and procedures established for Expenses,
Accruals, Regulatory Reporting, Fed Reporting, Reserve
Requirements, Investments, Income Tracking and Reporting, as
well as any interface requirements.
2) Establish definition for bank responsibilities, processor
responsibilities, guidelines, settlement issues, wire
procedures, deposit procedures, return item procedures, as well
as to either select or develop an Audit Group.
3) Secure your new Routing and Transit number, ISO number, and
coordinate the FRB District move.
4) Additionally, Nova will assist in any other matter not listed
here that is deemed necessary in providing for a sound
operational environment.
<PAGE>
SCHEDULE E
BACK OFFICE PROCESSING (BOP)
SCHEDULE OF CHARGES
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
POD UNIT COST IMAGE PRODUCTS UNIT COST
- ------------------------------------------------------------------------------------------------------------------------------
POD RECEIVED (pre-encoded) $_____/ITEM POD RECEIVED (pre-encoded) $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
POD RECEIVED (non-encoded) $_____/ITEM POD RECEIVED (non-encoded) $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
CHECK STORAGE $_____/ITEM CHECK STORAGE $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
FILMING $_____/ITEM PLATTER CAPTURE $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
PROOF CORRECTIONS $_____/ITEM PROOF CORRECTIONS $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
STATEMENT PREPARATION UNIT COST IMAGE PRODUCTS UNIT COST
- ------------------------------------------------------------------------------------------------------------------------------
FINE SORT (Inclearings and POD) _____ FINE SORT (Inclearings and POD) N/A
- ------------------------------------------ --------------------- --------------------------------- ---------------------------
STATEMENT PREPARATION $_____/STATEMENT STATEMENT PREPARATION
INDIVIDUAL/COMMERCIAL INDIVIDUAL COMMERCIAL $_____/STANDARD 3 PAGE
STATEMENT
SAVINGS/TRUNCATED $_____/STATEMENT $_____ ADDITIONAL PAGES
$_____/TRUNCATED ACCOUNT
STATEMENT
- ------------------------------------------------------------------------------------------------------------------------------
INSERTS SEE NOTES INSERTS SEE NOTES
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
RETRIEVAL $_____/ITEM RETRIEVAL $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
RESEARCH $_____/ITEM RESEARCH $_____/ITEM
- ------------------------------------------------------------------------------------------------------------------------------
COPIES $_____/COPY COPIES $_____/COPY
- ------------------------------------------------------------------------------------------------------------------------------
RAX $_____/COPY FAX $_____/COPY
- ------------------------------------------------------------------------------------------------------------------------------
FED RETURNS $_____/ITEM FED RETURNS $_____ COPY
- ------------------------------------------------------------------------------------------------------------------------------
EXCEPTION ITEM PULL $_____/ITEM EXCEPTION ITEM PULL $_____/ITEM
(NSF, Stop Pays, etc.) (NSF, Stop Pays, etc.)
- ------------------------------------------------------------------------------------------------------------------------------
POSTAGE POSTAGE
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE. Minimum monthly charge is $_____ plus direct passthroughs.
PROCESSING SCHEDULE:
The daily schedule depends on the following variables:
1. Customer's daily business hours
2. Availability schedules
3. Courier schedules
4. Location of POD encoding
5. Volume
<PAGE>
BACK OFFICE OUTSOURCING
DESCRIPTION OF SERVICES
PROOF & ENCODING
Proof/encode all items
Customer corrections
Teller corrections
ITEM PROCESSING
Balancing
Cash letter preparations sends
Reject/re-entry
Fed Inclearings and related adjustments
EXCEPTION ITEM PROCESSING
Pull exceptions
Implement decisions of bank-mail notices
Stop suspect review
Stop payment verification
Holds, suspects review
Large dollar review
"Special Handling" amounts (i.e., 2 signatures)
CHARGEBACKS FROM FED
ACH/EFT
Bank receives ACH to Fedline at bank; upload file to NOVA
Balance ACH
Reject/re-entry
RESEARCH AND ADJUSTMENTS
DORMANT ACCOUNTS
KITE SUSPECTS
MISCELLANEOUS NOTICES
RECORD STORAGE/RETENTION
IRA OPERATIONS (OTHER RETIREMENT ACCOUNTS)
IOLTA'S
SAFE DEPOSIT BOX PROCESSING/BILLING (not priced at this time)
MAIL OPERATIONS
STATEMENT RENDERING
<PAGE>
SCHEDULE F
In the event that the Client terminates this Agreement, Nova shall be entitled
to retain any conversion fees and charges due or paid for initial conversion.
Further, the following termination charges shall apply:
If termination occurs prior to month 18 of the initial term of the agreement,
but after conversion to the Nova system, then the termination charge will be
____% of the actual first years billing for processing services. If the
termination occurs prior to the 12th month of service, the first year's billing
will be projected using an average of the last 3 months billing times 12.
If termination occurs in month 19 or later of the initial term of the agreement,
the termination charge will be _____% of the immediately preceding 12 month's
billing.
<PAGE>
EXHIBIT 10.13
Confidential portions of this exhibit have been redacted
pursuant to the rules and regulations of the Securities and Exchange Commission
TOTAL ACCESS BANKING
ADDITIONAL SERVICES ADDENDUM TO
SERVICES AGREEMENT NO. CHH-2217-12-91 DATED ____________ ("Services Agreement")
I. ORDER
BISYS, Inc. ("BISYS"), agrees to sell the equipment and to license the
computer software programs (the application system software, the
sub-system software, and the operating system software collectively,
the "Programs") collectively known as the Total Access Banking System
(the "System") to the client subject to the terms and conditions set
forth herein and in the separately executed End User Software License
Agreement (the "Software License").
II. TERM
The term of this Addendum shall be coterminous with the term of the
Services Agreement.
III. MAINTENANCE
A. During the term hereof, BISYS agrees to maintain the Programs
licensed to Client pursuant to the terms of an End User
Software License Agreement between Client and BISYS with
respect to the Programs. For purposes of this Addendum,
"BISYS" shall include BISYS and any third party authorized by
BISYS to provide hardware and/or software maintenance on
BISYS' behalf.
B. Client shall receive, at no additional charge, all new
versions of the Program(s) and revised documentation as well
as all enhancements, corrections, and alterations produced by
BISYS or received by BISYS from the "BISYS LICENSOR" (as such
term is defined in the Software License) so long as Client
does not materially breach, and has not materially breached,
any provisions of the Services Agreement, the End User
Software License Agreement, or this Addendum.
C. BISYS shall use all reasonable efforts to correct any
verifiable and reproducible error or defect in the Program(s)
or replace said defective Program(s) and/or provide assistance
or services necessary to correct any defect that is solely
attributable to BISYS or BISYS Licensor and that significantly
affects the use of the Program(s) such that the System does
not materially perform in accordance with its designed
specifications. Such corrections or replacements will be
promptly provided upon written notification to BISYS. At its
expense and if requested by BISYS, Client agrees to provide
BISYS with sufficient support to enable BISYS to determine and
diagnose problems encountered in order to conclude that the
problem is in fact with the Program(s) and to correct the
problem or defect. Corrections for defects due to unauthorized
Program changes will be billed at BISYS' standard rates for
such services.
D. As more fully described below, BISYS shall perform such
maintenance service as shall be necessary to keep any
equipment purchased or leased by Client from BISYS for the
purpose of utilizing the Programs (the "Equipment") in, or
restore the Equipment to, good working order operating in
accordance with its specifications.
1. If at the date the parties hereto enter into this
Addendum, the Equipment (or any part thereof) is not
under an applicable warranty period from the
manufacturer, BISYS may, at its option, inspect and
test the Equipment within 30 days of the date hereof
for such Equipment. If in BISYS' reasonable judgment
such Equipment is not in good working order, BISYS
shall restore the Equipment to good working order,
and shall bill Client
1
<PAGE>
for such inspection, test and restoration services at
prevailing rates, plus travel and other direct costs.
2. Client shall give BISYS' representatives full and
free access to the Equipment upon reasonable notice.
3. With respect to Equipment maintenance services
hereunder, the obligations of BISYS and Client shall
be as follows:
a. In the event of a malfunction in the
Equipment, Client shall first seek telephone
assistance from BISYS. BISYS and Client
shall cooperate in the identification,
verification and possible resolution of
Equipment problems;
b. If the malfunction cannot be corrected
through telephone assistance, BISYS, at its
option, shall provide on-site maintenance
through its authorized representative. Such
representative shall repair or replace all
or part of the Equipment and shall perform
such other services necessary to return the
Equipment to good working order, or, at Its
option, BISYS shall provide replacement
equipment on a temporary loan basis
delivered by overnight courier service,
Monday through Saturday, except holidays.
Upon repair and return of the defective
Equipment pursuant to paragraph
III.(D)(3)(c), Client shall within five (5)
days pack and return any loaned equipment
according to BISYS' instructions. Client
will pay all packing and transportation
costs for replacement equipment shipments.
c. Client shall, with the authorization and
according to the instructions of BISYS, pack
and return by overnight courier the affected
Equipment or part back for repair. Client
will pay all transportation costs for the
returned Equipment. The returned Equipment
shall be repaired or replaced with new or
equivalent to new manufactured equipment at
BISYS' option.
d. If the loaned equipment is not returned
within five (5) days, Client will be
invoiced for the loaned equipment at the
list price then in effect.
4. Services outside the scope of BISYS' obligations
under this Addendum includes, but is not limited to
the following:
a. Maintenance, repair or replacement of any
peripheral equipment, including, but not
limited to, personal computers, video
displays, printers, modems, linedrivers or
cables;
b. Electrical work external to the Equipment;
c. Repair or replacement necessitated by damage
to or other defects in the Equipment
resulting from causes external to the
Equipment, including neglect or misuse,
unauthorized attachments or modifications,
use of the Equipment for other than its
intended purpose, service or repair of
Equipment by persons other than BISYS or
other persons authorized by BISYS;
d. Services in connection with relocating the
Equipment or the addition or removal of item
of Equipment attachments, features,
accessories, or other devices, or the
service of alterations, attachments, or
other devices not furnished by BISYS;
e. Furnishing supplies or other accessories, or
painting or refinishing the Equipment;
f. Repair or exchange due to damage, or
increase in service time, caused by events
beyond BISYS' control, such as accident,
transportation, water, wind, fire, sabotage,
explosion, vandalism, burglary, and failure
of electrical power, alterations or
additions to Equipment not furnished by
BISYS;
g. Repair or exchange caused by the failure to
provide a suitable environment prescribed by
BISYS including adequate space, electrical
power, air conditioning, and humidity
control.
2
<PAGE>
IV. HARDWARE WARRANTY
A. BISYS warrants that the Client will acquire good and clear
title to the Equipment purchased. BISYS further warrants that
for one-hundred eighty (180) days after shipment, the
Equipment shall be free from defects in design, material and
workmanship and shall not fail in any material respect to
execute its programming instructions. Written notice of any
claimed defect must be received by BISYS within such 180-day
period.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESSED OR IMPLIED (INCLUDING, WITHOUT LIMITATION, THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE).
IN THE EVENT OF ANY LOSS OR DAMAGE TO THE CLIENT, WHETHER
UNDER WARRANTY, CONTRACT OR OTHERWISE, DIRECT OR INDIRECT,
INCIDENTAL OR CONSEQUENTIAL, BISYS SHALL HAVE NO LIABILITY
BEYOND REPAIR OR REPLACEMENT OF DEFECTIVE ITEMS, COMPONENTS OR
PARTS AS SET FORTH HEREIN. IN NO EVENT WILL SISYS BE LIABLE
FOR DAMAGES IN EXCESS OF ALL CHARGES PAID BY THE CLIENT IN
RESPECT OF ANY DEFECTIVE ITEM, COMPONENT OR PART UNDER THIS
AGREEMENT.
B. BISYS warranty is contingent upon proper use of the Equipment
in accordance with BISYS installation and operating manuals
and (a) does not cover the Equipment if modified by anyone
other than BISYS or BISYS' authorized representatives; (b)
does not apply if adjustment, correction, repair or
replacement of the Equipment, wholly or partially, is required
because of accident, neglect or operating conditions outside
of specifications; (c) does not cover defects in any central
processing unit, associated software, terminals, controllers
or telephone equipment used with the System and associated
equipment; (d) does not cover malfunctions caused by defects
in or arising from the installation, training or servicing
other than by authorized BISYS representatives; and (e) does
not apply if the Client has rejected any corrections, updates
or modifications made available or supplied by BISYS.
V. EXPENSES
Client shall reimburse BISYS for any out-of-pocket expenses incurred by
BISYS in performing its obligations hereunder. Expenses include travel,
lodging, meals, telephone, and shipping as may be necessary to perform
under this Addendum.
VI. TITLE
Any new versions of the Program, including enhancements, modifications,
alterations, or changes thereto provided under this Addendum shall
remain the proprietary property of BISYS LICENSOR to the same extent as
do the Licensed Materials as set forth in the Software License.
VII. PRICES AND FEES
Prices and fees are as specified on the attached Price Schedules. The
schedules are subject to change as specified in the Services Agreement.
Client hereby agrees to pay the specified charges in consideration for
the services and products provided hereunder and to abide by the terms
of the attached Total Access Banking End User Software License
Agreement; and all terms and conditions in the Services Agreement shall
remain unchanged.
3
<PAGE>
TOTAL ACCESS BANKING
ADDITIONAL SERVICES ADDENDUM - CONTINUED
LICENSEE: Atlanta Internet Bank
---------------------------
BISYS, INC. Client's City/State: Atlanta, GA
----------------
Approved by: /s/ W.W. Neville Approved by: /s/ D.R. Grimes
--------------------- ------------------------
Name: W.W. Neville Name: D.R. Grimes
---------------------------- -------------------------------
Title: Sr. V.P. Date: Title: Vice Chairman Date: 3/13/97
--------------------------- ------------------------------
4
<PAGE>
TOTAL ACCESS BANKING
PRICE SCHEDULE
<TABLE>
<CAPTION>
I. PRODUCT AND ANNUAL SERVICE PURCHASE ANNUAL SUPPORT
PRICE AND MAINTENANCE
BASE SYSTEM --------------- ---------------------
-------------------------
<S> <C> <C>
4 Line Analog Line Model $ _____ $ _____
-------
X 8 Line Analog Line Model $ _____ $ _____
-------
12 Line Analog Line Model $ _____ $ _____
-------
16 Line Analog Line Model $ _____ $ _____
-------
24 Line Analog Line Model $ _____ $ _____
-------
Additional Line Upgrade
Line Analog Upgrade $ _____ $ _____
-------
Application System
Deposits Application $ _____ $ _____
Mortgage Loan Application $ _____ $ _____
Installment Loan Application $ _____ $ _____
Site License $ _____
Installation Fee(1) $ _____
Includes two (2) days on-site system
installation and training.
II. MONTHLY RECURRING SERVICE FEES
Voice Response Transaction Fee
Total Access Banking System ($___ MINIMUM) $ _____
/transaction/month
Other (Third Party) ($____ MINIMUM) $ _____
/transaction/month
Terminal Connect Fee $ _____
/line/month
Extended On-Line Availability(2) $ _____
The client hereby ____ does ____ does not
Subscribe to extended on-line update availability
</TABLE>
- --------
(1) Plus travel and lodging expenses
(2) Under the extended on-line option, the TAB system will be available 7
days a week, 23+ hours a day, 365 days a year except for periods of
non-availability on selected Saturdays or Sundays for required
maintenance of the BISYS Host system hardward and/or software. BISYS
agrees to provide clients with prior written notice of the scheduled
periods of non-availability.
5
<PAGE>
TOTAL ACCESS BANKING
END USER SOFTWARE LICENSE AGREEMENT
This Agreement, made as of March 13, 1997 between BISYS, Inc. (hereinafter
"Licensor"), having an address at 11 Greenway Plaza, Houston, Texas 77046 and
Atlanta Internet Bank, having an address at 7000 Peachtree-Dunwoody Road, Bldg.
10 Suite 300, Atlanta GA 30328 (hereinafter "Licensee").
B"ISYS LICENSOR" means that company which has licensed this software to BISYS.
BISYS provides to Licensee the computer software and other related data,
including intellectual data, proprietary information and user documentation that
is contained on the medium in the Total Access Banking product herein referred
to as the "Licensed Materials" and hereby licenses its use. Licensee assumes
responsibility for the selection of the Licensed Materials to achieve Licensee's
intended results, and for the installation, use and results obtained from the
Licensed Materials.
I. SCOPE OF LICENSE
A. Licensor grants and Licensee accepts, a non-exclusive,
non-transferable, perpetual license to use the Licensed Materials in
accordance with the terms of this End User Software License Agreement.
B. Licensor represents that the BISYS Licensor is sole and exclusive
owner to, or has obtained all rights, titles, and interest in and to
the Licensed Materials issued under this license, and to all
modifications and enhancements thereof developed by BISYS Licensor
(including ownership to all trade secrets and copyrights pertaining
thereto). Nothing in this license should be construed to be a grant of
title or ownership of software to Licensee.
C. Licensee agrees that R may (1) use the Licensed Materials only in
conjunction with Syntellect equipment; (2) make one copy of the
Licensed Materials for archival purposes only; and (3) use the
Licensed Materials only for internal purposes.
