<PAGE>
As filed with the Securities and Exchange Commission on September 13, 1999
Registration No. 333-81547
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------
DIGITAL INSIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Delaware 7375 77-0493142
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
26025 Mureau Road
Calabasas, CA 91302
(818) 871-0000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
John Dorman
Chairman of the Board, Chief Executive Officer and President
Digital Insight Corporation
26025 Mureau Road
Calabasas, CA 91302
(818) 871-0000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
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<S> <C>
Steven E. Bochner Brooks Stough
Jeffrey A. Herbst Jay K. Hachigian
Susan P. Krause John F. Dietz
Joseph A. Pierce Gunderson Dettmer Stough
Wilson Sonsini Goodrich & Rosati Villeneuve Franklin & Hachigian, LLP
Professional Corporation 155 Constitution Drive
650 Page Mill Road Menlo Park, CA 94025
Palo Alto, CA 94304 (650) 321-2400
(650) 493-9300
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Maximum
Aggregate Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered(1) Per Share(2) Offering Price(2) Fee(2)
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<S> <C> <C> <C> <C>
Common stock, $0.001 par value... 4,025,000 $14.00 $56,350,000 $15,666
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</TABLE>
(1) Includes 525,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a). A registration fee in the amount
of $16,541 was previously paid pursuant to Rule 457(o).
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued September 13, 1999
Shares
[LOGO OF DIGITAL INSIGHT]
COMMON STOCK
-----------
Digital Insight is offering 3,500,000 shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $12.00 and
$14.00 per share.
-----------
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "DGIN."
-----------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 6.
-----------
PRICE $ A SHARE
-----------
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Underwriting Proceeds
Price Discounts to
to and Digital
Public Commissions Insight
------ ------------ --------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total.............................................. $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Digital Insight has granted the underwriters the right to purchase up to an
additional 525,000 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
FRIEDMAN BILLINGS RAMSEY
, 1999
<PAGE>
[Artwork incorporating multiple squares in shades of green and white and
enlarged lash-like figures as a background to the words "We make the
connection..." and a random series of numbers.]
<PAGE>
[Artwork incorporating Digital Insight's logo in center surrounded by words
"Internet Banking," "Checking Accounts," "Direct Deposit," "Bill Payment," "Web
Site Development," "Target Marketing," "Stock Quotes," "Loan Origination," "AXIS
Cash Management/TM/" and "Payroll" which are encircled by random series of
numbers. Directly beneath logo are the words "...between financial institutions
and their customers." Surrounding the logo and text is a depiction of two large
human eyes looking across the page toward each other. In a box along the bottom
margin of the page is the following text:
The Internet is dramatically changing the way more than 22,000 banks and
credit unions in the United States do business.
As a leading provider of Internet-banking services, we make the connection
between community financial institutions and their customers.
Technology has opened the door for financial institutions of all sizes to
compete for the millions of potential customers available in the
marketplace. Digital Insight provides small to mid-size community banks and
credit unions with services and strategies that can leverage the power of
the Internet to reach - and keep - customers.
We act as a partner for our clients by offering an integrated Internet
banking solution for both the financial institution's consumer and business
customers. Our solutions include private label Internet banking software, a
real time connection to the institution's data processing system, a secure
and reliable network, customized web site design and web site housing. Our
service bureau solution can be implemented in less than three months.
Beyond our Internet banking solution, Digital Insight is developing new and
better technologies to leverage the financial institution's Internet branch
capabilities. For example, we offer a target marketing solution to allow
the financial institution to sell related products and services to their
current Internet banking customers.
We at Digital Insight are committed to bringing our knowledge, imagination,
energy and enthusiasm to bear on one thing: empowering community financial
institutions to use the Internet to change and improve their businesses.
Beneath this text is Digital Insight's logo with the words "Digital Insight" in
a box next to it and the words "Beyond Internet Banking" beneath this box.]
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
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Page
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Business................................................................... 28
Management................................................................. 41
Certain Transactions....................................................... 50
Principal Stockholders..................................................... 52
Description of Capital Stock............................................... 54
Shares Eligible for Future Sale............................................ 56
Underwriters............................................................... 58
Legal Matters.............................................................. 60
Experts.................................................................... 60
Additional Information..................................................... 60
Index to Financial Statements.............................................. F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
Until , 1999 (25 days after the date of this prospectus), all
dealers effecting transactions in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
regarding Digital Insight and the common stock being sold in this offering and
the financial statements and related notes appearing elsewhere in this
prospectus.
DIGITAL INSIGHT CORPORATION
Digital Insight is the leading provider of real time Internet banking
services to community financial institutions with assets of less than $10
billion. Over 370 of these institutions, including credit unions, small to mid-
sized banks and savings and loans, have contracted with us for one or more of
our products and services. We offer our customers a cost-effective, outsourced
service, branded in their name, which enables them to provide Internet banking
to their individual and small business customers. With our consumer product,
individuals can use the Internet to manage their accounts, transfer funds, pay
bills, complete online loan applications, check stock quotes and utilize other
services. Our small business product provides similar features, as well as the
ability to initiate payroll/direct deposits, make wire transfers and perform
other services. Our products allow users to download their account information
into leading personal financial management and small business accounting
software. To enable financial institutions to sell additional financial
services, we offer target marketing programs. We also provide customized web
site design, implementation, maintenance and hosting services.
Financial institutions, businesses and individuals are increasingly embracing
the Internet as a means to conduct financial transactions 24 hours a day.
International Data Corporation estimates that the number of financial
institutions offering online banking services will increase from 1,150 in 1998
to 15,845 by 2003, and that these services will be offered primarily via the
Internet. However, while over 50% of the largest 100 banks in the United States
offer Internet banking, only 5% of community financial institutions do,
according to Online Banking Report and International Data Corporation,
respectively. We therefore see a large market opportunity to deliver an
outsourced Internet banking service that meets the needs of the approximately
22,000 community financial institutions in the United States.
We provide community financial institutions a customized, outsourced Internet
solution that can be rapidly and cost-effectively installed and is secure. Our
solution can communicate in real time with the data processing systems of these
institutions. This capability allows transactions conducted on the web site to
be posted immediately on the financial institution's core system, and vice
versa. To this end, we have developed real time links, or interfaces, with 21
of the leading data processing vendors, so that when we install our solution
for a new customer supported by one of these vendors, the product
implementation is rapidly completed. In addition, the solution is designed to
be readily expandable, or scalable, as the number of users grows.
We generate revenues from our financial institution customers in the form of
implementation fees for establishing their Internet banking services, and
recurring service fees based on end user adoption and web site maintenance. An
increasing percentage of our revenues, approximately 77% in the six months
ended June 30, 1999, comes from recurring monthly service fees. As of June 30,
1999, we had contracted for home banking with financial institutions that have
approximately 9.2 million potential end users. Of these, over 410,000 were
actively using our home banking application, with active enrollment increasing
by more than 146% over the past twelve months. As of June 30, 1999, we had an
accumulated deficit of $11.5 million.
Digital Insight was among the first companies to create an Internet banking
solution for community financial institutions. We intend to leverage our
leading market position to continue to increase the number of financial
institutions using our products and services, and to increase the adoption of
our solution by end users within those institutions. We are also continuing to
develop interfaces with data processing vendors in order to serve the broadest
possible base of financial institutions. Finally, by broadening our product and
service offerings, we intend to attract additional traffic onto our network of
community financial institutions and business partners and create the potential
for new e-commerce revenue sources for Digital Insight and our customers.
We were incorporated in Delaware on March 18, 1997, and are the successor to
Digital Insight LLC, a Minnesota limited liability company established in 1995.