D. Licensee agrees ft may not reverse-engineer, merge, or otherwise
modify the object code, or assign or transfer the Licensed Materials
to any other party except to a successor in interest of the Licensee's
business that assumes all of the Licensee's obligations with respect
to the Licensed Materials.
E. Licensee agrees that the Licensed Materials and all manuals, documents
and other information marked "Confidential Information" will be
accepted by Licensee in confidence, and Licensee will guard against
disclosure of such information, and shall use all reasonable efforts
to protect and defend the confidential nature of the software and
related materials.
F. Licensee agrees that ft will retain and affix as appropriate, all
copyright, patent, or other notices; proprietary legends; trademarks,
logos, and other restrictive markings.
G. Licensee acknowledges that Licensor limits its warranty of the
sub-system software and operating system software (portions of the
Licensed Materials owned by BISYS Licensor) to 180 days after
shipment, and warrants that the software shall not fail in any
material respect to execute Ks programming instructions due to defects
in materials and workmanship. THE FOREGOING WARRANTY IS IN LIEU OF ALL
WARRANTIES, EXPRESS OR IMPLIED (INCLUDING WITHOUT LIMITATION), THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
H. Licensee acknowledges that software support is not provided for in
this Agreement, but is available from Licensor upon payment of the
applicable fees, and upon execution of a separate Total Access Banking
Additional Services Addendum.
Page 1 of 4
<PAGE>
I. Licensee agrees that Licensor and BISYS Licensor SHALL NOT BE LIABLE
FOR ANY LOSS OF PROFITS, LOSS OF USE, INTERRUPTIONS OF BUSINESS, OR
FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
KIND, WHETHER UNDER THIS LICENSE OF OTHERWISE.
J. Licensee acknowledges that Its obligations remain in effect for as
long as it continues to possess and use the Licensed Materials, and
such obligations shall be for the benefit of, and enforceable by,
Licensor.
LICENSEE MAY NOT USE, COPY, MODIFY, OR TRANSFER THE LICENSED MATERIALS,
OR ANY COPY, MODIFICATION OR MERGED PORTION, IN WHOLE OR IN PART,
EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS LICENSE. IF LICENSEE TRANSFERS
POSSESSION OF ANY COPY, MODIFICATION OR MERGED PORTION OF THE LICENSED
MATERIALS OR ANY RELATED DOCUMENTATION TO ANOTHER PARTY, THIS LICENSE
SHALL AUTOMATICALLY TERMINATE.
II. TERM
The term of this license is perpetual, unless and until it is terminated
under one of the following conditions:
A. Licensee agrees that Licensor may terminate this License if Licensee
materially breaches any provisions of this agreement or the Total
Access Banking Additional Services Agreement and the breach remains
unresolved for a period of thirty (30) days from receipt of written
notice by the Licensor. Upon such termination, Licensee agrees to
return the Licensed Materials together with all copies in any form.
B. Either party gives the other written notice of cancellation at least
sixty days prior to the effective date of such cancellation. The
Licensee agrees to return the Licensed Materials together with all
copies in any form.
III. DELIVERY AND ACCEPTANCE
A. BISYS shall deliver Licensed Materials to Licensee, in a machine
readable format accompanied by appropriate documentation.
B. The Licensed Materials and related documentation delivered to Licensee
shall be deemed to be accepted by Licensee within 30 days after
delivery unless BISYS is notified in writing to the contrary. Any
notification by Licensee within such 30 day period shall set forth
with particularity any defects or objections to the Licensed
Materials. Within a reasonable period after receipt of such notice,
BISYS shall correct and redeliver the Licensed Materials and if
accepted by Licensee, BISYS shall have no further liability with
respect to delivery of the Licensed Materials.
IV. LIMITED WARRANTY
A. EXCEPT AS STATED ABOVE IN PARAGRAPH l(G) AND IN THIS SECTION THE
LICENSED MATERIALS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND,
EITHER EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF THE LICENSED
MATERIALS IS WITH LICENSEE. SHOULD THE LICENSED MATERIALS PROVE
DEFECTIVE, LICENSEE (AND NOT BISYS LICENSOR) ASSUMES THE ENTIRE COST
OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION BEYOND THE WARRANTY
PERIOD. SOME STATES DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES,
SO THE ABOVE EXCLUSION MAY NOT APPLY TO LICENSEE. THIS WARRANTY GIVES
LICENSEE SPECIFIC LEGAL RIGHTS, AND LICENSEE MAY ALSO HAVE OTHER
RIGHTS WHICH VARY FROM STATE TO STATE.
Page 2 of 4
<PAGE>
B. BISYS warranty is contingent upon proper use of the Licensed Materials
in accordance with BISYS installation and operating manuals and does
not cover Licensed materials if modified by anyone other than BISYS or
BISYS' authorized representatives; (b) does not apply if adjustment,
correction, repair or replacement of the Licensed Materials, wholly or
partially, is required because of accident, neglect or operating
conditions outside of specifications; (c) does not cover defects in
any central processing unit, associated software, terminals,
controllers or telephone equipment used with the Licensed Materials
and associated equipment; (d) does not cover malfunctions caused by
defects in or arising from the installation, training or servicing
other than by authorized BISYS representatives; and (e) does not apply
if the Licensee has rejected any corrections, updates or modifications
made available or supplied by BISYS.
C. BISYS and BISYS LICENSOR do not warrant that the functions contained
in the Licensed Materials will meet Licensee requirements or that the
operation of the program will be interrupted or error free.
D. BISYS and BISYS LICENSOR do warrant to Licensee that the tape(s),
CD-ROM(s) or diskette(s) on which the software is furnished, will be
free from defects in materials and workmanship under normal use for a
period of fourteen (I 4) days from the date of delivery to Licensee.
V. MAINTENANCE
Neither BISYS nor the BISYS LICENSOR shall have any responsibility to
maintain the Licensed Materials unless Licensee executes BISYS' Total
Access Banking Additional Services Addendum (the "Addendum"). Upon
execution of the Addendum, maintenance shall be performed by BISYS pursuant
to the terms and conditions of the Addendum.
VI. LIMITATION OF LIABILITY AND REMEDIES
A. BISYS and BISYS LICENSOR'S entire liability and Licensee's exclusive
remedies shall be:
1. The replacement of the software pursuant to the warranty in
Paragraph l(G) above. Any notification by Licensee within the
warranty period shall set forth with particularity any defects or
errors to the system software. Within a reasonable period after
receipt of such notice, BISYS or BISYS Licensor shall correct and
redeliver the System Software to the Licensee, and if accepted by
Licensee, BISYS shall have no further liability. If not
corrected, BISYS will continue to provide the correction to
Licensee at no charge.
2. The replacement of any tape(s), CD-ROM(s) or diskette(s) not
meeting the warranty, described in Paragraph IV(C) above, which
are returned to BISYS, or
3. BISYS is unable to deliver a replacement tape(s), CD-ROM(s) or
diskette(s) which are free of defects in materials or workmanship
within a reasonable time after Licensee has returned such
tape(s), CD-ROM(s) or diskette(s) to BISYS (provided that
Licensee has returned such tape(s), CD-ROM(s) or diskette(s)
within the warranty period described in Paragraph IV(C) above),
Licensee may terminate this Agreement by returning the Licensed
Materials to BISYS and fees paid by Licensee for the Licensed
Materials shall be refunded to Licensee.
B. IN NO EVENT WILL BISYS OR BISYS LICENSOR BE LIABLE TO LICENSEE FOR ANY
DAMAGES, INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL
OR CONSEQUENTIAL DAMAGES, ARISING OUT OF THE USE OR INABILITY TO USE
SUCH LICENSED MATERIALS, EVEN IF BISYS OR BISYS LICENSOR HAVE BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR ANY CLAIM BY ANY
OTHER PARTY. SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF
LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO LICENSEE.
Page 3 of 4
<PAGE>
VII. GENERAL
A. Licensee may not sublicense, assign or transfer this license or the
Licensed Materials or any related documentation except as expressly
provided in this Agreement, and any attempt to do so shall be void.
B. Should Licensee have any questions concerning this Agreement, it may
contact BISYS by writing to BISYS, Inc., 11 Greenway Plaza, Houston,
Texas 77046-1102.
C. Licensee acknowledges that it has read this Agreement, understands it
and agrees to be bound by its terms and conditions. It is further
agreed that the BISYS Services Agreement will govern in the event of
any express conflict between the Services Agreement and this Agreement
with respect to the Licensed Materials.
LICENSEE: Atlanta Internet Bank
BISYS, INC. Client's City/State: Atlanta, GA
Approved:/s/ W.W. Neville Approved by:/s/ D.R. Grimes
-------------------------- ---------------
Name:W. W. Neville Name:D.R. Grimes
------------------------------ -----------
Title: /s/ Sr. V.P. Date: Title:Vice Chairman Date: March 10, 1997
------------------ ------ ------------ -------------
Page 4 of 4
<PAGE>
EXHIBIT 10.14
Confidential portions have been redacted pursuant to the rules
and regulations of the Securities and Exchange Commission
UVEST BROKERAGE SERVICES AGREEMENT
THIS AGREEMENT, made this ____ day of November, 1998 (the "Agreement"),
by and between UVEST Investment Services, Inc. d/b/a UVEST Financial Services
Group, Inc. ("UVEST") and Atlanta Internet Bank, Atlanta, Georgia ("Financial
Institution");
WITNESSETH THAT:
WHEREAS, Financial Institution desires to make a broad range of
securities brokerage services available to its customers; and
WHEREAS, UVEST desires to provide Financial Institution's customers
with such brokerage services.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby covenant and agree as follows:
1. SERVICES
1.1 Services To Be Performed By UVEST
(a) UVEST will accept, establish and maintain cash and/or
margin accounts for customers of Financial Institution pursuant to the policies
and guidelines established by UVEST and in accordance with all applicable
federal and state securities laws and the laws, regulations, rules and
procedures of the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc.
(b) UVEST will execute, clear and settle orders for the
accounts of Financial Institution's customers that have been accepted by UVEST
(the "Customer"), but only insofar as such orders are transmitted by the
Customer to UVEST. As used in this Agreement, the term "securities" shall have
the meaning set forth in the Securities Exchange Act of 1934, as amended,
including without limitation, debt and equity instruments, mutual funds,
variable annuities, fixed annuities and other financial instruments and products
approved by appropriate regulatory agencies from time to time by financial
institutions, but such term shall not include commodities.
(c) UVEST shall make available to Customers local and/or
interstate toll-free telephone service for placing orders and for Customer
service. That telephone service shall be staffed by personnel of UVEST who may
identify the services provided as services of UVEST, a registered trademark of
UVEST Financial Services Group, Inc.
(d) UVEST will prepare, print and mail to each Customer at his
or her address of record on the books of UVEST confirmation information
respecting the execution of each order for the Customer. Each such confirmation
will display the name of UVEST and the Clearing Agent.
<PAGE>
(e) Subject to the provisions of Section 6.2(b), UVEST will
prepare, print and mail monthly statements to the Customers at their address of
record on the books of UVEST (or quarterly statements if no activity in an
account occurs during any quarter covered by such statement and there is a cash
balance or securities position in such account). No statements will be prepared
for an account if there has been no activity and there is no cash balance or
security position unless otherwise required by law. Each statement will display
the name of UVEST, the Clearing Agent and the Financial Institution.
(f) UVEST will be responsible for the receipt of the customer
securities, delivery of customer securities, making and receiving payment
therefor and holding in custody and safekeeping all securities. All cash
remaining in a Customer's account at the close of each business day shall be
swept to the Customer's account with Financial Institution, provided, that UVEST
and/or Financial Institution obtain authorization from such Customer which
authorization may be obtained through the UVEST Brokerage Account
Acknowledgement and Customer Agreement, as applicable, or through other means
utilized by UVEST and/or Financial Institution. UVEST shall also be responsible
for the handling of margin accounts, the receipt of dividends, interest and
other distributions, and the processing of exchange offers, rights offerings,
tender offers, redemptions, proxy material, annual reports and other material
distributed to shareholders generally. It shall be the responsibility of UVEST
to comply with any and all state and federal securities laws including, without
limitation, prospectus delivery requirements with respect to Customers that
purchase securities requiring such delivery.
(g) All Customer accounts shall be maintained as accounts of
UVEST or of UVEST's designated Clearing Agent, and UVEST will maintain books and
records of all transactions executed by Customers through it in accordance with
applicable law.
(h) UVEST, in its sole judgment, reserves the right to reject
any Customer or order thereof and to terminate any Customer previously accepted
by it as a Customer account, which right shall not be unreasonably exercised and
shall only be exercised upon written notice to Financial Institution stating
with particularity the reasons for such rejection or termination.
(i) UVEST shall be responsible for providing annual dividend
and distribution information as contained in IRS Form 1099 and any other
information required to be reported to Customers by federal, state or local tax
laws, rules or regulations, but only with respect to events subsequent to the
effective date of this Agreement.
(j) All transactions in any Customer account are to be
considered cash transactions until such time as UVEST has received and approved
a duly and validly executed margin agreement with such Customer. UVEST shall be
responsible for the operation of such margin accounts in accordance with all
applicable laws, rules and regulations. UVEST shall have complete authority and
control over the terms, conditions and operations of margin accounts and shall
have the right, in its sole discretion, to modify the margin requirements of any
account as provided in the margin agreement.
2
<PAGE>
(k) UVEST may delegate any or all of its duties under this
Section 1.1 to a clearing agent of its choice which may, but is not required to
be Pershing, a division of Donaldson, Lufkin & Jenrette Securities Corporation
(the "Clearing Agent"); provided, however, that UVEST shall remain responsible
for the provision of such duties under this Section 1.1. UVEST shall give
Financial Institution notice of any change in the Clearing Agent it uses to
perform such services and will provide Financial Institution notice prior to any
such change. UVEST shall also immediately notify Financial Institution of any
change of its relationship (contractual or otherwise) with Digitrade, Inc..
1.2 Activities to be Performed by Financial Institution
(a) Financial Institution shall assist Customers in completing
UVEST's Brokerage Account Application and Customer Agreement, and, as
applicable, other required forms of UVEST and shall forward those completed
applications to UVEST. Copies of UVEST's Brokerage Account Application and
Customer Agreement will be provided to Financial Institution by UVEST.
(b) Financial Institution agrees to assist UVEST to (i) verify
the accuracy and completeness of the information contained in each Brokerage
Account Application and Customer Agreement and (ii) on a continuing basis, use
its best efforts to obtain from each customer and verify such documentation,
agreements and information as UVEST in its judgment deems necessary.
1.3 Activities to be Performed by Both Parties
(a) UVEST and the Financial Institution shall undertake a
marketing campaign, the scope of which shall be jointly agreed upon by both
UVEST and the Financial Institution, to promote the brokerage services offered
by UVEST to its customers.
(b) Materials to be utilized in connection therewith will
refer to UVEST and must be reviewed and approved by UVEST and the Financial
Institution prior to use.
(c) Neither Financial Institution nor UVEST will make any
investment recommendations and will not exercise any discretionary or other
authority with respect to the Customer accounts.
(d) Each party shall be responsible for compliance with
federal and state laws and regulations applicable to it.
2. CUSTOMER FEES AND UVEST CHARGES
Schedule A attached hereto and incorporated herein by reference sets
forth UVEST's present schedule of charges to Financial Institution's Customers.
Such charges may be changed by UVEST from time to time, but in no event shall
such charges be higher than UVEST's regular and customary charges for like
services to like institutions.
3
<PAGE>
3. FEES TO FINANCIAL INSTITUTION
As compensation for its activities hereunder, UVEST shall pay to
Financial Institution during the term of this Agreement, the transaction fees
set forth under Schedule B attached hereto and incorporated by this reference
with respect to all orders executed for Customer accounts. Amounts due to
Financial Institution are based on the current Commission Schedule A attached
hereto and shall be payable within 15 days of the end of the month during which
commissions from Customer accounts are received by UVEST.
4. MAINTENANCE OF BOOKS
UVEST shall carry all Customer accounts as UVEST accounts in the name
of the Customer. UVEST shall, upon written request, give Financial Institution
reasonable access during normal business hours to its books and records relating
to Customer accounts for the purpose of verifying fees payable under this
Agreement.
5. INDEMNIFICATION
5.1 UVEST shall defend, indemnify and hold harmless Financial
Institution (and each person or entity which controls Financial Institution
within the meaning of Section 20(a) of the Securities Exchange Act of 1934, as
amended, or Section 15 of the Securities Act of 1933, as amended), its affiliate
depository institutions and their respective directors, officers, agents and
employees against any and all losses, claims, damages, liabilities, actions,
costs or expenses to which such indemnified party may become subject to the
extent such losses, claims, damages, liabilities, actions, costs or expenses
arise out of or are based upon:
(a) the failure of UVEST to remain a member of the NASD or to
remain a duly licensed broker-dealer under federal and state securities laws;
(b) any violation of federal or state securities or insurance
laws (including, without limitation, laws relating to the registration or
qualification as a broker-dealer or insurance agent) by UVEST, its officers, its
agents or its employees arising out of the purchase, sale, offer to purchase or
offer to sell any security;
(c) any breach, default or violation of, under or with respect
to any of UVEST's duties, obligations, representations, warranties or covenants
contained in this Agreement; or
(d) any negligence, gross negligence, recklessness or willful
or intentional misconduct of, or violation of any law by UVEST or any UVEST
employee or agent.
UVEST agrees to maintain, in full force and effect, insurance in amounts
sufficient to meet its indemnification obligations under this Section 5.1.
5.2 Financial Institution shall defend, indemnify and hold harmless
UVEST (and each person or entity which controls UVEST within the meaning of
Section 20(a) of the Securities
4
<PAGE>
Exchange Act of 1934, as amended, or Section 15 of the Securities Act of 1933,
as amended), its directors, officers, agents and employees against any and all
losses, claims, damages, liabilities, actions, costs or expenses to which such
indemnified party may become subject to the extent such losses, claims, damages,
liabilities, actions, cots or expenses arise out of or are based upon:
(a) any breach, default or violation of, under or with respect
to any of Financial Institutions's duties, obligations, representations,
warranties or covenants contained in this Agreement; or
(b) any negligence, gross negligence, recklessness or willful
or intentional misconduct of Financial Institution or any Financial Institution
employee or agent.
5.3 Promptly after receipt by an indemnified party under this Section 5
of notice of any claim or the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the party to this
Agreement from which it is seeking indemnification under this Section 5, notify
such other party in writing of such claim or the commencement of such action,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability it may have to any indemnified party, except
to the extent that the indemnifying party demonstrates that its liability for
such action is prejudiced by the indemnifying party's failure to give notice. In
case any such action is brought against any indemnified party, and such
indemnified party notified UVEST or Financial Institution, as appropriate, of
the commencement thereof, as provided herein, UVEST or Financial Institution as
appropriate, shall be entitled to participate therein and, at its option, assume
the defense thereof. Upon assumption by UVEST or Financial Institution, as
appropriate, of the defense of such action, UVEST or Financial Institution, as
appropriate, will cease to be liable to such indemnified party under this
Section 5 for an legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
5.4 An indemnified party hereunder shall settle a claim for which it
has requested or intends to request indemnification only with the written
consent of the indemnifying party.
5.5 The indemnification provisions in this Section shall remain
operative and in full force and effect, regardless of the termination of this
Agreement and shall survive any such termination.
6. REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS
6.1 UVEST represents, warrants and covenants to Financial Institution
as follows:
(a) UVEST is presently a member in good standing of the
National Association of Securities Dealers, Inc.
(b) UVEST is and during the term of this Agreement will remain
duly licensed in good standing as a broker-dealer under applicable Federal and
state laws and regulations.
5
<PAGE>
(c) UVEST has all the requisite authority, in conformity with
all applicable laws and regulations, to enter into and perform the services
contemplated by this Agreement.
(d) UVEST is in compliance, and during the term of this
Agreement will remain in compliance, with the capital and financial reporting
requirements of (i) the National Association of Securities Dealers, Inc., (ii)
the Securities and Exchange Commission and (iii) every state in which it is
licensed as a broker-dealer.
(e) UVEST shall keep confidential any information not
otherwise generally available to the public which it may acquire as a result of
this Agreement regarding the business and affairs of Financial Institution, such
requirement shall survive the termination of this Agreement for so long as such
information remains confidential information and/or a trade secret of Financial
Institution. UVEST shall treat the names of Financial Institution's Customers as
confidential and shall not provide such names to third parties except as
authorized in writing by Financial Institution or as required by applicable
statutes, rules and regulations. Financial Institution acknowledges, however,
that, after the termination of this Agreement, UVEST may use the names of
Customers to carry out broker-dealer functions for such Customers, until such
time as a new relationship is established by Financial Institution or the
Customer for the provision of such services.
(f) This Agreement has been duly authorized, executed and
delivered by UVEST and constitutes the legal, valid and binding agreement of
UVEST.
(g) There is no litigation or governmental proceeding or
investigation pending or threatened against UVEST or any of its affiliates or
against any officer, nor has there occurred any event or does there exist any
condition on the basis of which any such litigation, proceeding or investigation
might properly be instituted.
(h) That UVEST reasonably believes that its relationships with
Digitrade and Pershing are good and that the relationships between UVEST,
Digitrade and Pershing will continue throughout the term of this Agreement.
6.2 Financial Institution represents, warrants, and covenants to
UVEST as follows:
(a) Financial Institution has all the requisite authority in
conformity with all applicable laws and regulations to enter into this
Agreement.
(b) Financial Institution shall not generate and/or prepare
any statements, billings or confirmations respecting any Customer account;
provided, however, that UVEST acknowledges that Financial Institution desires to
provide Customers with consolidated statements which display Customer brokerage
and bank account activities on a consolidated basis. UVEST agrees to work with
Financial Institution and/or its Clearing Agent, Pershing, to provide a
consolidated statement satisfactory to Financial Institution. UVEST represents
and warrants that it has contacted Pershing, and that Pershing has agreed to
provide statement data to UVEST and/or Financial Institution in lieu of
processing and mailing statements directly to Customer to enable UVEST and/or
Financial Institution to provide consolidated statements to
6
<PAGE>
Customers as described above, subject to Pershing's approval of the brokerage
portion of such statement. Such services by UVEST and/or Pershing shall be
provided at no cost to Financial Institution. The parties acknowledge and agree
that the consolidated statement is a necessary and important part of Financial
Institution's willingness to enter into this Agreement with UVEST and in the
event consolidated statements cannot be provided to Customers as intended by the
parties, Financial Institution reserves the right to terminate this Agreement
under Section 7.2(a).
(c) Financial Institution shall keep confidential any
information not generally available to the public which it may acquire as a
result of this Agreement regarding the business and affairs of UVEST, such
requirement shall survive the termination of this Agreement, for so long as such
information remains confidential information and/or a trade secret to UVEST.
7. TERM - TERMINATION
7.1 The initial term of this Agreement shall expire one year from the
date hereof. After the initial term, this Agreement will be automatically
renewed for additional one year terms unless and until terminated by either
party upon 90 days written notice of termination to the other party.
7.2 Notwithstanding the provisions of Section 7.1 above, Financial
Institution may terminate this Agreement at any time upon thirty (30) days
written notice of termination to UVEST upon (a) UVEST's failure to provide
brokerage services to Financial Institution's customers to the reasonable
satisfaction of Financial Institution; (b) termination of UVEST's relationship
(contractual or otherwise) with Digitrade and/or Pershing (including the failure
of these service providers to provide service to UVEST to the reasonable
satisfaction of Financial Institution); or (c) UVEST's failure to provide the
services set forth on Schedule B attached hereto in strict accordance with the
timetable set forth therein; provided, however, that with respect to Section
7.2(b), Financial Institution shall have the right to continue to utilize the
services of UVEST under the terms of this Agreement in the event the services
performed by Digitrade on behalf of UVEST are immediately thereafter performed
by NetExchange to the satisfaction of Financial Institution and/or the clearing
agent retained by UVEST is satisfactory to Financial Institution; provided
further, however, that in the event Financial Institution continues to utilize
the services of UVEST under the terms of this Agreement pursuant to this Section
7.2, the charges to Financial Institution's customers and the transaction fees
payable to Financial Institution shall be and remain the same as the charges and
fees set forth on Schedules A and B, respectively, in effect immediately before
the event giving rise to Financial Institution's right to terminate this
Agreement. Any out of pocket costs incurred by Financial Institution resulting
from an event giving rise to Financial Institution's right to terminate this
Agreement under this Section 7.2 shall be borne by UVEST.
7.3 During the term of this Agreement, Financial Institution will not
offer to promote the provision of the services contemplated by this Agreement
through or by any broker or similar provider, other than UVEST; provided,
however, that Financial Institution may utilize any broker or similar provider
in the event Financial Institution reasonably believes that the utilization of
such services are required to retain or promote the business (banking, brokerage
or
7
<PAGE>
otherwise) of Financial Institution. Financial Institution hereby represents and
warrants that it currently has no intention of utilizing the services of any
broker or service provider other than UVEST.
8. DEFAULT
8.1 Notwithstanding any provision in this Agreement, the following
events or occurrences shall constitute an Event of Default under this Agreement:
(a) failure of either party to comply with the terms of this
Agreement within five (5) days of written notice from the other party of such
failure; or
(b) if any representation or warranty made by either party
herein shall be untrue in any material respect; or
(c) a receiver, liquidator or trustee of either party, or of
any substantial part of its property, is appointed by court order and such order
remains in effect for more than 30 days; or either party is adjudicated bankrupt
or insolvent; or a petition is filed against either party under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law or any jurisdiction, whether now or hereafter in effect, and is
not dismissed within 30 days after such filing; or
(d) either party files a petition in voluntary bankruptcy or
seeking relief under any provision of an bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law or
any jurisdiction, whether now or hereafter in effect, or consents to the filing
of any petition against it under any such law; or
(e) either party makes an assignment for the benefit of its
creditors, or admits in writing its inability to pay its debts generally as they
become due, or consents to the appointment of a receiver, trustee or liquidator
for it, or for all or any substantial party of its property.
Upon the occurrence of any such Event of Default, the non-defaulting
party may, at its option, and without waiving any rights or remedies such party
may have against the defaulting party, by notice to the defaulting party,
declare that this Agreement shall be thereby terminated without penalty and such
termination shall be effective as of the date such notice has been sent or
communicated to the defaulting party.
9. REMEDIES CUMULATIVE
The enumeration herein of specific remedies shall not be exclusive of
any other remedies. Any delay or failure by any party to this Agreement to
exercise any right, power, remedy or privilege herein contained, or now or
hereafter existing under any applicable statute of law, shall not be construed
to be a waiver of such right, power, remedy or privilege. No single, partial or
other exercise of any such right, power, remedy or privilege shall preclude the
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
8
<PAGE>
10. MISCELLANEOUS
10.1 Neither Financial Institution nor UVEST shall hold itself out as
an agent of the other or any of the subsidiaries or the companies controlled
directly or indirectly by or affiliated with the other.
10.2 Neither Financial Institution nor UVEST shall, without having
obtained the prior approval of the other, agree to place or place any
advertisement in any newspaper, publication, periodical or any other media if
such advertisement in any manner makes reference to the other.
10.3 This Agreement may be modified by a writing signed by both parties
to this Agreement. Such modification shall not be deemed a cancellation of this
Agreement.
10.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the parties hereto. This Agreement may not be
assigned by either party without the prior written consent of the other. Neither
this Agreement nor any activity hereunder is intended to be and shall not be
treated as a general or limited partnership, association or joint venture.
10.5 Neither party hereto shall use any service mark, trade name or
trademark of the other party hereto without the prior written consent of the
other. Each party shall have the exclusive right to any such name or mark
developed by it in connection with the services performed by it under this
Agreement.
10.6 The construction and effect of every provision of the Agreement
and any questions arising out of the Agreement shall be subject to the statutory
and common law of the State of Georgia.
10.7 In the event of a dispute between the parties, such dispute shall
be settled by arbitration in Atlanta, Georgia, in accordance with the rules of
the American Arbitration Association.
10.8 The heading preceding the text, articles and sections hereof have
been inserted for convenience and reference only and shall not be construed to
affect the meaning, construction or effect of this Agreement.
10.9 If any provisions or conditions of this Agreement shall ultimately
be held to be invalid or unenforceable by any court, or regulatory or
self-regulatory agency or body, such invalidity or unenforceability shall attach
only to such provision or condition. The validity of the remaining provisions
and conditions shall not be affected thereby and this Agreement shall be carried
out as if any such invalid or unenforceable provision or condition were not
contained herein.
10.10 For the purposes of any and all notices, consents, directions,
approvals, requests or other communications required or permitted to be
delivered hereunder, UVEST's address shall be 128 South Tryon Street, 13th
Floor, Charlotte, NC 28202, Attention: President; and Financial
9
<PAGE>
Institution's address shall be: 7000 Peachtree Dunwoody Road, Suite 300,
Atlanta, Georgia 30328, Attention: President. Notice shall be provided by
registered or certified mail, and either party may change its address for notice
purposes as aforesaid.
10.11 The parties acknowledge and understand that Financial Institution
is subject to the laws, rules and regulations of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and such other
governmental entities having jurisdiction over the activities of Financial
Institution and, to that end, the parties acknowledge and agree that
modifications to this Agreement may be requested from time to time by said
agencies in which event, the parties agree that they and each of them will take
whatever action or actions as are deemed reasonable, necessary and desirable to
accommodate the requests of such agencies including but not limited to, the
modification or termination of this Agreement.
Made and executed as of the date set forth above.
UVEST Financial Services Group, Inc.
By: /s/
----------------------------
Title: President and COO
-------------------------
Atlanta Internet Bank
By: /s/ D.R. Grimes
----------------------------
Title: CEO
-------------------------
10
<PAGE>
Schedule A
UVEST. Internet Discount Commission Schedule
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Stock Options
----- -------
<S> <C>
Commission: $35 per trade up to 2,000 shares Commission: $35 per trade
---------- ----------
$.015 per share thereafter $2.50 per contract
</TABLE>
Margin Rate Schedule
<TABLE>
<CAPTION>
Debit Balance Call Rate +
------------- -----------
<S> <C>
$50,000 + .75%
$30,000 - 49,999 1.5%
$10,000 - 29,999 2%
$0 - 9,999 2.75%
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------------------------- ---------------------------------------------------------
Mutual Funds and UITs
Load Funds & UITs: Fund Distributor determines the sales charge
No-Load Funds: Acting as agent, UVEST charges a transaction
fee of $30.
- ----------------------------------------------------------- ---------------------------------------------------------
Treasury, Municipal, Corporate and Zero $50 + $2 per $1,000 face value of the bond
Coupon Bonds (UVEST may act as principal on certain bond
transactions.)
- ----------------------------------------------------------- ---------------------------------------------------------
Treasury Bills $50 on all transactions
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------
Non-Commission (Miscellaneous) Fees
<S> <C> <C> <C>
Accommodation Transfers $25 Legal Transfers $25
Bond Redemption $20 Margin or Cash Extension (Later fee) $10
Confirmation Handling Fee $3 Reorganization (Tender) Charges $40
Exchange Fee $10 Safekeeping Fee* $35
Foreign Securities Surcharge $100 Securities Delivery Charge $15
IRA Maintenance Fee (Annual) $35 Wire Fee $15
- ----------------------------------------------------------- ---------------------------------------------------------
*Applies only if annual commission level does not reach $45.00.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
9/16/97
<PAGE>
SCHEDULE B
- --------------------------------------------------------------------------------
UVEST
Investment Services
Proposal
For
ATLANTA INTERNET BANK
Strengthening Customer Relationships
Enhancing Your Revenue Base
- --------------------------------------------------------------------------------
<PAGE>
BROKERAGE SERVICES OUTLINE
PHASE 1 - DISCOUNT BROKERAGE
DISCOUNT BROKERAGE SERVICES FEATURES
PROJECT PLAN
PHONE ISSUES
PROPOSED PAYOUT TO AIB
PROFORMA (DISCOUNT BROKERAGE ONLY)
DISCOUNT BROKERAGE CONTRACT
PHASE II - FUTURE DEVELOPMENT
TIMELINE
INTERNET SITE SETUP
DIGITRADE INTEGRATION
FINANCIAL PLANNING MODULE
CALCULATORS
ASSET ALLOCATION
SELECTED INVESTMENTS
ASSET MANAGEMENT ACCOUNT
AFFINITY PLAN -- TRADE ASSOCIATION
<PAGE>
DISCOUNT BROKERAGE SERVICES FEATURES
A. REAL-TIME QUOTES
B. POSITIONS HELD IN THE ACCOUNT AS OF PRIOR DAY'S CLOSE
C. ACCOUNT BALANCES AS OF PRIOR DAY'S CLOSE
D. 60-DAY TRANSACTION HISTORY
E. TRADING
- EQUITY
- OPTION
- MUTUAL FUNDS
<PAGE>
PROJECT PLAN
A. SITE DEVELOPMENT
B. NEW ACCOUNT PROCESS
C. TRADING PARAMETERS
D. BANKLINK (ACH OVERVIEW)
E. SECURITY/RISK ISSUES
*SEE ATTACHED DOCUMENTS FOR DETAIL.
<PAGE>
SITE DEVELOPMENT
Co-Branding
UVEST will work to represent AIB's logo on all site pages which are
provided by UVEST, based on regulatory limitations.
AIB will provide the necessary graphics to be placed on the pages.
Linking of Sites
AIB & UVEST will provide URL's to link UVEST pages and AIB pages.
TRADING PARAMETERS
With our internet service, customers may place equity and option orders. The
steps in the process are as follows:
1. Customer enters desired buy/sell into the system.
2. System validates customer entry, reiterates customer order and
provides a real-time quote of the security to be bought or sold.
3 Customer enters his/her password to submit order to UVEST.
4. UVEST reviews order and releases it to Pershing.
5. Pershing executes order.
6. Electronic confirmations of the orders are sent from Pershing to
digiTrade, instantaneously.
7. Order status is changed from "Open Order" to "Executed Order" on
customer's internet system. Customer may request a facsimile or call
back to confirm entered order.