Our principal executive offices are located at 26025 Mureau Road, Calabasas,
California 91302, and our telephone number is (818) 871-0000. Our fiscal year
ends on December 31. We maintain a worldwide web site at
www.DigitalInsight.com. The information on our web site is not incorporated by
reference into this prospectus. We have filed an application to register
Digital Insight as our trademark. All other names or trademarks appearing in
this prospectus are the property of their respective holders.
4
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered............................ 3,500,000 shares
Common stock to be outstanding after this
offering....................................... 14,142,847 shares
Use of proceeds................................. For general corporate purposes,
including working capital and capital
expenditures. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... DGIN
</TABLE>
The foregoing information is based upon shares outstanding as of June 30,
1999 and excludes:
. 1,840,011 shares of common stock subject to outstanding options at June
30, 1999, at a weighted average exercise price of $1.86;
. 1,792,597 shares of common stock that have been set aside for future
stock options;
. 300,000 shares of common stock that have been set aside for our employee
stock purchase plan; and
. 51,041 shares of common stock issuable upon exercise of outstanding
warrants, at a weighted average exercise price of $3.13.
In addition, unless otherwise indicated, all information in this prospectus:
. gives effect to the conversion of 4,775,455 outstanding shares of
preferred stock into shares of common stock effective upon the closing
of the offering;
. assumes no exercise of the underwriters' over-allotment option; and
. assumes no exercise of outstanding warrants to purchase 51,041 shares of
our common stock.
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
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<CAPTION>
Six
Period from Months
July 17, 1995 Year Ended December 31, Ended June 30,
(inception) through --------------------------- ----------------
December 31, 1995 1996 1997 1998 1998 1999
------------------- ------- -------- -------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 88 $ 1,561 $ 3,972 $ 8,230 $ 3,497 $ 7,092
Gross profit............ (54) 657 1,741 2,983 1,447 2,349
Loss from operations.... (315) (717) (2,538) (4,599) (1,753) (3,617)
Net loss................ (315) (712) (2,452) (4,356) (1,643) (3,555)
Basic and diluted net
loss per share......... $(.06) $ (.14) $ (.49) $ (.85) $ (.33) $ (.66)
Shares used to compute
basic and diluted net
loss per share......... 5,000 5,000 5,000 5,108 5,018 5,415
Pro forma basic and
diluted net loss per
share.................. $ (.50) $ (.37)
Shares used in computing
pro forma basic and
diluted net loss
per share.............. 8,712 9,534
</TABLE>
The pro forma basic and diluted share calculations above and the "pro forma"
column below reflect the conversion upon the closing of the offering of all
outstanding shares of preferred stock into 4,775,455 shares of common stock as
if the conversion occurred at the date of original issuance.
The "as adjusted" column below reflects our sale of shares of common stock in
this offering at an assumed initial public offering price of $13.00 per share
and the application of the net proceeds, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us, as
described in "Use of Proceeds."
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<CAPTION>
June 30, 1999
----------------------------
Pro
Actual Forma As Adjusted
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................ $10,753 $10,753 $51,968
Working capital.................................. 7,714 7,714 48,929
Total assets..................................... 16,398 16,398 57,613
Total liabilities................................ 5,169 5,169 5,169
Mandatorily redeemable convertible preferred
stock........................................... 20,847 -- --
Total stockholders' equity (deficit) ............ (9,618) 11,229 52,444
</TABLE>
5
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree of
risk. You should carefully consider the following risk factors and the other
information in this prospectus before investing in our common stock. Our
business and results of operations could be seriously harmed by any of the
following risks. The trading price of our common stock could decline due to
any of these risks, and you may lose part or all of your investment.
We Have a Limited Operating History and Are Subject to the Risks Encountered
by Early-Stage Companies
We began operations in July 1995. Accordingly, we have a limited operating
history, and our business and prospects must be considered in light of the
risks and uncertainties to which early-stage companies in rapidly evolving
markets such as Internet banking are particularly exposed. These risks
include:
.risks that fluctuations in our operating results will be significant
relative to our revenues;
. risks that community financial institutions may not widely adopt
Internet banking in general or our solution;
. risks that the Internet and the systems and networks of third parties
may not operate efficiently; and
. risks that competition and rapid technological change in our industry
could adversely affect market acceptance of all our products and
services.
We cannot assure you that our business strategy will be successful or that
we will successfully address these risks and the risks detailed below.
We Have a History of Losses, Expect Future Losses and Cannot Assure You that
We Will Achieve Profitability
Although our revenues have increased in every quarter since 1996, we have
not achieved profitability and cannot be certain that we will realize
sufficient revenue to achieve profitability. We have incurred net losses of
$712,000 in the year ended December 31, 1996, $2.5 million in the year ended
December 31, 1997 and $4.4 million in the year ended December 31, 1998. As of
June 30, 1999, we had an accumulated deficit of $11.5 million. We plan to
increase our operating expenses to expand our sales and marketing operations,
broaden our customer support capabilities and continue to build our
operational infrastructure. If growth in our revenues does not outpace the
increase in these expenses, we may not achieve or sustain profitability. We
expect that we will continue to lose money at least through 2001.
The Expected Fluctuations of Our Operating Results Could Cause Our Stock Price
to Fluctuate
We expect that our operating results may fluctuate significantly in the
future based upon a number of factors, many of which are not within our
control. We base our operating expenses on anticipated revenue growth and our
operating expenses are relatively fixed in the short term. The implementation
and utilization of our products involves a commitment of resources and
recurring expense by us and our customers. Among other things, we generally
provide a significant level of education to prospective customers regarding
the use and benefits of our products. We may expend substantial funds and
management resources during the sales cycle and fail to make
6
<PAGE>
the sale. Accordingly, our results of operations for a particular period may
be adversely affected if the sales forecasted for that period are delayed or
do not occur. As a result, if our revenues are lower than we expect in some
future period, our operating results may be below the expectations of public
market analysts or investors. If this occurs, the price of our common stock
would likely decrease.
Our operating results may fluctuate in the future due to a variety of
factors, including:
. the overall level of demand for Internet banking services by consumers
and businesses and the demand for our products, product enhancements and
services in particular;
. spending patterns and budgetary resources of community financial
institutions and their end user customers;
. technical difficulties, system downtime, system failures or reductions
in service levels;
. the timing of upgrades to our computer hardware infrastructure;
. increases in operating costs beyond anticipated levels;
. the timing of customer product implementations or our failure to timely
complete scheduled product implementations;
. delays in purchasing decisions or product implementations or decreases
in demand for Internet banking by financial institutions due to Year
2000 concerns; and
. governmental actions affecting Internet operations or content.
We Currently Rely on One Data Center to Provide All of Our Internet Banking
Products and Services; Any Failure in this Data Center Could Cause Us to Lose
Customers
In the event of a failure or interruption in our systems, our reputation
could be materially adversely harmed and we could lose many of our current and
potential customers. All of our communications and network equipment is
currently located at our corporate headquarters in Calabasas, California. We
do not currently have backup facilities to provide Internet services if this
facility is not functioning. A natural disaster, such as a fire, an earthquake
or a flood, at our facility could result in failures or interruptions in
providing our Internet banking products and services to our customers. In
addition, our systems are vulnerable to computer viruses, physical or
electronic break-ins, power loss, telecommunications failure and similar
events. For example, in April 1999, a failure of a critical router in our
Internet banking data center caused an outage of approximately six hours while
the problem was corrected. We have also contracted to provide a certain level
of service to our customers and a failure or interruption of our system has in
the past caused and in the future could cause us to refund fees to some of our
customers to compensate for decreased levels of service. We have contracted to
establish a second functional backup Internet banking data center in Herndon,
Virginia, but that data center is not scheduled to be fully operational until
the fourth quarter of 1999. We cannot assure that this data center will become
operational as scheduled or that, when operational, this data center will
perform as expected. Even with the second data center, we could experience a
failure or interruption in our systems which could lead to delays, loss of
data or the inability to provide our services to our customers.