8. Hard Copy Confirmations are sent to customer indicating the trade.
<PAGE>
CRITERIA
Surrounding the order are multiple criteria which the system implements prior to
submitting the order:
I. ORDER CHECKING:
A. Margin orders - securities under $5.00, NO MARGIN BUYS.
Customer is notified that the order will be placed in cash
type.
B. Duplicate orders - the system checks open orders for the same
security on the same side of the market and gives customer a
warning at the time of entry if another open order exists.
C. Option orders -
1. over 100 contracts, customer is notified that we
cannot process this order because it is outside the
system size parameters
2. no naked calls/puts
D. Any order exceeding $100,000 - customer is notified that we
cannot process this order because it is outside the system
size parameters
E. Market close:
1. Orders entered between 3:50-4:00 - customer enters
order and is notified to contact UVEST Trading Desk @
(800) 277-7700 to confirm.
2. Orders entered after 4:00 - customer is notified that
the order will be entered on [tomorrow's date]
<PAGE>
II. MONEY CHECKING
A. BUY ORDERS
For all non-margin accounts - or-
For margin accounts where Total equity + Fund Balance is less
than $2,000.00 -
or-
For all accounts if security to buy is less than $5.00
ORDERS ACCEPTED IF TOTAL TRADE VALUE IS LESS THAN:
[Money Fund Balance + Credit Balance + Intraday updates
(executions)]
If not enough funds in the account, customer is notified to
contact UVEST Trading Desk @ (800) 277-7700
B. BUY ORDERS
For margin accounts other than those above
ORDERS ACCEPTED IF TOTAL TRADE VALUE IS LESS THAN:
[Cash available in Type II + Type I +/- Credit/Debit
+ Money Fund Balance + Intraday updates (executions)]
x 2
If not enough funds in the account, customer is notified to
contact UVEST Trading Desk @ (800) 277-7700
C. SELL ORDERS
1. Positions must be long in the account
2. Sell must occur in the same type of account class the
position is held in (cash or margin)
If not enough securities in the account, customer is notified
to contact UVEST Trading Desk @ (800) 277-7700
<PAGE>
III. ACCOUNT CLASS
A. If margin papers on file - all trades to margin account type
B. If no margin papers on file - all trades to cash account type
C. If no option papers on file - no options trading allowed
IV. PRICE CHECKING
A. Limit Orders:
1. Stock over $5.00, must be within 20% of market
Examples:
- Sell of Dell when dell is @ $152.00, highest
sell limit is ($152 X 120% = $182)
- Buy of Dell when dell is @ $152.00, lowest buy
limit is ($152 X 80% = $121)
2. Stock under $5.00, accept all
3. Option - accept all
B. Stop Orders
1. Stock (listed)
a) Buy - price higher than last sale
b) Sell - price lower than last sale
2. Option - no checking
V. CANCEL/CORRECT ORDERS
1. Customer enters cancel/correction.
2. Customer is notified to contact UVEST Trading Desk @ (800)
277-7700
<PAGE>
BANKLINK - ACH OVERVIEW
In an attempt to automate the settlement of funds between Atlanta Internet Bank
and UVEST, we propose utilization of the Automated Clearing House system. Under
the proposed arrangement, Pershing, the clearing firm for UVEST, will initiate
an ACH debit to a bank customer's DDA to fund securities purchases and initiate
ACH credits to the bank customer's DDA to pay funds resulting from a securities
sale or dividend payments. The following summarizes the benefits of using ACH as
well as defines potential concerns surrounding ACH.
The benefits of this settlement are as follows:
1. Debits and Credits relating to securities purchases and sales are
automatically posted to the customer DDA.
2. Settlement with UVEST occurs via the existing ACH process that the bank
already has in place. This minimizes the Investment Representative's
involvement in the settlement process. Furthermore, the bank's staff will
process these transactions as they do all other ACH transactions.
3. The bank is not required to send/receive fed wires in relation to these
settlements.
4. No additional software/hardware is required to put this process in place.
5. This solution is for the money sweep necessary for the asset management
account.
The area of concern surrounding the utilization of ACH to clear securities
transactions relates to the consumer's ability to seek a recredit of a debit
entry to his/her DDA. The consumer has the right to have his/her DDA account
recredited as stated in Subsection 7.6.1 of NACHA Operating Rules (see
attached). However, this right to be recredited only applies if (1) the consumer
sends or delivers to the bank a written affidavit, declaring and swearing under
oath that the debit entry for which the consumer is seeking recredit was not
authorized by the consumer, and (2) this affidavit is sent or delivered to the
bank within 15 calendar days from the date the bank makes available to the
consumer information related to the debit entry (periodic statements).
A consumer cannot request a recredit of a debit entry based on the reasoning
that he/she was not satisfied with the securities purchased or if the consumer
lost money. The only reason a consumer can seek a recredit is for an
unauthorized debit (that is, a securities purchase or sale not ordered by the
consumer or another person acting on behalf of the consumer).
In order to implement this ACH settlement arrangement, Pershing, the clearing
firm for UVEST requires the account holding bank to agree to indemnify Pershing
against a customer's claim of unauthorized ACH debit to his or her DDA account.
Currently, the settlement of funds is effected through a combination of Fedwire
and separate data transmission to the bank from Pershing. The current settlement
arrangement does not provide the bank's customer with the same type of recredit
rights as those provided for ACH transactions under the NACHA Rules.
<PAGE>
UVEST INTERNET TRADING
DISCLOSURE AND AGREEMENT
I am solely responsible for and will be the exclusive owner of my password,
account, and PIN number which allows access to UVEST.
I accept full responsibility jointly and severally for the protection of the
password, account and pin number.
I agree to notify UVEST Investment Services, Inc. (UVEST) immediately of any
loss, theft. or unauthorized use of my password and/or account number.
I agree that any order electronically transmitted to UVEST shall not be deemed
received until UVEST has acknowledged that the order has been received.
I agree to notify UVEST immediately if I do not receive a six digit reference
number reflecting an order placed. Failure to notify UVEST immediately will
result in UVEST accepting no responsibility or liability for any claims
resulting from the handling, mishandling or loss of any order.
I agree to notify UVEST immediately of any discrepancies or inaccuracies in my
account balances or security positions. Failure to notify UVEST immediately will
result in UVEST accepting no responsibility or liability for any claims
resulting from these discrepancies or inaccuracies.
UVEST may cancel any order, at any time, at its own discretion if the
requirements for the cash and margin account are not met and/or if its internal
policies for type, size, or limits of orders are violated.
I agree that market data, price and security information supplied by UVEST is
believed to be reliable, but is not guaranteed. Information is provided on a
best efforts basis and UVEST is not liable for any loss or damage arising from
inaccuracies, errors, omissions, delays, interruptions, non-performance, or
negligent act of any provider of such information or service.
UVEST reserves the right to terminate my access to its computer at any time and
at its sole discretion without notice.
I understand that all the terms and conditions of my UVEST Customer Agreement
control the operations of my account and those terms and conditions are
incorporated herein by reference.
EXCHANGE DATA AND INFORMATION
"Information Providers" for securities quotations on this Service include
various securities markets such as New York Stock Exchange, American Stock
Exchange, NASDAQ Stock
<PAGE>
Market, Inc. and other exchanges, their affiliates, agents, and others. By using
this service, you agree that (I) market quotes and other information received
from Information Providers are solely for their own personal use; (II) you shall
not retransmit or otherwise furnish market data to any other person; (III) you
acknowledge that the data is and shall remain the property of the respective
Information Providers or of the market on which a reported transaction took
place or a reported quotation was entered; and (IV) you acknowledge that the
Information Providers are third-party beneficiaries under these provisions and
may enforce these provisions against you.
DISCLAIMER OF WARRANTIES AND LIABILITY
The data and information accessible on this Service is provided "AS IS" and
there may be delays, omissions or inaccuracies in such information and data.
This Service, its affiliates, agents, information providers, and licensor cannot
and do not guarantee the accuracy, sequence, completeness, timeliness
merchantability or fitness for a particular purpose of the information or data
made available through the Service or by any force majeure or any other cause
beyond their reasonable control. Neither this Service nor any of its affiliates,
agents, information providers, or licensor shall be liable to you or to anyone
else for any loss or injury caused in whole or in part by its negligence or
omission in procuring, compiling, interpreting, editing, writing, reporting, or
delivering any information or data through this Service. In no event will this
Service, its affiliates, agents, information providers, or licensor be liable to
you or anyone else for any decision made or action taken by you in reliance upon
such information or data or for any consequential, special or similar damages,
including but not limited to lost profits, trading losses. damages resulting
from inconvenience, or loss of use of the service, even is advised of the
possibility of such damages.
<PAGE>
PHONE ISSUES
Due to rules and regulations set forth by the NASD, UVEST will not be able to
answer the phones as requested. The compliance memorandum on the following page
supports our position.
<PAGE>
UVEST. Investment Services
COMPLIANCE MEMORANDUM
DATE: August 28, 1997
TO: Alex Lawson
FROM: Dana Duckett
RE: Communications with the Public
- --------------------------------------------------------------------------------
Alex:
Pursuant to our recent conversation, telephone conversations are considered
"communication with the public" by the NASD under Rule 2210(d)(1)(A).
This Rule, along with the policies and procedures set forth in the Interagency
Statement, is quite clear in its requirements that it must be very clear, when
dealing with the public, who is offering the nondeposit investment products. In
light of this, answering the discount trading telephones with a member name
(UVEST) and a non-member name is considered misleading and may be construed as
confusing to the public.
If you have any questions, please let me know!
<PAGE>
PROPOSED PAYOUT TO AIB
$_____ PER TRADE
FOR EQUITIES, OPTIONS AND BONDS
____% ON MUTUAL FUND, ANNUITY, AND UIT COMMISSIONS
LESS $___ TRANSACTION FEE
<PAGE>
Internet Investment Program
For
Atlanta Internet Bank
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3
------- ------- -------
<S> <C> <C> <C>
ASSUMPTIONS:
AIB Customer Base
Brokerage Customer Penetration of AIB customer base
# of Brokerage Customers
Discount Commission per trade charged to Customer
AIB Revenue per Trade
# of Discount Trades per Brokerage Custoer
# Logins per Brokerage Customer
# Real Time Quotes per Brokerage Customer
AIB REVENUES:
AIB Discount Securities Revenue
(# Brokerage Cust x AIB Rev/Trade x # Trades/Cust)
Full Service Revenues (see detailed pro-forma)
TOTAL REVENUES
AIB EXPENSES:
Start-Up
Usage Fees:
Logins @ $___ each
Real Time Quotes @ $____ each
TOTAL EXPENSES
------- ------- -------
PRE-TAX CONTRIBUTION
</TABLE>
<PAGE>
The Atlanta Internet Bank
Projected Financial Impact
Phase II
<TABLE>
<CAPTION>
Year 1 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AIB Customer Base
# of Brokerage Customers
# of Trades per Customer
Total Trades - Mutual Funds
Principal Invested - Mutual Funds
- --------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- -------
GROSS COMMISSIONS
Mutual Funds - Commissions
Clearing Charges
Gross Less Clearing
Mutual Funds - Trailers
TOTAL COMMISSIONS Less CLEARING
- --------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- -------
BANK REVENUE
Mutual funds
TOTAL BANK REVENUES
- --------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- -------
INCOME
Year 1 Month 11 Month 12 Total
AIB Customer Base
# of Brokerage Customers
# of Trades per Customer
Total Trades - Mutual Funds
Principal Invested - Mutual Funds
- --------------------------------------- --------- --------- ------
GROSS COMMISSIONS
Mutual Funds - Commissions
Clearing Charges
Gross Less Clearing
Mutual Funds - Trailers
TOTAL COMMISSIONS Less CLEARING
- --------------------------------------- --------- --------- ------
BANK REVENUE
Mutual funds
TOTAL BANK REVENUES
- --------------------------------------- --------- --------- ------
INCOME
CUMULATIVE INCOME
Year 2 Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19 Month 20
AIB Customer Base
# of Brokerage Customers
# of Trades per Customer
Total Trades - Mutual Funds
Principal Invested - Mutual Funds
- -------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
GROSS COMMISSIONS
Mutual Funds - Commissions
Clearing Charges
Gross Less Clearing
Mutual Funds - Trailers
TOTAL COMMISSIONS Less CLEARING
- -------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
BANK REVENUE
Mutual funds
TOTAL BANK REVENUES
- -------------------------------------- ---------- ---------- ----------- ---------- ----------- ---------- ---------- ----------
INCOME
CUMULATIVE INCOME
CUMULATIVE INCOME
Year 2 Month 21 Month 22 Month 23 Month 24 Total
AIB Customer Base
# of Brokerage Customers
# of Trades per Customer
Total Trades - Mutual Funds
Principal Invested - Mutual Funds
- ------------------------------------ ---------- ---------- ---------- ---------- -----------
GROSS COMMISSIONS
Mutual Funds - Commissions
Clearing Charges
Gross Less Clearing
Mutual Funds - Trailers
TOTAL COMMISSIONS Less CLEARING
- ------------------------------------ ---------- ---------- ---------- ---------- -----------
BANK REVENUE
Mutual funds
TOTAL BANK REVENUES
- ------------------------------------ ---------- ---------- ---------- ---------- -----------
INCOME
</TABLE>
<PAGE>
IMPLEMENTATION TIMELINE
DAY 1 Discount Brokerage Contract fully executed between parties
ACH Agreement Finalized (to allow sweep of money between checking &
brokerage accounts) ACH Letter Signed and sent to Pershing AIB
Financials sent to Pershing Contract Bisys to work out providing
daily balance file to digiTrade to verify available funds for
purchases
DAY 7 AIB to provide graphics to UVEST to load into UVEST web pages
defined as:
https://www.edart.com/AIB/
https://www.edart.com/AIB/cgi-bin/login.cgi
AIB to provide URL's to allow customer to return to AIB pages AIB
to provide quote.com content inside UVEST web pages
DAY 10 Graphics loaded and site linked to AIB's URL's
DAY 12 Initiate Affinity Plan Contact
DAY 13 Regulatory/Approval
DAY 14 Begin Testing
Test new account process
Test trading process
Equity
Option
Mutual Fund Trading
Test ACH settlement process
Test balance retrieval/validation between Bisys & DigiTrade
DAY 30 Release site to AIB customer base
*On or before December 1, 1997: Phase I will have been completed
Begin Phase II Development
DAY 30-40 Financial Planning Module - Asset Allocation
Questionnaire to determine profile Recommended Portfolio
Allocation based on questionnaire Recommended Mutual
Funds to achieve portfolio allocation
Substantive Proof - validation of recommendation
Incorporate of Asset Allocation content into AIB web site
DAY 40-50 Financial Planning Module - Calculators
Evaluate outsourced alternatives
SMARTCALC
Financial Visions
Incorporate Financial Calculators into AIB web site
DAY 50-60 DigiTrade Integration
Summary Financial Page
Web Page Design/Layout Coordination
Gateway sign-on issues
Develop process overview
Modification to login procedures
* On or before March 1, 1998: Phase II will have been
completed
* Phase II note: a new agreement must be reached if AIB were
to add an investment rep to the program
Asset Management Account relates to the consolidated
statement capability which requires integration with BISYS.
Until work with BISYS can be defined, the schedule cannot be
determined.
<PAGE>
ON-LINE FINANCIAL PLANNING
The on-line financial planning module is designed to do three things:
1. FINANCIAL PLANNING CALCULATORS: Used to determine the customer's
financial needs. Some examples include:
- college planning
- retirement planning
- goal planning (saving for a boat)
Special calculators are needed in order to determine need. While UVEST
does not have such calculators they can be obtained from firms who
develop and support such calculators. Three firms who provide such
calculators are identified on the timeline. Any costs associated with
the calculators will be the responsibility of AIB.
2. ASSET ALLOCATION: Identify a customer's investment profile. With a
series of questions, we will be able to determine risk tolerance,
investment horizon time frame, sources of income, etc. Once determined,
UVEST will recommend a specific asset allocation for the customer, which
is presented in a graphical pie chart form.
3. SELECTED INVESTMENTS: Identify a portfolio of recommended mutual funds
based on the asset allocation determined above. The customer will be
able to view profiles for each specified fund in order to become
comfortable with the recommendation.
Once the customer has gone through these steps, he/she is ready to
place the trade. The customer can apply for an account on-line, place
a trade on-line, or call the toll-free phone number for help.
<PAGE>
[GRAPHIC]
NET.B@NK
1997 FINANCIALS
CONTENTS
Management's Discussion and Analysis 10
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Statements of Shareholders' Equity (Deficiency) 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22
Independent Auditors' Report 31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Net.B@nk, Inc. (the "Company") was incorporated February 20, 1996 for the
primary purpose of forming and, ultimately, operating Atlanta Internet Bank
("AIB"). As of January 1, 1997, pending regulatory approval and the acquisition
of a bank charter, the Company was operating as a development stage enterprise
under an agreement with Carolina First Bank ("CFB") whereby CFB agreed to hold
and service the deposit accounts generated by the Internet banking operations of
the Company in exchange for 1,325,000 shares of the Company's common stock
valued at $3,840,000. In addition, the Company was a party to an agreement with
First Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to which the
Company had agreed to purchase the charter (the "Charter") of First Alliance's
subsidiary, Premier Bank, $5 million of loans, $5 million of certificates of
deposit, and $2 million in unimpaired capital for $2,150,000 in cash, 41,406
shares of the Company's common stock valued at $125,000, and $75,000 in
additional cash for reimbursement of direct out-of-pocket expenses.
On July 11, 1997, the final regulatory approval from the Office of Thrift
Supervision ("OTS") was received. On July 28, 1997, the Company sold 3,500,000
shares of its common stock to the public in an initial public offering (the
"Offering"). On July 31, 1997, the Company received approximately $38.4 million
in net proceeds from the Offering and consummated its agreements with both First
Alliance and CFB. As a result AIB, a federal savings bank, became a wholly owned
subsidiary of the Company.
FINANCIAL CONDITION
The Company's assets amounted to $93.2 million at December 31, 1997,
compared to $1.2 million at December 31, 1996, an increase of $92 million. This
increase in total assets was due to the receipt of approximately $38.4 million
in net proceeds from the Offering and approximately $47.8 million in cash
related to customer deposits transferred to the Company from CFB and First
Alliance upon consummation of the servicing agreement and purchase of the
Charter. In addition, cash of $12.7 million was received from new deposits
originated during the fourth quarter of 1997. Funds of $11.2 million and
$225,000 were invested in mortgage-backed securities and Federal Home Loan Bank
stock, respectively. Approximately $52.9 million of the funds was used to
purchase first and second mortgage loans, auto leases and loans, and unsecured
loans from CFB and another third party. Approximately $28.9 million of the funds
was invested in overnight federal funds. The remaining net proceeds were used
for the Charter purchase ($2.3 million), reimbursement of CFB expenses ($2.1
million), bonus payments ($450,000), and general corporate purposes.
Total liabilities increased $57.5 million due to the transfer of
approximately $47.8 million in customer deposits from CFB and First Alliance as
a result of consummation of the Company's servicing agreement with CFB and
purchase of the Charter. In addition, deposits increased by $12.7 million in the
fourth quarter of 1997 due to new marketing programs introduced by the Company.
Total shareholders' equity (deficiency) increased in 1997 approximately
$34.5 million from a deficiency of approxi-mately ($386,000) as of December 31,
1996 to equity of $34 million as of December 31, 1997 due primarily to the
receipt of approximately $38.4 million in net proceeds from the issuance of
common stock, including shares issued in the Offering and shares issued for the
purchase of the Charter. The increase resulting from the issuance of stock was
offset by an increase in unrealized losses on securities held for sale of
approximately $83,000, an increase in unamortized stock plan expense of
approximately $47,000, and the net loss for the year of $5.6 million.
AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID
The following table sets forth, for the period subsequent to the formation
of AIB, information regarding the Company's average balance sheet. Information
is based on average monthly balances during the period July 31, 1997 to December
31, 1997.
<TABLE>
<CAPTION>
AVERAGE INTEREST AVERAGE
BALANCE EARNED/PAID YIELD/RATE
------------- ------------ -------------
<S> <C> <C> <C>
Interest-earnings assets:
Federal funds sold..................................................... $ 43,800,000 $ 944,743 5.34%
Investment securities2................................................. 8,800,000 180,397 6.95
Loans receivable....................................................... 30,200,000 1,095,237 8.70
Other interest-earning assets.......................................... 100,000 2,788 6.69
------------- ------------ ----
Total interest-earning assets...................................... 82,900,000 2,223,165 6.44
Noninterest-earning assets............................................... 2,000,000
------------- ------------ ----
Total assets....................................................... $ 84,900,000
------------- ------------ ----
Interest-bearing liabilities -
Deposits............................................................... $ 48,700,000 1,259,743 5.17
Noninterest-bearing liabilities.......................................... 1,000,000
------------- ------------ ----
Total liabilities.................................................. 49,700,000 1,259,743
Equity................................................................... 35,200,000
------------- ------------ ----
Total liabilities and equity....................................... $ 84,900,000 1,259,743
------------- ------------ ----
------------- ------------ ----
Net interest-earnings.................................................... $ 963,422
------------- ------------ ----
Net yield on interest-earning assets1.................................... 1.27%
------------- ------------ ----
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) Based on amortized cost; changes in fair value are not considered.
<PAGE>
RESULTS OF OPERATIONS
GENERAL
As the Company did not acquire a bank charter until July 31, 1997 and,
therefore, had no earning assets, the net loss for the year ended December 31,
1997 was $5.6 million, an increase of $1.8 million when compared to the period
from February 20, 1996 to December 31, 1996. The statement of operations for the
period from February 20, 1996 to December 31, 1996 reflects the initial phase of
the Company's operations, including the acquisition, testing and implementation
of the Internet banking platform, marketing expenses, and the accrual of CFB's
expense reimbursements. Under the operations agreement with CFB, customer
deposits and the related assets resulting from the Company's marketing efforts,
which began in August 1996, were included in CFB's financial operations.
INTEREST INCOME
Interest income for the year ended December 31, 1997 was $2.2 million. No
significant amount of interest income was recorded for the period from February
20, 1996 to December 31, 1996 as the Company had no investments or loans at that
time. On July 31, 1997, the Company received the net proceeds from the Offering
and customer deposits held by CFB and invested those funds in federal funds,
mortgage-backed securities, and loans purchased from CFB and an independent
third party.
INTEREST EXPENSE
As the Company did not begin soliciting deposit accounts until October 1996,
no interest expense was recorded for the period from February 20, 1996 to
December 31, 1996. On July 31, 1997, based on the terms of the servicing
agreement with CFB and the Charter purchase agreement, CFB and First Alliance
transferred approximately $47.8 million in customer deposits and related assets
to the Company. The Company recorded approximately $1.3 million of interest
expense during the year ended December 31, 1997. This amount includes $163,479
of net interest expense which represents the difference between interest expense
paid to customers and interest income paid to the Company by CFB at contractual
rates as defined in the servicing agreement prior to July 31, 1997.
NET INTEREST INCOME
Net interest income is determined by the Company's interest rate spread
(i.e., the difference between the yields earned on its interest-earning assets
and the rates paid on its interest-bearing liabilities) and the relative amounts
of interest-earning assets and interest-bearing liabilities. Net interest income
was $963,000 for the year ended December 31, 1997. As the Company did not
receive its Charter until July 31, 1997, the Company was not allowed to hold
investments, loans, or customer deposits during the period from February 20,
1996 to December 31, 1996 and therefore, no significant amount of net interest
income was recorded for the period from February 20, 1996 to December 31, 1996.
PROVISION FOR LOAN LOSSES
The Company purchased its first loans during the period from July 31, 1997
to December 31, 1997. During such period, the Company recorded a provision for
loan losses of $472,000. The allowance for loan losses is maintained at a level
estimated to be adequate to provide for probable losses in the loan portfolio.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans, and other pertinent factors.
OTHER OPERATING INCOME
For the period from July 31, 1997 to December 31, 1997, the Company recorded
approximately $63,000 in loan and deposit service charges and fees. Only
miscellaneous management fees of $60,000 received from CFB were recorded during
the period from February 20, 1996 to December 31, 1996.
OTHER OPERATING EXPENSES
Other operating expenses increased $2.2 million from $3.9 million in 1996 to
$6.1 million for the year 1997. The primary components of the increase during
the year ended December 31, 1997 were an increase of $1.6 million in salaries
and benefits which reflects the payment of approximately $450,000 in bonuses to
officers; the amortization of approximately $343,000 in stock plan expense; an
increase of $305,000, $391,000, and $236,000 in outside services, data
processing, and marketing, respectively, reflecting the growth of the Company's
deposit base and related support functions; and an increase of approximately
$260,000 in other operating expenses consisting primarily of legal and
accounting fees. The above increases were offset by a $960,000 decrease in the
amortization of service contract with affiliate as the service contract was
fully amortized during the second quarter of 1997. The expenses for the period
from February 20, 1996 to December 31, 1996
<PAGE>
reflect only the initial phase of the Company's operations, including the
acquisition, testing, and implementation of the Internet banking platform,
marketing expenses, and the accrual of CFB's expense reimbursements.
STOCK OPTIONS
The Company has a 1996 Stock Incentive Plan (the "Plan") which provides
that key employees, officers, directors, and consultants of the Company may
be granted nonqualified and incentive stock options to purchase shares of
common stock of the Company, derivative securities related to the value of
the common stock, or cash awards. The Plan limits the total number of shares
which may be awarded to 397,500, which have been reserved for the Plan.
Generally, the options expire ten years from the date of the grant. During
the year ended December 31, 1996, 16,562 nonqualified stock options were
granted at an exercise price of $1.21 per share on November 25, 1996. Awards
to officers and employees under the Plan during the year ended December 31,
1997 were as follows: 124,219 nonqualified stock options at an exercise price
of $1.21 per share on January 5, 1997; 39,750 nonqualified stock options at
an exercise price of $3.62 per share on February 25, 1997, 173,906 incentive
stock options at an exercise price of $10.00 per share on February 25, 1997,
and 15,000 incentive stock options at an exercise price of $11.00 per share
on July 30, 1997. In connection with the issuance of the options on January 5
and February 25, 1997, $390,484 of compensation expense will be recognized
over the vesting period. The majority of the nonqualified options vested
immediately on July 28, 1997 upon completion of the Offering, and $319,704 of
unamortized compensation expense was recognized. The other options vest
one-third on the first anniversary of the date of issuance, one-third on the
second anniversary of the date of issuance, and one-third on the third
anniversary of the date of issuance.
MARKET RISK
ASSET AND LIABILITY MANAGEMENT
The Company's principal business is the making or purchasing of loans,
funded by customer deposits and, to the extent necessary, other borrowed funds.
Consequently, a significant portion of the Company's assets and liabilities are
monetary in nature and fluctuations in interest rates will affect the Company's
future net interest income and cash flows. This interest rate risk is the
Company's primary market risk exposure. The Company does not enter into
derivative financial instruments such as futures, forwards, swaps, and options.
Also, the Company has no market risk-sensitive instruments held for trading
purposes. The Company's exposure to market risk is reviewed on a regular basis
by its management.
The Company measures interest rate sensitivity as the difference between
amounts of interest-earning assets and interest-bearing liabilities which either
reprice or mature within a given period of time. The difference, or the interest
rate repricing "gap," provides an indication of the extent to which an
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-rate sensitive liabilities and is
considered negative when the amount of interest-rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a period
of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income, and during a
period of falling interest rates, a negative gap within shorter maturities would
result in an increase in net interest income while a positive gap within shorter
maturities would have the opposite effect.
The table below shows the interest rate sensitivity of the Company's assets
and liabilities as of December 31, 1997:
<TABLE>
<CAPTION>
OVER THREE OVER ONE OVER FIVE
LESS THAN MONTHS THROUGH YEAR THROUGH YEARS AND
THREE MONTHS ONE YEAR FIVE YEARS INSENSITIVE TOTAL
-------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Cash......................... $ 250,535 $ 250,535
Federal funds sold........... 28,853,057 28,853,057
Investment securities........ $ 9,926,283 $ 8,127,863 18,054,146
Stock of Federal Home Loan
Bank of Atlanta............ 225,000 225,000
Loans receivable............. 4,541,944 19,963,233 $ 20,428,230 44,933,407
-------------- --------------- ------------- -------------- -------------
Total interest-earning
assets................. 33,870,536 29,889,516 20,428,230 8,127,863 92,316,145
Noninterest-earning assets... 903,664 903,664
-------------- --------------- ------------- -------------- -------------
Total assets............. $ 33,870,536 $ 29,889,516 $ 20,428,230 $ 9,031,527 $ 93,219,809
-------------- --------------- ------------- -------------- -------------
Interest-Bearing Liabilities:
Certificates of deposit...... $ 6,195,485 $ 11,896,535 $ 2,233,439 $ 20,325,459
Other:
Interest deposits............ 38,401,304 38,401,304
Other interest-free
liabilities and equity..... 375,649 $ 34,117,397 34,493,046
-------------- --------------- ------------- -------------- -------------
Total liabilities and equity..... $ 44,972,438 $ 11,896,535 $ 2,233,439 $ 34,117,397 $ 93,219,809
-------------- --------------- ------------- -------------- -------------
Net Interest Rate
Sensitivity Gap.............. $ (11,101,902) $ 17,992,981 $ 18,194,791 $ (25,085,870)
Cumulative Gap................... $ (11,101,902) $ 6,891,079 $ 25,085,870
Net Interest Rate
Sensitivity Gap as a Percent
of Interest-Earning
Assets..................... (32.8%) 60.2% 89.1% (308.6%)
Cumulative Gap as a Percent of
Cumulative Interest-Earning
Assets......................... (32.8%) 10.8% 29.8%
</TABLE>
<PAGE>
LENDING ACTIVITIES
GENERAL
At December 31, 1997, the Company's loans receivable portfolio totaled $44.9
million or 48.2% of total assets. The majority of the Company's loans were
purchased from CFB and other originating institutions. The Company has
concentrated its purchasing activities on one- and three-year adjustable rate
mortgage loans ("ARMS") and auto loans. Approximately $9.9 million or 22% and
$14.6 million or 33% of the Company's total loan portfolio consisted of ARMS and
auto loans, respectively, at December 31, 1997. The Company had also purchased
equipment leases, construction loans, and consumer loans of $4.5, $5.4, and $9.3
million, respectively, as of December 31, 1997. In addition, during 1997 the
Company originated approximately $1.2 million in both secured and unsecured
personal consumer loans.
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan
portfolio by type of loan as of December 31, 1997:
<TABLE>
<CAPTION>
AMOUNT %
------------- ---------
<S> <C> <C>
One- and three-year ARMS.................................................................. $ 9,879,537 22.0
Construction loans........................................................................ 5,399,624 12.0
Equipment leases.......................................................................... 4,478,053 10.0
Consumer loans:
Home improvement........................................................................ 4,073,964 9.0
Equity lines............................................................................ 4,412,013 9.8
Auto loans.............................................................................. 14,623,745 32.6
Personal loans.......................................................................... 1,165,750 2.6
Other................................................................................... 900,721 2.0
------------- ---------
Total loans receivable................................................................ $ 44,933,407 100.0
------------- ---------
------------- ---------
</TABLE>
CONTRACTUAL PRINCIPAL REPAYMENTS
The following table sets forth certain information at December 31, 1997
regarding the dollar amount of loans maturing in the Company's total loan
portfolio, based on the contractual terms to maturity. Loans having no stated
schedule of repayments and no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
DUE 1 YEAR DUE 1-5 AFTER 5 WEIGHTED
OR LESS YEARS YEARS TOTAL AVERAGE YIELD
------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
One- and three-year ARMS.............. $ 9,879,537 $ 9,879,537 7.3%
Construction loans.................... $ 5,399,624 5,399,624 9.0%
Equipment leases...................... 4,478,053 4,478,053 9.5%
Consumer loans........................ 4,440,593 $ 19,389,455 1,346,145 25,176,193 7.8%
------------- ------------- ------------- ------------- -----
Total................................. $ 14,318,270 $ 19,389,455 $ 11,225,682 $ 44,933,407 8.1%
------------- ------------- ------------- ------------- -----
</TABLE>
The following table sets forth the dollar amount of total loans due after
one year from December 31, 1997, as shown in the preceding table, which have
fixed interest rates or which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING OR
FIXED ADJUSTABLE
RATE RATE TOTAL
------------- -------------- -------------
<S> <C> <C> <C>
One- and three-year ARMs........................................... $ 9,879,537 $ 9,879,537
Construction loans................................................. 5,399,624 5,399,624
Equipment leases................................................... $ 4,478,053 4,478,053
Consumer loans..................................................... 20,735,600 4,440,593 25,176,193
------------- -------------- -------------
Total.......................................................... $ 25,213,653 $ 19,719,754 $ 44,933,407
------------- -------------- -------------
</TABLE>
A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower if the loans are fully secured by
readily marketable securities. At December 31, 1997, the Company's limit on
loans to one borrower was approximately $5.1 million (15% unimpaired capital and
surplus). At December 31, 1997, the Company had made no loans to any one
borrower, including persons or entities related to the borrower, exceeding the
limitation.
ASSET QUALITY AND NONPERFORMING ASSETS
As of December 31, 1997, the Company had no loans on nonaccrual status, no
loans past due 90 days or more, and no restructured loans.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 1997, all of the Company's loans were with customers
residing in the Southeastern United States.
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated to be
adequate to provide for probable losses in the loan portfolio. Management
determines the adequacy of the allowance based upon reviews of individual loans,
recent loss experience, current economic conditions, the risk characteristics of
the various categories of loans, and other pertinent factors. Loans deemed
uncollectible are charged to the allowance. Provisions for loan losses and
recoveries on loans previously charged off are added to the allowance.
Although management uses the best information available to make
determinations with respect to the provisions for loan losses, additional
provisions for loan losses may be required to be established in the future
should economic or other conditions change substantially. In addition, the OTS,
as an integral part of the examination process, periodically reviews the
Company's allowance for loan losses. The agency may require the Company to
recognize additions to such allowance based on their judgments about the
information available to them at the time of their examination.