We Are Dependent on the Widespread Adoption of Internet Banking by Community
Financial Institutions, Which Have Historically Been Slow to Adopt Internet
Banking
We expect that we will continue to depend on Internet banking products and
services for substantially all of our revenues in the foreseeable future.
However, the market for Internet banking has only recently begun to develop.
Internet banking has developed slowly to date within financial institutions,
and purchasing decisions for Internet banking products are often delayed due
to uncertainties relating to cost, return on investment and customer
acceptance. In particular, community financial institutions have been slower
to adopt Internet banking than larger banks. We cannot predict the size of the
market for Internet banking among community financial institutions, the rate
at which that market will grow, or whether there will be widespread end user
acceptance of Internet banking products and services such as ours.
7
<PAGE>
We also depend on our financial institution customers to market and promote
our products to their end user customers. Neither we nor our financial
institution customers may be successful in marketing our current or future
Internet banking products and services. Moreover, financial institutions
generally agree to use our products and services pursuant to contracts with
durations that range from one to five years. Upon expiration, these contracts
may be discontinued. Unless our Internet banking products and services are
successfully deployed and marketed by a large number of community financial
institutions and achieve widespread market acceptance by their end user
customers for a significant period of time, we will not be able to achieve our
business objectives and increase our revenues.
We Depend on the Efficient Operation of the Internet, Other Networks and
Systems of Third Parties; If They Do Not Operate Efficiently, We Will Not Be
Able to Effectively Provide Our Products and Services
We depend on the efficient operation of network connections from our
customer financial institutions and their data processing vendors to our
systems. Further, portions of our revenue are dependent on continued usage by
end users of Internet banking services and their connections to the Internet.
Each of these connections, in turn, depends on the efficient operation of web
browsers, Internet service providers and Internet backbone service providers,
all of which have had periodic operational problems or have experienced
outages. In addition, the majority of our services depend on real time
connections to the systems of financial institutions and data processing
vendors. Any operational problems or outages in these systems would cause us
to be unable to provide a real time connection to these systems and we would
be unable to process transactions for end users, resulting in decreased
revenues. In addition, any system delays, failures or loss of data, whatever
the cause, could reduce customer satisfaction with our products and services
and harm our sales.
We Depend on Cooperation from Data Processing Vendors for Financial
Institutions, Some of Whom Have Resisted Efforts in the Past to Allow the
Integration of Our Products and Services with Their Systems
Our products involve integration with products and systems developed by data
processing vendors that serve financial institutions. If any of our products
fail to be supported by our customers' data processing vendors, it would be
necessary to redesign our products to suit these customers. We cannot assure
that any redesign could be accomplished in a cost-effective or timely manner.
We rely on these vendors to jointly develop technology with us and to disclose
source code specifications to enable our products to integrate effectively
with their products and systems. In the past, some vendors have resisted
integrating our products or have caused delays or other disruptions in the
implementation process. Several of these data processing vendors offer or are
planning to offer Internet banking products and services that are directly
competitive with our products and services and have resisted efforts to allow
us to integrate our products and services with their systems in the past. In
addition, our customers' data processing vendors may develop new products and
systems that are incompatible with our products. Our failure to integrate our
products effectively with our customers' data processing vendors could result
in higher implementation costs or the loss of potential customers.
Competition From Third Parties Could Reduce or Eliminate Demand for Our
Products and Services
The market for Internet banking services is highly competitive, and we
expect that competition will intensify in the future. We may not be able to
compete successfully against our current or future competitors and,
accordingly, we cannot be certain that we will be able to expand the number of
our customers and end users, or retain our current customers or third-party
service providers. We face competition from four main areas: other companies
with Internet banking products aimed at community financial institutions,
vendors who primarily target the largest financial institutions, vendors of
data processing services to financial institutions, and smaller, local online
service outsourcing companies. Many of our current and potential competitors
have longer operating histories and may be in a better position to produce and
market their services due to their greater financial, technical, marketing and
other resources, as well as their significantly greater name recognition and
larger installed bases of customers. In addition, many of our competitors have
well-established relationships with our
8
<PAGE>
current and potential community financial institution customers and have
extensive knowledge of our industry. For a more detailed discussion of the
factors affecting our competitive position and the risks involved, see the
discussion in "Business--Competition."
Security Breaches Could Damage Our Reputation and Business
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. We transmit confidential financial information in
providing our services. Users of Internet banking and other electronic
commerce services are concerned about the security of transmissions over
public networks. Therefore, it is critical that our facilities and
infrastructure remain secure and that our facilities and infrastructure are
perceived by the marketplace to be secure. A material security breach
affecting us could damage our reputation, deter financial institutions from
purchasing our products, deter their customers from using our products, or
result in liability to us. Further, any material security breach affecting our
competitors could affect the marketplace's perception of Internet banking in
general and have the same effects.
Concerns over security and the privacy of users may inhibit the growth of
the Internet and other online services generally, especially as a means of
conducting commercial transactions. Any well-publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. We may need to expend
significant capital or other resources protecting against the threat of
security breaches or alleviating problems caused by breaches. Although we
intend to continue to implement state of the art security measures, persons
may be able to circumvent the measures that we implement in the future.
Eliminating computer viruses and alleviating other security problems may
result in interruptions, delays or cessation of service to users accessing web
sites that deliver our services, any of which could harm our business.
Our Failure to Respond to Rapid Change in the Market for Internet Banking
Could Cause Us to Lose Revenue and Harm Our Business
The market for Internet banking services is new and unproven and is subject
to rapid change. Our success will depend substantially upon our ability to
enhance our existing products and to develop and introduce, on a timely and
cost-effective basis, new products and features that meet changing financial
institution and end user requirements and incorporate technological
advancements. If we are unable to develop new products and enhanced
functionalities or technologies to adapt to these changes or if we cannot
offset a decline in revenues of existing products by sales of new products,
our business would suffer. In addition, our product development process
involves a number of risks. Developing technologically advanced products is a
complex and uncertain process requiring innovation as well as the accurate
anticipation of technology and market trends. We budget our research and
development expenditures based on planned product introductions and
enhancements. If we fail to timely and cost-effectively develop new products
that respond to new technologies and the needs of the Internet banking
services market, we will lose revenue and our business will suffer.
Newly Introduced Products May Contain Undetected or Unresolved Defects
Any new or enhanced products we introduce may contain undetected or
unresolved software or hardware defects when they are first introduced or as
new versions are released. In the past, we have discovered errors in our
products and it is possible that design defects will occur in new products.
These defects could result in a loss of sales and additional costs as well as
damage to our reputation and the loss of relationships with our customers.
9
<PAGE>
The Demand For Our Products and Services Could Be Negatively Affected by
Reduced Growth of Commerce over the Internet or Delays in the Development of
the Internet Infrastructure
Our future success depends heavily on the Internet being accepted and widely
used for commerce. If Internet commerce does not continue to grow or grows
more slowly than expected, our business would suffer. There are a number of
reasons that consumers and businesses may reject the Internet as a viable
commercial medium in general, or as a suitable vehicle for banking
transactions in particular. These reasons include potentially inadequate
network infrastructure, security concerns, slow development of enabling
technologies, reliability and quality problems, and issues relating to ease
and cost of access. In particular, the Internet infrastructure may not be able
to support the demands placed on it by increased Internet usage and data
transmission capacity requirements. In addition, delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or increased government regulation could cause the Internet
to lose its viability as a commercial medium. Even if the required
infrastructure, standards, protocols or complementary products, services or
facilities are developed, we may incur substantial expenses adapting our
solutions to changing or emerging technologies.