The following table sets forth an analysis of the Company's allowance for
loan losses during the year ended December 31, 1997:
<TABLE>
<S> <C>
Balance at beginning of year:..................................................... $ --
Provision for losses on loans................................................. 471,706
Charge-offs................................................................... (18,262)
Recoveries.................................................................... --
---------
Balance at end of year............................................................ $ 453,444
---------
Allowance for loan losses as a percent of total loans outstanding................. 1.00%
---------
Ratio of net charge-offs to average loans outstanding............................. 0.08%
---------
</TABLE>
The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by loan category at December 31, 1997:
<TABLE>
<CAPTION>
PERCENT OF LOANS
IN EACH CATEGORY TO
AMOUNT TOTAL LOANS
---------- -------------------
<S> <C> <C>
One-year and three-year ARMs...................................................... $ 24,231 22.0%
Construction loans................................................................ 52,400 12.0
Equipment leases.................................................................. 112,887 10.0
Consumer loans:
Home improvement loans........................................................ 22,194 9.0
Equity lines.................................................................. 48,951 9.8
Auto Loans.................................................................... 179,984 32.6
Personal and other............................................................ 12,797 4.6
---------- -----
$ 453,444 100.0%
---------- -----
---------- -----
</TABLE>
INVESTMENT SECURITIES
The investment policy of the Company, as established by the Board of
Directors, is designed primarily to provide and maintain liquidity and to
generate a favorable return on investments without incurring undue interest rate
risk, credit risk, and investment portfolio asset concentrations. The Company's
investment policy is currently implemented by the investment committee within
the parameters set by the Board of Directors.
The Company is authorized to invest in obligations issued or fully
guaranteed by the U.S. government, certain federal agency obligations, certain
time deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt
securities, and other specified investments.
Securities classified as available for sale are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity. At December 31, 1997, all of the Company's investment
securities were classified as available for sale. At December 31, 1997,
investments in the debt and/or equity securities of any one issuer did not
exceed more than 10% of the Company's stockholders' equity.
The following table sets forth certain information relating to the Company's
available for-sale securities at December 31, 1997:
<TABLE>
<CAPTION>
GROSS
---------------------------- ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations................. $ 8,127,863 $ -- $ 8,127,863
U.S. government agencies............................ 10,009,346 $ (83,063) 9,926,283
------------- ------------- ------------- -------------
$ 18,137,209 $ -- $ (83,063) $ 18,054,146
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<PAGE>
The following table sets forth the amount of the Company's investment
securities which mature during each of the periods indicated and the weighted
average yields for each range of maturities at December 31, 1997. The actual
maturity of the Company's investment securities may differ from contractual
maturity as certain of the Company's investment securities are subject to call
provisions which allow the issuer to accelerate the maturity date of the
security:
<TABLE>
<CAPTION>
CONTRACTUALLY MATURING
-------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED GREATER WEIGHTED
UNDER AVERAGE 1-5 AVERAGE 5-10 AVERAGE THAN AVERAGE
1 YEAR YIELD YEARS YIELD YEARS YIELD 10 YEARS YIELD
------ -------- ------- -------- ----- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Collateralized mortgage obligations............... $67,519 7.1% $ 8,060,344 6.9%
U.S. Government and agency obligations............ 9,926,283 7.1%
--
------ -------- ------- ----- -------- ----------- --------
$ -- $67,519 7.1% $-- $17,986,627 7.0%
--
--
------ -------- ------- ----- -------- ----------- --------
------ -------- ------- ----- -------- ----------- --------
</TABLE>
SOURCES OF FUNDS
GENERAL
Deposits are a significant source of the Company's funds for lending and
other investment purposes. In addition to deposits, the Company may derive
funds from borrowings, amortization, prepayments and maturities of
outstanding loans, sales of loans, maturities of investment securities and
other short-term investments, and funds provided from operations. While
scheduled loan amortization and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic
conditions, and competition. The Company invests excess funds in overnight
deposits and other short-term interest-earning assets. The Company can use
cash generated through the retail deposit market, its traditional funding
source, to offset the cash utilized in investing activities. The Company's
available for sale securities and short-term interest-earning assets can also
be used to provide liquidity for lending and other operational requirements.
As an additional source of funds, the Company may borrow from the Federal
Home Loan Bank of Atlanta or through securities sold under repurchase
agreements.
DEPOSITS
The Company's deposit products include a broad selection of deposit
instruments, including commercial checking accounts, negotiable order of
withdrawal ("NOW") accounts, money market accounts, and term certificate
accounts. Deposit account terms vary, with the principal differences being the
minimum balance required, the time periods the funds must remain on deposit, and
the interest rate.
The Company utilizes nontraditional marketing methods to attract new
customers and savings deposits. The Company's target market includes Internet
users, on-line shoppers, and special niche customers. In addition to the
Company's on-line advertising relationship with Digital Cities, Inc., a
subsidiary of America Online Incorporated, ("Digital Cities/AOL"), several other
marketing initiatives are being employed. These initiatives include an emphasis
on marketing the Company's products and services through on-line banner
advertisements and alliances with selected professional organizations, colleges,
alumni associations, and consumer service providers and on targeted print
advertising.
The Company has been competitive in the types of accounts and range of
interest rates it has offered on its deposit products. Deposit levels have
increased during fiscal 1997 primarily as a result of competitive rates offered
by the Company and Internet advertising. The weighted average interest rate paid
during 1997 was 5.17%. Although market demand generally dictates which deposit
maturities and rates will be accepted by the public, the Company intends to
continue to promote checking and NOW accounts as well as longer term
certificates of deposit to the extent possible and consistent with asset and
liability management goals.
The following table sets forth the dollar amount of deposits and weighted
average interest rates in the various types of deposit programs offered by the
Company at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
WEIGHTED AVERAGE
AMOUNT PERCENTAGE INTEREST RATE
------------- ----------- -----------------
<S> <C> <C> <C>
Demand checking accounts............................................ $ 293,054 .50% --
Interest bearing:
NOW accounts...................................................... 1,573,283 2.70% 3.28%
Money market...................................................... 36,534,967 62.20% 5.51%
Certificates of deposit under $100,000............................ 16,662,365 28.4% 6.22%
Certificates of deposit over $100,000............................. 3,663,094 6.2% 6.22%
------------- ----------- ------
Total deposits...................................................... $ 58,726,763 100%
------------- ----------- ------
------------- ----------- ------
</TABLE>
<PAGE>
The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the period July 31, 1997 to
December 31, 1997:
<TABLE>
<CAPTION>
1997 AVERAGE
--------------------------
BALANCE RATE PAID
------------- -----------
<S> <C> <C>
Demand checking accounts............................................................... $ 146,527 N/A
NOW accounts........................................................................... 786,642 3.28%
Money market........................................................................... 18,267,484 5.51%
Certificates of deposit under $100,000................................................. 8,331,183 6.22%
Certificates of deposit over $100,000.................................................. 1,831,547 6.22%
</TABLE>
The following table shows maturity information for the Company's
certificates of deposit at December 31, 1997:
<TABLE>
<CAPTION>
MATURITY DATE
-------------------------------------------------
ONE YEAR 1-2 2-3 3 YEARS
OR LESS YEARS YEARS OR MORE TOTAL
------------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C>
2.00--4.00%.................................... 1,500 1,500
4.01--6.00%.................................... 1,582,625 1,582,625
6.01--8.00%.................................... 16,507,896 2,135,790 58,027 39,621 18,741,334
8.01--10.00%
10.01%--or more
------------- ------------ --------- --------- -------------
Total........................................ $ 18,092,021 $ 2,135,790 $ 58,027 $ 39,621 $ 20,325,459
------------- ------------ --------- --------- -------------
------------- ------------ --------- --------- -------------
</TABLE>
The following table sets forth the maturities of the Company's certificates
of deposit having principal amounts of $100,000 or more at December 31, 1997:
<TABLE>
<CAPTION>
AMOUNT
------------
<S> <C>
Certificates of deposit maturing in quarter ending:
March 31, 1998.................................................................................... $ 1,762,140
June 30, 1998..................................................................................... --
September 30, 1998................................................................................ --
December 31, 1998................................................................................. 1,500,954
After December 31, 1998........................................................................... 400,000
------------
Total certificates of deposit with balances of $100,000 or more............................... $ 3,663,094
------------
</TABLE>
BORROWINGS
The Company may also obtain advances from the FHLB of Atlanta upon the
security of the common stock it owns in that bank and certain of its residential
mortgage loans, provided certain standards related to creditworthiness have been
met. Such advances are made pursuant to several credit programs, each of which
has its own interest rate and range of maturities. Such advances are generally
available to meet seasonal and other withdrawals of deposit accounts and to
permit increased lending. During the year ended December 31, 1997, no such
advances were made to the Company.
CAPITAL RESOURCES
AIB is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure of AIB to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, AIB must meet specific capital guidelines that involve quantitative
measures of AIB's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. AIB's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require AIB to maintain minimum capital amounts and ratios set forth in the
table below. AIB's regulatory agency, the OTS, requires AIB to maintain minimum
ratios of tangible capital of 1.5%, core capital of 3%, and total risk-based
capital of 8%. Management believes that as of December 31, 1997, as defined in
the regulations, AIB meets all the capital adequacy requirements to which it is
subject.
As of December 31, 1997, the Company had not yet received a notification
from the OTS as to AIB's classification under the regulatory framework for
prompt corrective action. To be well capitalized AIB must maintain minimum Tier
I, core, and risk-based capital ratios of at least 6%, 5%, and 10%,
respectively. Management believes that AIB was "well capitalized" as of December
31, 1997.
AIB's actual capital amounts and ratios as of December 31, 1997 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS "WELL
CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets).................. $ 23,652 47.8% $ 3,956 8.0% $ 4,948 10%
Core capital (to tangible assets)........................ 23,735 28.3% 2,517 3.0% 4,196 5%
Tangible capital (to tangible assets).................... 23,735 28.3% 1,259 1.5% -- N/A
Tier I capital (to risk-weighted assets)................. 23,735 48.0% -- N/A 2,969 6%
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" and 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. SFAS 131 establishes standards for, among other things, reporting
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
financial reports issued to shareholders. SFAS 130 and 131 are effective for
financial statements issued for periods beginning after December 15, 1997.
YEAR 2000
The Company contracts with vendors for its computer application programs.
Management is in the process of contacting each of its vendors to obtain a
commitment that such vendors will be in compliance with year 2000. The Company
expects to begin testing for compliance with year 2000 in 1998. Management does
not expect to incur any significant costs as a result of the year 2000 issue.
MARKET FOR STOCK AND RELATED SHAREHOLDERS MATTERS
The common stock of the Company is traded on the NASDAQ Stock Market
("NASDAQ") under the symbol NTBK. At March 4, 1998, the Company had 75
shareholders of record. The following table sets forth on a per-share basis the
high and low sale prices of the Company's common stock on a quarterly basis
subsequent to the Offering on July 28, 1997. No cash dividends were paid by the
Company.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Third quarter.................................................................................. 13 1/4 8 5/8
Fourth quarter................................................................................. 12 3/8 9 1/8
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Assets
CASH AND CASH EQUIVALENTS:
Cash........................................................................... $ 250,535 $ 768,666
Federal funds sold............................................................. 28,853,057
------------- -------------
Total cash and cash equivalents............................................ 29,103,592 768,666
SECURITIES AVAILABLE FOR SALE--At fair value (amortized cost of $18,137,209)....... 18,054,146
STOCK OF FEDERAL HOME LOAN BANK OF ATLANTA--At cost................................ 225,000
LOANS RECEIVABLE--Net of allowance for doubtful accounts of $453,444............... 44,479,963
ACCRUED INTEREST RECEIVABLE........................................................ 372,237
FURNITURE AND EQUIPMENT--Net....................................................... 388,508 367,950
BANK CHARTER....................................................................... 344,167
OTHER ASSETS....................................................................... 252,196 109,833
------------- -------------
$ 93,219,809 $ 1,246,449
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
LIABILITIES:
Deposits....................................................................... $ 58,726,763
Amounts payable to affiliate................................................... $ 883,606
Other payables and accrued liabilities......................................... 375,649 748,916
------------- -------------
Total liabilities.......................................................... 59,102,412 1,632,522
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIENCY):
Preferred stock, no par (10,000,000 shares authorized, none outstanding)
Common stock, $.01 par (100,000,000 shares authorized, 6,145,562 and 1,249,342
shares issued and outstanding)............................................... 61,456 12,493
Additional paid-in capital..................................................... 43,631,314 1,069,088
Common stock subscribed (1,354,814 shares at December 31, 1996)................ 3,844,185
Stock subscriptions receivable (29,814 shares at December 31, 1996)............ (4,185)
Unamortized affiliate service contract expense................................. (1,440,000)
Unamortized stock plan expense................................................. (75,689) (28,472)
Accumulated deficit............................................................ (9,416,621) (3,839,182)
Unrealized loss on securities available for sale............................... (83,063)
------------- -------------
Total shareholders' equity (deficiency).................................... 34,117,397 (386,073)
------------- -------------
$ 93,219,809 $ 1,246,449
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20, 1996
(DATE OF
YEAR ENDED INCORPORATION)
DECEMBER 31, TO DECEMBER 31,
1997 1996
------------- ---------------------
<S> <C> <C>
INTEREST INCOME:
Loans................................................................... $ 1,095,238
Short-term investments.................................................. 944,743 $ 7,709
Investment securities................................................... 183,184
------------- -----------
Total interest income............................................... 2,223,165 7,709
INTEREST EXPENSE--Deposits.................................................. 1,259,743
------------- -----------
NET INTEREST INCOME......................................................... 963,422 7,709
PROVISION FOR LOAN LOSSES................................................... 471,706
------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......................... 491,716 7,709
NON-INTEREST INCOME:
Service charges and fees................................................ 62,607
Management fees............................................................. 60,000
------------- -----------
Total operating income.............................................. 554,323 67,709
NON-INTEREST EXPENSE:
Salaries and benefits................................................... 2,396,347 836,427
Amortization of service contract with affiliate......................... 1,440,000 2,400,000
Data processing......................................................... 539,013 148,159
Marketing............................................................... 524,494 288,584
Outside services........................................................ 310,285 4,951
Depreciation and amortization........................................... 217,440 18,934
Office expenses......................................................... 177,054 56,765
Occupancy............................................................... 107,304 19,330
Travel and entertainment................................................ 64,759 38,794
Other (Note 10)......................................................... 355,066 94,947
------------- -----------
Total............................................................... 6,131,762 3,906,891
------------- -----------
NET LOSS.................................................................... $ (5,577,439) $ (3,839,182)
------------- -----------
BASIC AND DILUTED NET LOSS PER COMMON SHARE................................. $ (1.66) $ (4.33)
------------- -----------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.................................. 3,354,000 886,000
------------- -----------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON ADDITIONAL COMMON STOCK
COMMON STOCK PAID-IN STOCK SUBSCRIPTIONS
SHARES ($.01PAR) CAPITAL SUBSCRIBED RECEIVABLE
--------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -
February 19, 1996............................... $ -- $ -- $ -- $--
Proceeds from issuance of common stock:
Incorporation, February 20, 1996.............. 759,094 7,591 (7,362)
March 31, 1997................................ 49,688 497 (482)
April 1, 1996................................. 142,438 1,424 18,571
September 17, 1996............................ 298,122 2,981 997,129
Contribution of services from affiliate....... 31,232
Issuance of 1,354,814 shares of common stock
subscriptions................................. 3,844,185 (4,185)
Issuance of 16,562 compensatory stock options... 30,000
Amortization of stock plan expense..............
Net loss, including amortization of service
contract......................................
--------- --------- ----------- ----------- -------------
<CAPTION>
UNAMORTIZED UNREALIZED
AFFILIATE LOSS ON
SERVICE UNAMORTIZED SECURITIES
CONTRACT STOCK PLAN ACCUMULATED AVAILABLE FOR
EXPENSE EXPENSE DEFICIT SALE TOTAL
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE -
February 19, 1996............................... $ -- $ -- $ -- $ -- $ --
Proceeds from issuance of common stock:
Incorporation, February 20, 1996.............. 229
March 31, 1997................................ 15
April 1, 1996................................. 19,995
September 17, 1996............................ 1,000,110
Contribution of services from affiliate....... 31,232
Issuance of 1,354,814 shares of common stock
subscriptions................................. (3,840,000)
Issuance of 16,562 compensatory stock options... (30,000)
Amortization of stock plan expense.............. 1,528 1,528
Net loss, including amortization of service
contract...................................... 2,400,000 (3,839,182) (1,439,182)
----------- ----------- ----------- ------------- ------------
<CAPTION>
BALANCE -
December 31, 1996............................... 1,249,342 12,493 1,069,088 3,844,185 (4,185)
Proceeds from issuance of common stock:
March 31, 1997................................ 19,876 199 2,591 (2,790) 2,790
April 2, 1997................................. 9,938 100 1,295 (1,395) 1,395
July 28, 1997................................. 3,500,000 35,000 38,216,520
July 31, 1997................................. 1,366,406 13,664 3,951,336 (3,840,000)
Issuance of 163,970 compensatory stock options.. 390,484
Amortization of service contract................
Amortization of stock plan expense..............
Unrealized loss on securities available for
sale..........................................
Net loss for the year ended
December 31, 1997.............................