We Could Be Subject to Potential Liability Claims Related to Use of Our
Products and Services
Financial institutions use our products and services to provide Internet
banking services to their customers. Any errors, defects or other performance
problems in our products and services could result in financial or other
damages to these financial institutions for which we are liable. A product
liability claim brought against us, even if not successful, would likely be
time consuming, result in costly litigation and could seriously harm our
business. Although our contracts typically contain provisions designed to
limit our exposure to liability claims, existing or future laws or unfavorable
judicial decisions could negate these limitation of liability provisions.
Moreover, we may be liable for transactions executed using Internet services
based on our products and services even if the errors, defects or other
problems are unrelated to our products and services.
We Are Currently Experiencing a Period of Significant Growth that Is Placing a
Strain on Our Resources
We have recently experienced significant growth, including expansion in the
number of our employees, and anticipate that additional expansion may be
required in order to continue our growth. This growth places a significant
demand on our management and operational resources. Our management, personnel,
systems, procedures, controls and customer service may be inadequate to
support our existing and future operations. We continue to invest heavily in
our technological infrastructure and to build and scale our systems in order
to meet the demands of our growing customer base. For example, we restructured
our sales and implementation organizations in the second half of 1998 which
adversely impacted sales growth and implementation costs in that time period.
Further, since September 1998, we have added a number of key managerial,
technical and information technology personnel, including our president and
chief executive officer, chief financial officer, and chief information
officer, and we expect to add additional key personnel in the near future. As
a result, some members of our management team have only worked together for a
brief period of time.
Our Stock Price May Be Extremely Volatile
Our common stock has never been sold in a public market and an active
trading market for our common stock may not develop or be sustained upon the
completion of this offering. We are negotiating the initial offering price of
the common stock with the underwriters. However, the initial offering price
may not be indicative of the prices that will prevail in the public market
after the offering, and the market price of our common stock could fall below
the initial public offering price. You should read the "Underwriters" section
for a discussion of the factors considered in determining the initial public
offering price.
10
<PAGE>
In addition, the market price of our common stock could fluctuate widely in
response to the following particular factors:
.actual or anticipated variations in operating results;
. announcements by us or our competitors of new products, significant
contracts, acquisitions, or relationships;
. additions or departures of key personnel;
. future equity or debt offerings or our announcements of these offerings;
and
. economic well being of community financial institutions.
In addition, in recent years, the stock market in general, and the Nasdaq
National Market and the securities of technology companies in particular, have
experienced extreme price and volume fluctuations. These fluctuations have
often been unrelated or disproportionate to the operating performance of
individual companies. These broad market fluctuations may materially adversely
affect our stock price, regardless of our operating results.
Government Regulation of Our Business Could Cause Us to Incur Significant
Expenses, and Failure to Comply With Certain Regulations, if Adopted, Could
Make Our Business Less Efficient or Impossible
The financial services industry is subject to extensive and complex federal
and state regulation. Financial institutions such as commercial banks, savings
and loans and credit unions operate under high levels of governmental
supervision. Our customers must ensure that our services and related products
work within the
extensive and evolving regulatory requirements applicable to them. We do not
represent that our systems comply with such regulations.
We are not required to be licensed by the federal depository institution
regulators or other regulators of financial services. We are subject to
examination by the federal depository institution regulators under the Bank
Service Company Act and the Examination Parity and Year 2000 Readiness for
Financial Institutions Act. These regulators have broad supervisory authority
to remedy any shortcomings identified in any such examination.
Federal, state or foreign authorities could adopt laws, rules or regulations
relating to the financial services industry that affect our business, such as
by requiring us to comply with data, record keeping and processing and other
requirements. It is possible that laws and regulations may be enacted with
respect to the Internet, covering issues such as user privacy, pricing,
content, characteristics, taxation and quality of services and products.
Existing regulations may be modified. If enacted or deemed applicable to us,
these laws, rules or regulations could be imposed on our activities or our
business thereby rendering our business or operations more costly, burdensome,
less efficient or impossible, requiring us to modify our current or future
products or services.
Failure to Attract and Retain Experienced Personnel and Senior Management
Could Harm Our Ability to Grow
We believe that our future success will depend in large part upon our
continued ability to identify, hire, retain and motivate highly skilled
employees, who are in great demand. In particular, we believe that we must
expand our research and development, marketing, sales and customer support
capabilities in order to effectively serve the evolving needs of our present
and future customers. Competition for these employees is intense and we may
not be able to hire additional qualified personnel in a timely manner and on
reasonable terms. In addition, our success depends on the continuing
contributions of our senior management and technical personnel, all of whom
would be difficult to replace. The loss of any one of them could adversely
affect our ability to execute our business strategy. None of our employees is
bound by an employment agreement. We do not have "key person" life insurance
policies covering any of our employees.
11
<PAGE>
Our Limited Ability to Protect Our Proprietary Technology May Adversely Affect
Our Ability to Compete, and We May Be Found to Infringe Proprietary Rights of
Others, Which Could Harm Our Business.
Our future success and ability to compete depends in part upon our
proprietary technology. None of our technology is currently patented. Instead,
we rely on a combination of contractual rights and copyright, trademark and
trade secret laws to establish and protect our proprietary technology. We
generally enter into confidentiality agreements with our employees,
consultants, resellers, customers and potential customers, limit access to and
distribution of our source code, and further limit the disclosure and use of
other proprietary information. We cannot assure that the steps taken by us in
this regard will be adequate to prevent misappropriation of our technology or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain or use our products or technology. Monitoring unauthorized
use of our products is difficult, and while we are unable to determine the
extent to which piracy of our software products exists, software piracy can be
expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States.
We are also subject to the risk of claims and litigation alleging
infringement of the intellectual property rights of others. Third parties may
assert infringement claims in the future with respect to our current or future
products. Any assertion, regardless of its merit, could require us to pay
damages or settlement amounts and could require us to develop non-infringing
technology or pay for a license for the technology that is the subject of the
asserted infringement. Any litigation or potential litigation could result in
product delays, increased costs or both. In addition, the cost of litigation
and the resulting distraction of our management resources could adversely
affect our results of operations. We also cannot assure that any licenses for
technology necessary for our business will be available or that, if available,
these licenses can be obtained on commercially reasonable terms.
Consolidation of the Banking and Financial Services Industry Could Cause Our
Sales to Fall
Consolidation of the banking and financial services industry could result in
a smaller market for our products and services. A variety of factors could
result in our customers reassessing their purchase or potential purchase of
our products and could result in termination of services by existing
customers. After consolidation, banks and other financial institutions may
experience a realignment of management responsibilities and a reexamination of
strategic and purchasing decisions. We may lose relationships with key
constituencies within our customer's organization due to budget cuts, layoffs,
or other disruptions following a consolidation. In addition, consolidation may
result in a change in the technological infrastructure of the combined entity.
Our products and services may not integrate with this new technological
infrastructure. In addition, the acquiring institution may have its own in-
house system or outsource to competitors. For example, in May 1999, we lost
Home Savings of America as a customer following its acquisition by Washington
Mutual, which decided to integrate Home Savings' end users into its existing
home banking system.