--------- --------- ----------- ----------- -------------
BALANCE -
December 31, 1997............................... 6,145,562 $ 61,456 $43,631,314 $ -- $--
--------- --------- ----------- ----------- -------------
--------- --------- ----------- ----------- -------------
<CAPTION>
BALANCE -
December 31, 1996............................... (1,440,000) (28,472) (3,839,182) (386,073)
Proceeds from issuance of common stock:
March 31, 1997................................ 2,790
April 2, 1997................................. 1,395
July 28, 1997................................. 38,251,520
July 31, 1997................................. 125,000
Issuance of 163,970 compensatory stock options.. (390,484) --
Amortization of service contract................ 1,440,000 1,440,000
Amortization of stock plan expense.............. 343,267 343,267
Unrealized loss on securities available for
sale.......................................... $(83,063) (83,063)
Net loss for the year ended
December 31, 1997............................. (5,577,439) (5,577,439)
----------- ----------- ----------- ------------- ------------
BALANCE -
December 31, 1997............................... $ -- $ (75,689) $(9,416,621) $(83,063) $ 34,117,397
----------- ----------- ----------- ------------- ------------
----------- ----------- ----------- ------------- ------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 20, 1996
Year Ended (Date of Incorporation)
December 31, to December 31,
1997 1996
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................................ $ (5,577,439) $ (3,839,182)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation.......................................................... 211,607 17,406
Amortization of service contract...................................... 1,440,000 2,400,000
Amortization of stock plan expense.................................... 343,267 1,528
Amortization of premiums on investment securities..................... 49,331
Amortization of premiums on purchased loans........................... 116,509
Amortization of Bank Charter.......................................... 5,833
Amortization of start-up costs........................................ 2,280
Provision for loan losses............................................. 471,706
Contribution of services from affiliate................................. 31,232
Changes in assets and liabilities which provide (use) cash:
Accrued interest receivable........................................... (372,237)
Other assets.......................................................... (142,363) (311,799)
Payables and accrued liabilities...................................... (373,267) 748,916
-------------- --------------
Net cash used in operating activities............................... (3,824,773) (951,899)
INVESTING ACTIVITIES:
Purchases of securities available for sale.............................. (19,347,623)
Purchase of Federal Home Loan Bank stock................................ (225,000)
Principal repayments on mortgage backed securities...................... 1,161,085
Purchase of loans....................................................... (52,909,291)
Principal payments on loans............................................. 7,838,834
Purchase of Premier Bank charter........................................ (350,000)
Capital expenditures.................................................... (249,906) (183,390)
Proceeds from return of equipment....................................... 17,738
-------------- --------------
Net cash used in investing activities............................... (64,064,163) (183,390)
FINANCING ACTIVITIES:
Assumption of Premier deposits.......................................... 5,000,000
Transfer of deposits from affiliate..................................... 42,977,650
Increase in deposits.................................................... 10,749,113
Advances from (repayments to) affiliate................................. (883,606) 883,606
Net proceeds from the sale of common stock.............................. 38,380,705 1,020,349
-------------- --------------
Net cash provided by financing activities........................... 96,223,862 1,903,955
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 28,334,926 768,666
CASH AND CASH EQUIVALENTS
Beginning of Period..................................................... 768,666
-------------- --------------
End of Period........................................................... $ 29,103,592 $ 768,666
-------------- --------------
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid during the
year for interest....................................................... $ 1,184,549 $ --
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1997 and 1996 and for the year ended December 31, 1997 and
the period February 20, 1996 (Date of Incorporation) to December 31, 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
Net.B@nk, Inc. (the "Company") was incorporated February 20, 1996 for the
primary purpose of forming and, ultimately, operating Atlanta Internet Bank
("AIB"). As of January 1, 1997, pending regulatory approval and the acquisition
of a bank charter, the Company was operating as a development stage enterprise
under an agreement with Carolina First Bank ("CFB") whereby CFB agreed to hold
and service the deposit accounts generated by the Internet banking operations of
the Company in exchange for 1,325,000 shares of the Company's common stock
valued at $3,840,000. In addition, as of January 1, 1997 the Company was a party
to an agreement with First Alliance/Premier Bancshares, Inc. ("First Alliance")
pursuant to which the Company had agreed to purchase the charter of First
Alliance's subsidiary, Premier Bank, $5 million of loans, $5 million of
certificates of deposit, and $2 million in unimpaired capital for $2,150,000 in
cash, 41,406 shares of the Company's common stock valued at $125,000, and
$75,000 in additional cash for reimbursement of direct out-of-pocket expenses.
On July 11, 1997, the regulatory approval from the Office of Thrift
Supervision ("OTS") was received. On July 28, 1997, the Company sold 3,500,000
shares of its common stock to the public in an Initial Public Offering (the
"Offering"). On July 31, 1997, the Company received approximately $38.4 million
in net proceeds from the Offering and consummated its agreements with both First
Alliance and CFB. As a result AIB, a federal savings bank, became a wholly owned
subsidiary of the Company.
2. ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant policies:
CONSOLIDATION
The consolidated financial statements of the Company include the financial
statements of AIB, the Company's wholly owned subsidiary. All intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTEREST RATE RISK
The Company's assets and liabilities are generally monetary in nature, and
interest rate changes have an impact on the Company's performance. The Company
decreases the effect of interest rate changes on its performance by striving to
match maturities and interest sensitivity between loans, investment securities,
deposits, and other borrowings. However, a significant change in interest rates
could have a material effect on the Company's results of operations.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, demand deposits due from banks, and federal funds sold to banks.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities classified as available for sale are carried at fair
value. The related unrealized gain or loss is included as a separate component
of shareholders' equity. Gains and losses from dispositions are based on the net
proceeds and the adjusted carrying amounts of the securities sold using the
specific identification method.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated to be
adequate to provide for probable losses in the loan portfolio. Management
determines the adequacy of the allowance based upon reviews of individual loans,
recent loss experience, current economic conditions, the risk characteristics of
the various categories of loans, and other pertinent factors. Loans deemed
uncollectible are charged to the allowance. Provisions for loan losses and
recoveries on loans previously charged off are added to the allowance.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful life of each asset. The Company evaluates the estimated useful lives of
assets on
<PAGE>
a periodic basis to determine whether events or circumstances warrant revised
estimated useful lives or whether any impairment exists. Management believes
no material impairment existed at December 31, 1997.
BANK CHARTER
The value of the charter is being amortized on a straight-line basis over 25
years. The carrying value of the charter is periodically reviewed to assess
recoverability based on expected undiscounted cash flows and operating income
for AIB. Impairment would be recognized in operating results if a permanent
diminution in value was expected. The Company also evaluates the amortization
period of the bank charter to determine whether events or circumstances warrant
revised estimates of the useful life. Management believes that no material
impairment of the bank charter existed at December 31, 1997.
INTEREST INCOME ON LOANS
Interest on loans is generally recorded over the term of the loan based on
the unpaid principal balance. Accrual of interest is discontinued when either
principal or interest becomes 90 days past due or when, in management's opinion,
collectibility of such interest is doubtful.
PREMIUM ON LOANS PURCHASED
Premiums on loans purchased from third parties are capitalized and amortized
over the life of the loan as an adjustment to yield. Such premiums are
classified with the loan balance to which they relate for financial reporting
purposes.
INCOME TAXES
Provisions for income taxes are based upon amounts reported in the
statements of income (after exclusion of nontaxable income such as interest on
state and municipal securities) and include deferred taxes for temporary
differences between financial statements and tax bases of assets and liabilities
using enacted tax rates for the year in which the temporary differences are
expected to reverse.
NET LOSS PER SHARE
In February 1997, Statement of Financial Accounting Standards ("SFAS")
128, "Earnings Per Share" was issued. SFAS 128 establishes standards for
computing and presenting earnings per share information for entities with
publicly held common stock. In accordance with SFAS 128, net loss per share
is computed based on the weighted average number of common shares outstanding
during the period. All previously reported per share amounts have been
restated to conform to SFAS 128. Common stock equivalent shares related to
366,456 outstanding stock options have not been included in the computation
of net loss per share as the effect of such shares would be antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 financial statements to
conform to the 1997 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" and 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general purpose financial
statements. SFAS 131 establishes standards for, among other things, reporting
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
financial reports issued to shareholders. SFAS 130 and 131 are effective for
financial statements issued for periods beginning after December 15, 1997.
3. ACQUISITION
Effective July 31, 1997, the Company acquired all of the outstanding stock
of Premier Bank, FSB for $2,150,000 in cash, 41,406 shares of the Company's
common stock valued at $125,000 and $75,000 in cash for reimbursement of direct
out-of-pocket expenses. The acquisition was accounted for as a purchase and the
bank charter was recorded at $350,000 as an intangible asset. This amount is
being amortized over 25 years. Revenues, net loss and net loss per share for the
Company for the year ended December 31, 1997 and for the period from February
20, 1996 to December 31, 1996 would not have been materially affected assuming
the transaction had occurred on January 1, 1997 and February 20, 1996,
respectively.
<PAGE>
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale as of December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
GROSS
------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations........................ $ 8,127,863 $ -- $ -- $ 8,127,863
U.S. government agencies................................... 10,009,346 (83,063) 9,926,283
------------- ----------- ----------- -------------
$ 18,137,209 $ -- $ (83,063) $ 18,054,146
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1997, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because the borrower may have the right to call or
prepay obligations with or without call or prepayment penalties. Mortgage-backed
securities, which are included above in U.S. government agencies, are included
in the year of their final maturity.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
Due in one year or less............................................................ $ -- $ --
Due after one year through five years.............................................. 67,519 67,519
Due after five years through ten years............................................. -- --
Due after ten years................................................................ 18,069,690 17,986,627
------------- -------------
$ 18,137,209 $ 18,054,146
------------- -------------
------------- -------------
</TABLE>
There were no sales or calls of securities during the periods presented.
5. LOANS
Effective August 1, 1997, the Company purchased $26.5 million in first and
second mortgage, auto, and unsecured loans from CFB. The purchase price included
a premium of $607,832. All of these loans will be serviced by CFB for a fee
ranging from .375% to 1.25% of the face amount of the loans. The loans bear
interest at rates ranging from 6.0% to 12%. Additional purchases of $204,000 and
$10.1 million under the same terms were made from CFB on October 10, 1997 and
December 31, 1997, respectively. The December purchase included a premium of
$201,000. Effective August 1, 1997, the Company also purchased $6.1 million in
11.5% automobile leases from a third party who will continue to service the
leases for a 2% fee.
In December 1997, the Company also entered into participation loan
agreements with two construction loan brokers. At December 31, 1997 the Company
had a total of $5.4 million in construction loans outstanding under these
participation agreements, which yield 9% after a .5% servicing fee. Total unused
construction loan commitments at December 31, 1997 were $7.9 million.
The Company also began originating its own secured and unsecured loans
during 1997 with interest rates ranging from 8.5% to 9%. Total direct loans made
by the Company were $1.2 million as of December 31, 1997.
As of December 31, 1997, loans are summarized as follows:
<TABLE>
<S> <C>
One- and three-year ARMs....................................................... $9,879,537
Construction loans............................................................. 5,399,624
Equipment leases............................................................... 4,478,053
Consumer loans:
Home improvement............................................................. 4,073,964
Equity lines................................................................. 4,412,013
Auto loans................................................................... 14,623,745
Personal..................................................................... 1,165,750
Other........................................................................ 900,721
----------
$44,933,407
----------
</TABLE>
The Company provides lines of credit and overdraft protection to its banking
customers on a nationwide basis. At December 31, 1997, outstanding lines of
credit totaled $29,000 and unused commitments totaled $353,000. At December 31,
1997, all of the Company's loans were with customers residing in the
Southeastern United States.
An analysis of the allowance for loan losses for the year ended December 31,
1997 follows:
<TABLE>
<S> <C>
Balance--Beginning of year..................................................... $ --
Provision for loan losses.................................................... 471,706
Loans charged off............................................................ (18,262)
Recoveries................................................................... --
----------
Balance--End of year........................................................... $ 453,444
----------
----------
</TABLE>
<PAGE>
The Company considers a loan to be impaired when it is probable that it will
be unable to collect all amounts due according to the original terms of the loan
agreement. The Company measures impairment of a loan on a loan by loan basis.
Amounts of impaired loans that are not probable of collection are charged off
immediately. The Company had no impaired loans or nonaccrual loans as of
December 31, 1997. The amount of impaired loans written off during 1997 was
$18,262.
The Company had no restructured loans as of December 31, 1997.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of its lending activities to meet the financing needs of
its customers. These financial instruments include commitments to extend credit
and lines of credit. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
these commitments as it does for on-balance-sheet instruments and evaluates each
customer's creditworthiness on a case-by-case basis. At December 31, 1997, the
Company had outstanding loan commitments of $8,332,568.
The amount of collateral obtained by the Company, if deemed necessary, for
these commitments, upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held, if any, varies but may include
inventory, equipment, real estate, or other property. The accounting loss the
Company would incur if the borrower failed completely to perform according to
the terms of the contract and the collateral proved to be of no value is equal
to the face amount of the commitment.
6. DEPOSITS
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Company:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
AMOUNT PERCENTAGE
------------- -----------
<S> <C> <C>
Demand checking accounts............................................................... $ 293,054 0.50%
Interest bearing:
NOW accounts......................................................................... 1,573,283 2.70
Money market......................................................................... 36,534,967 62.20
Certificates of deposit under $100,000............................................... 16,662,365 28.4
Certificates of deposit over $100,000................................................ 3,663,094 6.2
------------- -----------
Total deposits................................................................... $ 58,726,763 100.00%
------------- -----------
</TABLE>
At December 31, 1997, the scheduled maturities of certificates of deposit
were as follows:
<TABLE>
<S> <C>
Within three months............................................................ $6,195,485
Over three months through six months........................................... 849,156
Over six months through one year............................................... 11,047,380
Over one year.................................................................. 2,233,438
----------
Total........................................................................ $20,325,459
----------
</TABLE>
7. FURNITURE AND EQUIPMENT
Furniture and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Furniture and fixtures.................................................................... $ 56,145 $ 40,741
Equipment................................................................................. 618,789 402,028
---------- ----------
Total................................................................................... 674,934 442,769
Less accumulated depreciation............................................................. 286,426 74,819
---------- ----------
Furniture and equipment, net............................................................ $ 388,508 $ 367,950
---------- ----------
</TABLE>
8. LEASES
The Company leases its facilities and certain other equipment under
operating lease agreements. Future minimum payments as of December 31, 1997
under these leases follow:
<TABLE>
<S> <C>
1998.............................................................................. $ 114,649
1999.............................................................................. 128,028
2000.............................................................................. 130,872
2001.............................................................................. 133,788
2002 and beyond................................................................... 431,944
</TABLE>
Rent expense for the year ended December 31, 1997 and for the period from
February 20, 1996 to December 31, 1996 was $91,868 and $17,850, respectively.
<PAGE>
9. INCOME TAXES
The Company provides deferred income taxes based on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the temporary differences are
expected to reverse. As of December 31, 1997 and 1996, the Company had state and
federal net operating loss carryforwards of approximately $7,795,534 and
$837,591, respectively, which will expire in 2012 and 2011, respectively, if not
utilized.
As of December 31, 1997 and 1996, the Company had deferred tax assets and
deferred tax liabilities as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards...................................................... $ 2,962,303 $ 318,285
Service contract expense.............................................................. 912,000
Allowance for loan losses............................................................. 165,369
Start-up costs........................................................................ 170,761 216,297
Other, net............................................................................ (38,402) 12,308
------------ ------------
3,260,031 1,458,890
------------ ------------
Less valuation allowance.............................................................. 3,260,031 1,458,890
------------ ------------
$ -- $ --
------------ ------------
</TABLE>
10. OTHER EXPENSE
Items comprising other expense for the year ended December 31, 1997 and the
period from February 20, 1996 (date of incorporation) to December 31, 1996
follow:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Accounting and legal expenses......................................................... $ 238,650 $ 84,183
Consultants........................................................................... 52,739
Other................................................................................. 63,677 10,764
------------ ------------
$ 355,066 $ 94,947
------------ ------------
</TABLE>
11. EMPLOYEE BENEFIT PLAN
Effective December 31, 1997, the Company adopted a 401(k) plan (the "Plan")
which covers substantially all of its employees. The Company, at its discretion,
matches 25% of employee contributions to the Plan, up to a maximum Company
contribution of 1% of an employee's compensation. No contribution was made
during 1997.
12. SHAREHOLDERS' EQUITY
On March 17, 1997, the Company declared a 33.125 for 1 stock split of its
common stock effected in the form of a stock dividend payable on the effective
date of the initial public offering. All references to share and per share
amounts reflect the split. Also, additional paid-in capital has been charged and
common stock has been credited retroactively with $12,116 to reflect the stock
split.
13. STOCK OPTIONS
The Company has a 1996 Stock Incentive Plan (the "Plan") which provides that
key employees, officers, directors, and consultants of the Company may be
granted nonqualified and incentive stock options to purchase shares of common
stock of the Company, derivative securities related to the value of the common
stock, or cash awards. The Plan limits the total number of shares which may be
awarded to 397,500, which have been reserved for the Plan. Generally, the
options expire ten years from the date of the grant. During the year ended
December 31, 1996, 16,562 nonqualified stock options were granted at an exercise
price of $1.21 per share on November 25, 1996. Awards to officers and employees
under the Plan during the year ended December 31, 1997 were as follows: 124,219
nonqualified stock options at an exercise price of $1.21 per share on January 5,
1997; 39,750 nonqualified stock options at an exercise price of $3.62 per share
on February 25, 1997, 173,906 incentive stock options at an exercise price of
$10.00 per share on February 25, 1997, and 15,000 incentive stock options at an
exercise price of $11.00 per share on July 30, 1997. In connection with the
issuance of the options on January 5 and February 25, 1997, $390,484 of
compensation expense will be recognized over the vesting period. The majority of
the nonqualified options vested immediately on July 28, 1997 upon completion of
the Offering, and $319,704 of unamortized compensation expense was recognized.
The incentive stock options vest one-third on the first anniversary of the date
of issuance, one-third on the second anniversary of the date of issuance, and
one-third on the third anniversary of the date of issuance.
As of December 31, 1997, the Company had 366,456 options to purchase common
stock outstanding at a weighted average exercise price of $5.98, and 140,781 of
the options were exercisable.
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
EXERCISE OUTSTANDING REMAINING
PRICE AT 12/31/97 CONTRACTUAL LIFE
- ----------- ----------- ---------------------
<S> <C> <C>
$ 1.21 140,781* 9.0
3.62 36,769 9.2
10.00 173,906 9.2
11.00 15,000 9.6
</TABLE>
* Exercisable as of December 31, 1997
The Company accounts for its stock-based compensation plan under Accounting
Principles Board Opinion No. 25. The Company has adopted SFAS No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123") for disclosure purposes.
For SFAS 123 purposes, the fair value of each option grant, excluding 15,000
options granted on July 30, 1997, was $.97 estimated as of the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<S> <C>
Expected life (years)............................................................... 5
Risk-free interest rate............................................................. 6.2%
Dividend rate....................................................................... 0.0%
Expected volatility................................................................. 0.0%
Forfeiture rate..................................................................... 0.0%
</TABLE>
The fair value of the 15,000 options granted on July 30, 1997 was $7.54
estimated as of the date of the grant using the Black-Scholes pricing model with
the following weighted average assumptions:
<TABLE>
<S> <C>
Expected life (years)............................................................... 5
Risk-free interest rate............................................................. 5.95%
Dividend rate....................................................................... 0.0%
Expected volatility................................................................. 75.0%
Forfeiture rate..................................................................... 1.0%
</TABLE>
Had compensation cost for the Company's stock options granted been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed in SFAS 123 utilizing the
assumptions described above, the Company's net loss and net loss per share for
the year ended December 31, 1997 and the period from February 20 to December 31,
1996 would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Net loss:
As reported....................................................................... $ (5,577,439) $ (3,839,182)
------------- -------------
Pro forma......................................................................... $ (5,504,245) $ (4,012,534)
------------- -------------
Net loss per share:
As reported....................................................................... $ (1.66) $ (4.33)
------------- -------------
Pro forma......................................................................... $ (1.64) $ (4.53)
------------- -------------
</TABLE>
14. CAPITAL ADEQUACY
AIB is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure of AIB to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, AIB must meet specific capital guidelines that involve quantitative
measures of AIB's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. AIB's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. In addition, under
regulatory guidelines, AIB may not pay a dividend to the Company if doing so
would cause AIB to be less than adequately capitalized, as defined below.
Quantitative measures established by regulation to ensure capital adequacy
require AIB to maintain minimum capital amounts and ratios are set forth in the
table below. AIB's regulatory agency, the OTS, requires AIB to maintain minimum
ratios of tangible capital of 1.5%, core capital of 3%, and total risk-based
capital of 8%. Management believes that as of December 31, 1997, as defined in
the regulations, AIB meets all the capital adequacy requirements to which it is
subject.
<PAGE>
As of December 31, 1997, the Company had not yet received a notification
from the OTS as to AIB's classification under the regulatory framework for
prompt corrective action. To be well capitalized AIB must maintain minimum Tier
I, core, and risk-based capital ratios of at least 6%, 5%, and 10%,
respectively. Management believes that AIB was "well capitalized" as of December
31, 1997.
AIB's actual capital amounts and ratios as of December 31, 1997 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS "WELL
CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY PURPOSES CORRECTIVE ACTION
ACTUAL PLAN
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)................... $ 23,652 47.8% $ 3,956 8.0% $ 4,948 10%
Core capital (to tangible assets)......................... 23,735 28.3% 2,517 3.0% 4,196 5%
Tangible capital (to tangible assets)..................... 23,735 28.3% 1,259 1.5% -- N/A
Tier I capital (to risk-weighted assets).................. 23,735 48.0% -- N/A 2,969 6%
</TABLE>
15. COMMITMENTS
In 1997 and 1996, the Company was a party to an agreement with AT&T
Corporation ("AT&T"), which provides the Company with technical, marketing, and
customer services. In November 1997, this agreement was converted to BISYS
Corporation ("BISYS") who provides AIB with core bank processing services. The
Company also receives professional programming services from Edify Corporation,
item processing services from NOVA Financial Corporation, and electronic bill
payment processing services from CheckFree Corporation. Under the terms of the
agreements with AT&T, BISYS, NOVA, and CheckFree, the Company pays ongoing
monthly payments for customer support and processing services. Related software
implementation fees paid of $428,000 have been prepaid and capitalized as other
assets and are being amortized over the lesser of 36 months or the term of the
respective agreements.
AT&T's WorldNet Service division continues to provide the Company with
advertising and marketing services under AT&T's "Charter Membership" program.
16. RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH CFB
Certain of the Company's cash accounts and time deposits were on deposit
with CFB until July 31, 1997. The Company received $0 and $7,709 in interest
income related to these accounts during the year ended December 31, 1997 and the
period from February 20, 1996 to December 31, 1996, respectively. For the period
from February 20, 1996 to December 31, 1996, the Company received $60,000 in
management fees from CFB. The Company expensed $1,217,459 and $883,606 for the
year ended December 31, 1997 and the period from February 20, 1996 to December
31, 1996, respectively, for fees paid to CFB for various advisory, consulting,
custodial services, and net interest expense. In addition, the Company recorded
$31,232 in consulting expense and contributed capital for consulting services
contributed by CFB during the period from February 20, 1996 to December 31,
1996.
OTHER TRANSACTIONS
The Company paid $104,958 and $67,032 for the year ended December 31, 1997
and the period from February 20, 1996 to December 31, 1996, respectively, in
consulting fees to a director. In addition, the Company has expensed $246,265
and $278,418 for amounts due to a company owned by the Chairman of the Board of
the Company for accounting and management services provided to the Company
during the year ended December 31, 1997 and the period from February 20, 1996 to
December 31, 1996, respectively.
17. CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average cash be
maintained. At December 31, 1997 the required balance was $25,000.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value.
<PAGE>
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
1997
-------------------------------
CARRYING AMOUNT FAIR VALUE
---------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks........................................................ $ 250,535 $ 250,535
Federal funds sold............................................................. 28,853,057 28,853,057
Investment securities.......................................................... 18,054,146 18,054,146
Loans.......................................................................... 44,933,407 46,109,296
Liabilities:
Non-interest bearing deposits.................................................. 293,054 293,054
Interest bearing deposits--certificates of deposit............................. 20,325,459 20,478,013
Interest bearing deposits--other............................................... 38,108,250 38,108,250
</TABLE>
The carrying amounts of cash and due from banks and federal funds sold are a
reasonable estimate of their fair value due to the short-term nature of these
financial instruments. The fair value of investment securities is based on
quoted market prices and dealer quotes. The fair value of loans and time
deposits is estimated by discounting the future cash flows using AIB's current
interest rates for such financial instruments. No adjustment was made to the
entry-value interest rates for changes in credit of performing loans for which
there are no known credit concerns. Management segregates loans into appropriate
risk categories. Management believes that the risk factor embedded in the
entry-value interest rates along with the general reserves applicable to the
performing loan portfolio for which there are no known credit concerns result in
a fair valuation of such loans on an entry-value basis.
As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in interest
rates.
The fair value estimates presented herein are based on pertinent information
available to management at December 31, 1997. Although management is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and, therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
19. SUBSEQUENT EVENTS
Effective February 5, 1998, the Company purchased $14.9 million in home
equity loans from a third party. The purchase price included a premium of
$672,244. All of these loans will be serviced by the third party for a fee of
.5%. The loans bear interest at current rates ranging from 7.25% to 13.25% with
a weighted average of 10.5%
20. CONDENSED FINANCIAL STATEMENTS OF THE COMPANY (PARENT ONLY)
As of December 31, 1996, AIB was not a subsidiary of the Company. Therefore,
the Company's financial statements as of December 31, 1996 include only parent
company amounts.
The condensed financial statements of the Company (parent only) as of
December 31, 1997 follow:
CONDENSED BALANCE SHEET
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents.................................................... $10,122,666
Investment in subsidiary..................................................... 23,734,818
Other assets................................................................. 269,357
-----------
$34,126,841
-----------
-----------
Liabilities--Other............................................................. $ 9,444
Shareholders' equity:
Common stock................................................................. 61,456
Additional paid-in capital................................................... 43,631,314
Unamortized stock plan expense............................................... (75,689)
Accumulated deficit.......................................................... (9,416,621)
Net unrealized gain (loss) on investment securities available for sale....... (83,063)
-----------
Total shareholders' equity............................................... 34,117,397
-----------
$34,126,841
-----------
-----------
</TABLE>
<PAGE>
CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net interest income............................................................ $ 87,984
Expenses....................................................................... (4,150,859)
-----------
Loss before loss of Bank....................................................... (4,062,875)
Loss of Bank................................................................... (1,514,564)
-----------
Net loss..................................................................... $(5,577,439)
-----------
-----------
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
Operating activities:
Net loss..................................................................... $(5,577,439)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization............................................................. 1,783,266
Loss of subsidiary....................................................... 1,514,564
Changes in assets and liabilities:
Decrease in other assets............................................. 125,363
Decrease in other liabilities........................................ (1,623,078)
-----------
Net cash used by operating activities............................ (3,777,324)
Investing activities--investment in subsidiary................................. (25,249,381)
Financing activities--net proceeds from sale of stock.......................... 38,380,705
-----------
Increase in cash and due from banks............................................ 9,354,000
Cash and due from banks:
Beginning of year............................................................ 768,666
-----------
End of Year.................................................................. $10,122,666
-----------
-----------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest................................................................. $ 163,479
-----------
-----------
</TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the year ended December 31, 1997 and for the
period February 20, 1996 to December 31, 1996 is summarized as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income........................................................ $ 6 $ -- $ 902 $ 1,315
Interest expense....................................................... 103 37 465 655
--------- --------- --------- ---------
Net interest income (loss)........................................... (97) (37) 437 660
--------- --------- --------- ---------
Provision for loan losses.............................................. 392 80
--------- --------- --------- ---------
Net interest income (loss) after provision for loan losses........... (97) (37) 45 580
Noninterest income..................................................... 30 33
Noninterest expense.................................................... 1,703 1,383 1,593 1,452
--------- --------- --------- ---------
Net loss............................................................... $ (1,800) $ (1,420) $ (1,518) $ (839)
--------- --------- --------- ---------
Basic and diluted net loss per common share outstanding................ $ (1.44) $ (1.11) $ (0.32) $ (0.14)
--------- --------- --------- ---------
1996
Interest income........................................................ $ 25 $ (36) $ (1,217) $ 8
Interest expense
--------- --------- --------- ---------
Net interest income.................................................. 8
--------- --------- --------- ---------
Provision for loan losses
--------- --------- --------- ---------
Net interest income after provision for loan losses.................. 8
Noninterest income..................................................... 40 20
Noninterest expense.................................................... 15 56 1,217 2,619
--------- --------- --------- ---------
Net income (loss).................................................... $ 25 $ (36) $ (1,217) $ (2,611)
--------- --------- --------- ---------
Basic and diluted net income (loss) per common share outstanding....... $ 0.03 $ (0.04) $ (1.22) $ (2.09)
--------- --------- --------- ---------
</TABLE>
Basic and diluted net income (loss) per common share has been calculated
based on the weighted average number of shares outstanding during the quarter in
accordance with Statement of Financial Accounting Standards 128, "Earnings Per
Share." Common stock equivalent shares have not been included in the calculation
related to those quarters with a net loss since they were antidilutive. There
were no common stock equivalents outstanding for the period from February 20,
1996 to March 31, 1996. All previously reported per share amounts have been
restated to conform to SFAS 128. The total for the quarters differs from the net
loss per share as shown on the statement of operations because of the issuance
of shares previously recorded as stock subscriptions receivable during the year
of 1997 and the period of 1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Net.B@nk, Inc.
We have audited the consolidated balance sheets of Net.B@nk, Inc. and its
subsidiary (the "Company") as of December 31, 1997 and 1996, and the related
statements of operations, shareholders' equity (deficiency), and cash flows for
the year ended December 31, 1997 and the period from February 20 (date of
incorporation) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
manage-ment, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the year
ended December 31, 1997 and the period from February 20 (date of incorporation)
to December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
February 5, 1998
Atlanta, Georgia
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income.................................................................... $ 2,223,165 $ 7,709
Interest expense................................................................... 1,259,743
------------- -------------
Net interest income.............................................................. 963,422 7,709
Provision for loan losses.......................................................... 471,706
------------- -------------
Net interest income after provision for loan losses.............................. 491,716 7,709
Noninterest income................................................................. 62,607 60,000
Noninterest expense................................................................ 6,131,762 3,906,891
------------- -------------
Net loss......................................................................... (5,577,439) (3,839,182)
------------- -------------
Net loss per share--basic and diluted............................................ $ (1.66) $ (4.33)
------------- -------------
------------- -------------
Weighted average shares outstanding................................................ 3,354,000 886,000
------------- -------------
------------- -------------
BALANCE SHEET DATA:
Total assets..................................................................... $ 93,219,809 $ 1,246,449
Shareholders' equity (deficiency)................................................ 34,117,397 (386,073)
Book value per share at year-end................................................. 5.55 (0.31)
PERCENTAGE OF NET LOSS TO:
Average total assets............................................................. (11.81% (616.02)%
Average shareholders' equity (deficiency)........................................ (33.07) (1,988.84)
Percentage of average shareholders' equity (deficiency) to average total
assets......................................................................... 35.71% (30.90)%
</TABLE>
<PAGE>
CORPORATE HEADQUARTERS
Net.B@nk, Inc.
950 North Point Parkway
Suite 350
Alpharetta, Georgia 30005
(770) 343-6006
CORPORATE & NEW ACCOUNT INFORMATION
For more information about Net.B@nk, Inc. or to open an account with Atlanta
Internet Bank, visit our web site on the Internet at http://
www.atlantabank.com.
STOCK LISTING AND SYMBOLS
The Company's common stock is traded on the Nasdaq SmallCap Market under the
symbol "NTBK".
TRANSFER AGENT AND REGISTRAR
For information relating to stock certificates, changes of address, or transfer
of ownership, contact:
SunTrust Bank, Atlanta
58 Edgewood Avenue
Suite 225
Atlanta, Georgia 30303
(404) 588-7815 or (800) 568-3476
LEGAL COUNSEL
Powell, Goldstein, Frazer & Murphy LLP
16th Floor
191 Peachtree Street, NE
Atlanta, Georgia 30303
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
100 Peachtree Street
Suite 1700
Atlanta, Georgia 30303
ANNUAL MEETING
The Annual Meeting of Net.B@nk Shareholders will be held at the Atlanta/Windward
Hilton Garden Inn, 4025 Windward Plaza, Alpharetta, Georgia on Thursday, April
23, 1998, at 10:00 a.m.
FINANCIAL INFORMATION AND CORPORATE REPORTS
Analysts and investors seeking information about Net.B@nk, Inc. may contact the
CFO. Annual reports, quarterly shareholder reports, quarterly Form 10Qs, and
copies of Net.B@nk's Annual Report on Form 10K, as filed with the Securities
Exchange Commission, are available upon written request without charge. Please
direct your requests to:
Robert E. Bowers
Chief Financial Officer
Net.B@nk, Inc.
950 North Point Parkway
Suite 350
Alpharetta, Georgia 30005
Telephone: (770) 343-6006
Facsimile: (770) 343-6464
MEDIA AND PUBLIC RELATIONS
Ched Hoover
Director of Marketing
Telephone: (770) 343-6006
Facsimile: (770) 343-6464
ANALYSTS FOLLOWING NET.B@NK, INC.
Morgan Keegan & Company, Inc.
John B. Moore, Jr.
Christopher T. Kelley
Memphis, Tennessee
(901) 579-4901
Interstate/Johnson Lane
John J. Mason
Marguerite E. Sons
Atlanta, Georgia
(404) 240-5024
Quicken is a registered product of Intuit, Inc. MS Money and Explorer are
registered products of Microsoft Corp. Navigator is a registered product of
Netscape Communications Corp. Visa is a registered product of Visa
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-43073 of Net B@nk, Inc. on Form S-8 of our report dated February 5, 1998,
appearing in this Annual Report on Form 10-K of Net B@nk, Inc. for the year
ended December 31, 1997.
/s/ Deloitte & Touche LLP
March 25, 1998
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