Our Operations May Be Disrupted If We or Our Vendors Experience Systems
Failures or Data Corruption from the Year 2000 Issue
Many computers, software and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as
the year 2000 approaches, and are commonly referred to as the "Year 2000"
problem. Beginning in 1998, we began assessing the ability of our software and
products to operate properly as a result of the Year 2000 problem. We believe
that our current products are Year 2000 compliant. However, any undetected
Year 2000 problem in our products, or any problem which cannot be solved in a
timely and cost-effective manner could substantially damage our customer
relationships, disrupt our business, subject us to threatened or actual
litigation and result in reduced revenues.
12
<PAGE>
The Year 2000 problem also affects the computers, software, other equipment
that we use, operate or maintain internally for our operations, and services
provided by third-party vendors. We employ widely available software
applications and other products from leading third-party vendors. To date, we
have obtained Year 2000 readiness verification from the majority of third-
party service and product providers associated with our critical development
and operations processes. However, any failure of third-party computer
products used by us to be Year 2000 compliant could interrupt and disrupt our
business. To fix any of these systems could require us to invest substantially
in our operating systems and to hire additional personnel. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Impact of Year 2000" for a further description of the issues we face with
regard to the Year 2000.
Our Charter and Bylaws and Delaware Law Contain Provisions Which Could
Discourage a Takeover
Provisions of our charter and bylaws may make it more difficult for a third
party to acquire, or may discourage a third party from attempting to acquire,
control of us, even if doing so would be beneficial to our stockholders. These
provisions could limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions include:
. division of the board of directors into three separate classes;
. elimination of cumulative voting in the election of directors;
. prohibitions on our stockholders from acting by written consent and
calling special meetings;
. procedures for advance notification of stockholder nominations and
proposals; and
. the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The issuance of
preferred stock, while providing flexibility in connection with possible
financings or acquisitions or other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
We are also subject to Section 203 of the Delaware General Corporation Law
which, subject to exceptions, prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years following the date that this stockholder became an interested
stockholder. The preceding provisions of our charter and bylaws, as well as
Section 203 of the Delaware General Corporation Law, could discourage
potential acquisition proposals, delay or prevent a change of control and
prevent changes in our management.
Members of Management and Our Board of Directors, and Their Affiliates, Will
Control 41.4% of Our Common Stock
Following this offering, members of our executive management team and our
board of directors and their affiliates will control approximately 41.4% of
our common stock. As a result, these management members and directors will be
able to significantly influence matters requiring stockholder approval.
Moreover, this concentration of ownership could have the effect of delaying or
preventing a change in control. For a more complete discussion of this
concentration of ownership, see "Principal Stockholders."
An Additional 10,642,847 Shares of Our Common Stock Will Become Available For
Sale Beginning on March , 2000 Which Could Cause Our Stock Price to Fall
Sales of a substantial number of shares of our common stock in the public
market, or the appearance that these shares are available for sale, could
materially adversely affect the trading price of our common stock. These sales
also might make it more difficult for us to sell equity securities or equity-
related securities in the future at a
13
<PAGE>
time and price that we deem appropriate. Upon completion of this offering, we
will have 14,142,847 shares outstanding. Of these shares, the 3,500,000 shares
sold in this offering may be freely tradable in the public market. The
remaining 10,642,847 shares of common stock available for sale in the public
market as of June 30, 1999 are limited by restrictions under the securities
laws and 180-day lock-up agreements entered into with Morgan Stanley & Co.
Incorporated and will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
First Eligible Sale Date Number
------------------------ ------
<S> <C>
180 days after the date of this prospectus.................. 9,277,411 shares
May 25, 2000................................................ 521,400 shares
May 26, 2000................................................ 844,036 shares
</TABLE>
In addition, as of June 30, 1999 we had 1,840,011 shares subject to
outstanding options and 1,792,597 shares of our common stock available for
future grant pursuant to our stock option plans. All of these shares are
subject to a 180-day lock-up agreement. We intend to register, prior to the
expiration of the lock-up, the shares of common stock subject to outstanding
options and reserved for issuance under our stock option plans and shares of
common stock reserved for issuance under our employee stock purchase plan.
Accordingly, shares underlying vested options will be eligible for resale in
the public market beginning on expiration of the lock-up. We also have 51,041
shares underlying outstanding warrants, also subject to lock-ups, that will be
eligible for resale in the public market upon expiration of the warrant
holder's respective one-year holding periods under Rule 144, which will begin
upon the date of exercise or, in the case of a net exercise, on the date of
grant of the warrant.
Morgan Stanley & Co. Incorporated may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
its lock-up agreements.
We Do Not Intend to Pay Dividends on Our Common Stock
We currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any dividends in the foreseeable future.
See "Dividend Policy."
Investors in This Offering Will Suffer Immediate and Substantial Dilution
Investors in this offering will suffer an immediate and substantial dilution
of approximately $9.30 in net tangible book value per share, or approximately
71.5%, based upon an assumed offering price of $13.00 per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us. If the holders of options or a warrant
exercise these securities, investors will suffer further dilution.
See "Dilution."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect,"
"anticipate," "intend," "plan," "believe," "estimate," "potential," or
"continue," the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially from any forward-looking statement. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors."
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this prospectus to
conform these statements to actual results or to changes in our expectations.
Before you invest in our common stock, you should be aware that the occurrence
of the events described under "Risk Factors" and elsewhere in this prospectus
could have a material adverse effect on our business, operating results and
financial condition.
14
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 3,500,000 shares of
common stock we are offering at an assumed initial public offering price of
$13.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses, will be approximately $41.2 million. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $47.6 million. The principal purposes of
this offering are to increase our working capital, to create a public market
for our common stock, to facilitate our future access to the public capital
markets, and to increase our visibility with potential customers. We expect to
use the net proceeds from this offering for general corporate purposes,
including working capital and capital expenditures, although we have no
specific purposes for the proceeds of the offering. A portion of the proceeds
may also be used to acquire or invest in complementary businesses or products,
or to obtain the right to use complementary technologies, although there are
no current plans, negotiations or discussions for any of these transactions.
Pending use of the net proceeds for the above purposes, we intend to invest
these funds in short-term, interest-bearing, investment grade obligations.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock or
other securities. We currently anticipate that we will retain all of our
future earnings for use in the expansion and operation of our business and do
not anticipate paying any cash dividends in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 4,775,455 shares of common stock effective upon
the closing of this offering; and
. on a pro forma as adjusted basis to reflect the receipt by Digital
Insight of the estimated net proceeds from the sale of common stock
offered by this prospectus at an assumed initial public offering price
of $13.00 per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
The following table does not include:
. 1,840,011 shares of common stock subject to outstanding options as of
June 30, 1999;
. 1,792,597 shares of common stock that have been set aside for future
stock options as of June 30, 1999;
. 300,000 shares of common stock that have been set aside for our employee
stock purchase plan; or
. 51,041 shares of common stock issuable upon exercise of outstanding
warrants.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term portion of lease obligation.......... $ 565 $ 565 $ 565
Mandatorily redeemable convertible preferred
stock, $.001 par value, 4,846,496 shares
authorized, 4,775,455 shares issued and
outstanding actual............................ 20,847 -- --
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000
shares authorized, no shares issued and
outstanding pro forma and pro forma as
adjusted...................................... -- -- --
Common stock, $.001 par value, 16,250,000
shares authorized; 5,867,392 shares issued and
outstanding actual, 10,642,847 shares issued
and outstanding pro forma; 100,000,000 shares
authorized, 14,142,847 shares issued and
outstanding pro forma as adjusted............. 6 11 14
Additional paid-in capital..................... 6,056 26,898 68,110
Notes receivable from stockholders............. (208) (208) (208)
Deferred stock-based compensation.............. (3,937) (3,937) (3,937)
Accumulated deficit............................ (11,535) (11,535) (11,535)
-------- -------- --------
Total stockholders' equity (deficit)......... (9,618) 11,229 52,444
-------- -------- --------
Total capitalization....................... $ 11,794 $ 11,794 $ 53,009
======== ======== ========
</TABLE>
16
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$11.1 million or $1.04 per share of common stock, assuming the conversion of
all outstanding shares of preferred stock into 4,775,455 shares of common
stock. Pro forma net tangible book value per share represents the amount of
our total tangible assets reduced by the amount of our total liabilities,
divided by the pro forma number of outstanding shares of common stock. After
giving effect to the sale of the 3,500,000 shares of common stock in this
offering, based upon an assumed initial public offering price of $13.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value at June 30,
1999 would have been $52.3 million or $3.70 per share. This represents an
immediate increase in pro forma net tangible book value of $2.66 per share to
existing stockholders and an immediate dilution of $9.30 per share to
investors purchasing shares in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share after the offering
from the assumed initial public offering price per share. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $13.00
Pro forma net tangible book value per share as of June 30,
1999........................................................... $1.04
Increase in pro forma net tangible book value per share
attributable to new investors.................................. 2.66
-----
Pro forma net tangible book value per share after this offering... 3.70
------
Dilution per share to new investors............................... $ 9.30
======
</TABLE>
The following table sets forth, on the pro forma basis described above, as
of June 30, 1999, the difference between the number of shares of common stock
purchased from us, the total consideration paid, and the average price per
share paid by the existing stockholders and by investors purchasing shares in
this offering, based upon an assumed initial public offering price of $13.00
per share before deduction of estimated underwriting discounts and commissions
and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 10,642,847 75.3% $20,995,000 31.6% $ 1.97
New investors.............. 3,500,000 24.7 45,500,000 68.4 13.00
---------- ----- ----------- -----
Total.................... 14,142,847 100.0% $66,495,000 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 4,025,000 or 27.4% of the
total shares of common stock outstanding after this offering.
We currently have the following options and warrants outstanding, all of
which will remain outstanding following completion of this offering:
. 1,840,011 shares subject to outstanding options at June 30, 1999 at a
weighted average exercise price of $1.86 per share; and
. 51,041 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $3.13 per share.
To the extent that outstanding options or warrants are exercised, new
options or rights are issued under our stock plans, or we issue additional
shares of common stock in the future, new investors will experience further
dilution.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere in this prospectus. The selected statement of operations data for
the years ended December 31, 1996, 1997 and 1998 and the selected balance
sheet data as of December 31, 1997 and 1998 have been derived from our audited
financial statements and the notes thereto included elsewhere in this
prospectus. The selected balance sheet data as of December 31, 1996 have been
derived from our audited financial statements not included herein. The
selected statement of operations data for the period from July 17, 1995
(inception) to December 31, 1995 and for the six month periods ended June 30,
1998 and 1999 have not been audited. In the opinion of management, such
unaudited financial statements have been prepared on the same basis as the
audited financial statements referred to above and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of results of operations for the indicated periods. Results of
operations for the six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
pro forma balance sheet data as of June 30, 1999 are unaudited and reflect the
conversion of all outstanding shares of preferred stock into 4,775,455 shares
of common stock effective upon the closing of this offering.
<TABLE>
<CAPTION>
Period from
July 17,
1995 Six Months
(inception) Ended
through Year Ended December 31, June 30,
December 31, --------------------------- ----------------
1995 1996 1997 1998 1998 1999
------------ ------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Implementation fees.... $ 85 $ 1,053 $ 1,926 $ 2,420 $ 1,260 $ 1,666
Service fees........... 3 508 2,046 5,810 2,237 5,426
----- ------- -------- -------- ------- -------
Total revenues......... 88 1,561 3,972 8,230 3,497 7,092
Cost of revenues:
Implementation......... 141 643 1,217 1,631 695 1,241
Service................ 1 261 1,014 3,616 1,355 3,502
----- ------- -------- -------- ------- -------
Total cost of
revenues.............. 142 904 2,231 5,247 2,050 4,743
----- ------- -------- -------- ------- -------
Gross profit (loss)..... (54) 657 1,741 2,983 1,447 2,349
Operating expenses:
Sales, general and
administrative........ 167 809 2,516 4,183 1,774 3,609
Research and
development........... 94 565 1,612 2,555 1,178 1,794
Amortization of stock-
based compensation.... -- -- 151 844 248 563
----- ------- -------- -------- ------- -------
Total operating
expenses.............. 261 1,374 4,279 7,582 3,200 5,966
----- ------- -------- -------- ------- -------
Loss from operations.... (315) (717) (2,538) (4,599) (1,753) (3,617)
Interest income......... -- -- 89 262 122 102
Other income (expense),
net.................... -- 5 (3) (19) (12) (40)
----- ------- -------- -------- ------- -------
Net loss................ $(315) $ (712) $ (2,452) $ (4,356) $(1,643) $(3,555)
===== ======= ======== ======== ======= =======
Basic and diluted net
loss per share......... $(.06) $ (.14) $ (.49) $ (.85) $ (.33) $ (.66)
===== ======= ======== ======== ======= =======
Shares used to compute
basic and diluted net
loss per share......... 5,000 5,000 5,000 5,108 5,018 5,415
===== ======= ======== ======== ======= =======
Pro forma basic and
diluted net loss per
share.................. $ (.50) $ (.37)
======== =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 8,712 9,534
======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- -----------------------
1996 1997 1998 1999 1999 Pro Forma
----- ------ ------- ------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..... $ 28 $ 886 $ 4,758 $10,753 $10,753
Working capital (deficit)..... (243) (16) 3,067 7,714 7,714
Total assets.................. 433 3,071 8,077 16,398 16,398
Total liabilities............. 422 1,949 2,417 5,169 5,169
Mandatorily redeemable
convertible preferred stock.. -- 4,444 12,444 20,847 --
Total stockholders' equity
(deficit).................... -- (3,322) (6,784) (9,618) 11,229
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Digital Insight is the leading provider of Internet banking solutions for
community financial institutions, with over 370 financial institution
customers. We offer these community financial institutions an outsourced
service, branded in their name, which includes home banking for their
individual customers, business banking for their commercial customers, a
target marketing program to enable them to sell additional financial services,
and customized web site design and implementation services. Since inception,
substantially all of our revenues have been derived from our Internet home
banking services, associated features and website development. As of June 30,
1999, we had an accumulated deficit of approximately $11.5 million.
Our revenues consist primarily of recurring monthly service fees and, to a
lesser extent, one-time implementation fees. Revenues increased from $88,000
in 1995 to $8.2 million in 1998, and were $7.1 million in the first six months
of 1999. Our recurring revenues consist of service fees paid to us by our
financial institution customers based on the number of end users or end user
transactions, and fees for hosting and maintaining their web sites and other
monthly services. Recurring service fees as a percentage of revenues have
grown from approximately 33% in 1996 to 75% for the quarter ended June 30,
1999. To the extent that our installed base of customers continues to grow, we
expect recurring service fees to represent an increasing percentage of our
revenues in the future. Our customer contracts range from one to five years.
We require a 50% non-refundable cash deposit of product implementation fees,
payable at the time that a contract is signed. We record these deposits as
deferred revenues and, together with the balance of the implementation fees,
we recognize them upon completion of implementation and customer approval.
Recognition is usually two to four months from the contract date. Upon
completion of implementation and customer approval, we begin to receive and
recognize recurring service fees. For the six months ended June 30, 1999, no
single customer accounted for more than 5% of our revenues.
Cost of revenues consists of implementation and service costs.
Implementation costs are comprised primarily of salaries for implementation
personnel and fees paid to third parties, including bill payment and data
processing vendors. Service costs consist primarily of salaries and related
personnel expenses, network costs, expenses related to the operation of our
data center and fees paid to third parties, including bill payment vendors,
data processing vendors and communication services providers. Gross margin is
affected by the relative proportion of lower margin implementation fees and
higher margin service fees we generate, the mix of products we sell,
competitive pricing pressures and the size and complexity of our
implementations.
Sales, general and administrative expenses consist primarily of salaries and
related expenses for executive, sales, marketing, finance, human resources and
administrative personnel and other general corporate expenses. In addition,
these expenses include marketing expenses such as trade shows and promotional
costs.
Research and development expenses consist primarily of salaries, related
personnel expenses and consultant fees related to the design, development,
testing and enhancement of both our products and our data processing vendor
interface software. We expense all research and development costs as incurred.
We have recorded aggregate deferred stock-based compensation of $5.5 million
through June 30, 1999. The remaining unamortized balance of $3.9 million will
be fully amortized by the quarter ended March 31, 2003.
On May 15, 1998 we entered into a lease, which expires in May 2003, for our
facility in Calabasas, California. By the end of 1999, this facility will be
fully utilized and we will require additional office space. In January 1999,
we signed a three-year contract with Exodus Communications for a back-up data
center facility in Herndon, Virginia, which is expected to be fully
operational in the fourth quarter of 1999.
19
<PAGE>
Selected Quarterly Results of Operations
Because we have a limited operating history, we believe that year-to-year
comparisons prior to 1999 are less meaningful than an analysis of recent
quarterly operating results. Accordingly, we are providing a discussion and
analysis of our results of operations for the six quarters ended June 30,
1999.
The following tables present, in dollars and as a percentage of revenues,
unaudited statements of operations for the six quarters ended June 30, 1999.
This information reflects all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of such
information in accordance with generally accepted accounting principles. The
results of any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Implementation fees... $ 612 $ 648 $ 543 $ 617 $ 680 $ 986
Service fees.......... 947 1,290 1,641 1,932 2,485 2,941
------ ------ ------- ------- ------- -------
Total revenues...... 1,559 1,938 2,184 2,549 3,165 3,927
Cost of revenues:
Implementation........ 265 430 420 516 499 742
Service............... 596 759 1,019 1,242 1,529 1,973
------ ------ ------- ------- ------- -------
Total cost of
revenues........... 861 1,189 1,439 1,758 2,028 2,715
------ ------ ------- ------- ------- -------
Gross profit...... 698 749 745 791 1,137 1,212
Operating expenses:
Sales, general and
administrative....... 795 979 1,114 1,295 1,468 2,141
Research and
development.......... 537 641 662 715 945 849
Amortization of stock-
based compensation... 113 135 147 449 234 329
------ ------ ------- ------- ------- -------
Total operating
expenses........... 1,445 1,755 1,923 2,459 2,647 3,319
------ ------ ------- ------- ------- -------
Loss from operations.... (747) (1,006) (1,178) (1,668) (1,510) (2,107)
Interest income......... 20 102 73 67 42 60
Other income (expense),
net.................... (34) 22 (5) (2) (6) (34)
------ ------ ------- ------- ------- -------
Net loss................ $ (761) $ (882) $(1,110) $(1,603) $(1,474) $(2,081)
====== ====== ======= ======= ======= =======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of
Revenues:
Revenues:
Implementation fees... 39.3 % 33.4 % 24.9 % 24.2 % 21.5 % 25.1 %
Service fees.......... 60.7 66.6 75.1 75.8 78.5 74.9
----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Implementation........ 17.0 22.2 19.2 20.2 15.8 18.9
Service............... 38.2 39.2 46.7 48.7 48.3 50.2
----- ----- ----- ----- ----- -----
Total cost of
revenues........... 55.2 61.4 65.9 68.9 64.1 69.1
----- ----- ----- ----- ----- -----
Gross profit...... 44.8 38.6 34.1 31.1 35.9 30.9
Operating expenses:
Sales, general and
administrative....... 51.0 50.5 51.0 50.8 46.4 54.5
Research and
development.......... 34.5 33.1 30.3 28.1 29.9 21.6
Amortization of stock-
based compensation... 7.2 7.0 6.7 17.6 7.4 8.4
----- ----- ----- ----- ----- -----
Total operating
expenses........... 92.7 90.6 88.0 96.5 83.7 84.5
----- ----- ----- ----- ----- -----
Loss from operations.... (47.9) (51.9) (53.9) (65.4) (47.7) (53.7)
Interest income......... 1.3 5.3 3.3 2.6 1.3 1.5
Other income (expense),
net.................... (2.2) 1.1 (.2) (.1) (.2) (.9)
----- ----- ----- ----- ----- -----
Net loss................ (48.8)% (45.5)% (50.8)% (62.9)% (46.6)% (53.1)%
===== ===== ===== ===== ===== =====
</TABLE>
Revenues. Revenues increased in each of the six quarters ended June 30,
1999. Service fees grew as a result of an increase in the number of financial
institution customers and a greater number of end users. Implementation fees
increased in each quarter, except for the quarter ended September 30, 1998.
The decrease in implementation fees for the quarter ended September 30, 1998
resulted from a reorganization of our sales and implementation force designed
to provide scalability for future growth. This decrease in implementation fees
was more than offset by service fee increases.
Gross Profit. Gross profit increased in each quarter except for the quarter
ended September 30, 1998. Gross profit for the quarter September 30, 1998 was
adversely affected by the increase in implementation costs and the reduction
in implementation fees due to the reorganization of our sales force. In
addition, we renegotiated our pricing schedule with our bill payment provider
for the quarter ended September 30, 1998, which resulted in higher minimum
fees payable by us. The increases in gross profit for the quarters ended
December 31, 1998 and March 31, 1999 reflect increased revenues due to
increased usage of our Internet banking services by end users. Gross margin
declined from the March 31, 1998 quarter to the September 30, 1998 quarter due
to investments related to the expansion of our data center and network
services to accommodate end-user growth and provide increased system
reliability and faster response times. Implementation gross margin may vary
from period to period based upon fluctuations in our implementation revenues
and increases in our implementation infrastructure. However, such fluctuations
should not have a significant impact on overall gross margin.
Sales, General and Administrative. Sales, general and administrative
expenses increased in each of the six quarters ended June 30, 1999. These
increases were primarily due to an increase in the number of direct sales
personnel and the addition of a telesales and client relations group. In
addition, we increased our investment in advertising, end-user marketing
programs and trade shows. We expect sales, general and administrative expenses
to increase as we add personnel and incur additional costs to support the
growth of our operations, including expanding sales and marketing activities.
21
<PAGE>
Research and Development. Research and development expenses increased
significantly from the March 31, 1998 quarter to the June 30, 1998 quarter and
again from the September 30, 1998 quarter to the December 31, 1998 quarter.
Research and development expenses generally increase in large increments as we
periodically undertake significant new development projects, such as
additional investments in data processing interfaces and introductions of new
products. We believe that continued investment in research and development is
critical to attaining our strategic objectives. As a result, we intend to
increase expenditures in research and development programs in future periods
for the purpose of enhancing current products, accelerating the completion of
additional data processing vendor interfaces and developing new products and
programs to facilitate or enhance our customers' Internet capabilities.
Interest Income. Interest income consists of earnings on our cash and cash
equivalents. Interest income increased for the quarter ended June 30, 1998 as
a result of higher average cash balances resulting from our Series B preferred
stock financing, which was concluded in February 1998. For the three quarters
ended March 31, 1999, we generated interest income in declining amounts as we
spent the proceeds from our Series B preferred stock financing. Interest
income increased slightly in the quarter ended June 30, 1999 as a result of
higher average cash balances resulting from our Series C preferred stock
financing, which was concluded in May 1999.
Amortization of Stock-based Compensation. Amortization of stock-based
compensation was relatively unchanged in each of the six quarters ended June
30, 1999. Amortization of stock-based compensation increased in the quarter
ended December 31, 1998, primarily due to the grant of a stock option and
stock purchase right to our newly hired President and Chief Executive Officer
in October 1998. In the quarter ended June 30, 1999, amortization of stock-
based compensation increased moderately, primarily due to the hiring of new
employees, as well as an increase in the difference between the grant price
and the deemed fair value of our common stock.
Our quarterly and annual results of operations have fluctuated in the past
and are likely to fluctuate significantly in the future due to a variety of
factors, many of which are beyond our control. Because of these and other
factors, our quarterly revenues, expenses and results of operations could vary
significantly in the future, and period-to-period comparisons should not be
relied upon as indicators of future performance. We may not be able to
increase our revenues in future periods or sustain our existing level of
revenues or our rate of revenue growth on a quarterly or annual basis. In
addition, our annual or quarterly results of operations may not meet the
expectations of securities analysts or investors. If this happens, the price
of our stock would likely decrease. See "Risk Factors--We Have a Limited
Operating History and Are Subject to Risks Encountered by Early-Stage
Companies," "--We Have a History of Losses, Expect Future Losses and Cannot
Assure You that We Will Achieve Profitability" and "--The Expected
Fluctuations of Our Operating Results Could Cause Our Stock Price to
Fluctuate."
22
<PAGE>
Results of Operations
The following table presents, for the periods indicated, certain statement
of operations data as a percentage of revenues.
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
--------------------- -----------------
1996 1997 1998 1998 1999
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Implementation fees.............. 67.5% 48.5% 29.4% 36.0 % 23.5 %
Service fees..................... 32.5 51.5 70.6 64.0 76.5
----- ----- ----- ------- -------
Total revenues................. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Implementation................... 41.2 30.6 19.8 19.9 17.5
Service.......................... 16.7 25.5 43.9 38.7 49.4
----- ----- ----- ------- -------
Total cost of revenues......... 57.9 56.1 63.7 58.6 66.9
----- ----- ----- ------- -------
Gross profit................. 42.1 43.9 36.3 41.4 33.1
Operating expenses:
Sales, general and
administrative.................. 51.8 63.3 50.8 50.7 50.9
Research and development......... 36.2 40.6 31.0 33.7 25.3
Amortization of stock-based
compensation.................... -- 3.8 10.3 7.1 7.9
----- ----- ----- ------- -------
Total operating expenses....... 88.0 107.7 92.1 91.5 84.1
----- ----- ----- ------- -------
Loss from operations............... (45.9) (63.8) (55.9) (50.1) (51.0)
Interest income.................... -- 2.2 3.2 3.5 1.4
Other income (expense), net........ .3 (.1) (.2) (.3) (.5)
----- ----- ----- ------- -------
Net loss........................... (45.6)% (61.7)% (52.9)% (46.9)% (50.1)%
===== ===== ===== ======= =======
</TABLE>
Comparison of Six Months Ended June 30, 1998 and June 30, 1999
Revenues. Revenues increased from $3.5 million for the six months ended June
30, 1998 to $7.1 million for the six months ended June 30, 1999. This increase
was primarily due to the growth in service fees from $2.2 to $5.4 million. The
number of active home banking end users increased over the same period from
167,000 to 411,000 and implementation fees increased from $1.3 million to $1.7
million.
Gross Profit. Gross profit increased from $1.5 million for the six months
ended June 30, 1998 to $2.3 million for the six months ended June 30, 1999.
Gross margin declined from 42% to 33% primarily due to the costs associated
with commencing installation of a redundant data center, and to a lesser
extent due to increased service and customer support levels, additional
quality assurance, consulting expenses and investment in networking services
infrastructure. Implementation gross margin declined from 45% to 26% and
service gross margin decreased from 39% to 35%. Implementation gross margin
may vary from period to period based upon fluctuations in our implementation
revenues and increases in our implementation infrastructure. However, such
fluctuations should not have a significant impact on overall gross margin.
Sales, General and Administrative. Sales, general and administrative
expenses increased from $1.8 million for the six months ended June 30, 1998 to
$3.6 million for the six months ended June 30, 1999. This increase was
primarily due to an increase in sales commissions associated with higher
revenues and higher personnel expenses for sales and marketing staff, and to a
lesser extent due to trade show and other promotional expenses, and expenses
for additional marketing support programs. This increase was also due to
increased staffing for finance and accounting, new senior management positions
and growth in recruiting and human resources expenses. Sales, general and
administrative expenses as a percentage of revenues remained constant at 51%
for each of the six months ended June 30, 1998 and 1999.
23
<PAGE>
Research and Development. Research and development expenses increased from
$1.2 million for the quarter ended June 30, 1998 to $1.8 million for the six
months ended June 30, 1999. This increase was primarily due to higher
personnel expenses related to more full-time software engineering staff
required for the functional enhancement of existing products and to a lesser
extent due to the development of new products. Research and development
expenses as a percentage of revenues decreased from 34% for the six months
ended June 30, 1998 to 2.5% for the six months ended June 30, 1999, primarily
as a result of an increase in revenues.
Interest Income. Interest income decreased from $122,000 for the six months
ended June 30, 1998 to $102,000 for the six months ended June 30, 1999. This
decrease was primarily due to higher average cash balances in the six months
ended June 30, 1998 as a result of our Series B preferred stock financing.
Amortization of Stock-based Compensation. Amortization of stock-based
compensation increased from $248,000 for the six months ended June 30, 1998 to
$563,000 for the six months ended June 30, 1999. This increase was primarily
due to the hiring of new employees and related stock option grants, as well as
an increase in the difference between the grant price and the deemed fair
value of our common stock.
Comparisons of Years Ended December 31, 1996, 1997 and 1998
Revenues. Revenues increased from $1.6 million in 1996 to $4.0 million in
1997, and to $8.2 million in 1998. These increases were driven primarily by
growth in service fees, which increased from $508,000 in 1996 to $2.0 million
in 1997 and to $5.8 million in 1998. To a lesser extent, the increase in
revenues during these periods was the result of growth in implementation fees
related to new contracts. The total number of active home banking end users
rose from 16,000 at December 31, 1996, to 83,000 at December 31, 1997, and to
273,000 at December 31, 1998.
Gross Profit. Gross profit increased from $657,000 in 1996 to $1.7 million
in 1997, and to $3.0 million in 1998. These increases were primarily the
result of the increases in revenues, particularly from service fees. Gross
margin remained relatively stable at 42.1% in 1996 and 43.9% in 1997, and
declined to 36.0% in 1998. This decline was primarily due to increased
investments in our data center and network operations in order to improve
system reliability and significantly enhance customer support, quality
assurance and security.
Sales, General and Administrative. Sales, general and administrative
expenses increased from $809,000 in 1996 to $2.5 million in 1997, and to $4.0
million in 1998. These increases were primarily the result of increases in
personnel and personnel-related costs to support our expanded operations.
Research and Development. Research and development expenses increased from
$565,000 in 1996 to $1.6 million in 1997, and to $2.7 million in 1998. These
increases were primarily due to increases in personnel and personnel-related
costs, product testing and enhancement, new interface development expenses and
expenses related to the completion and commercial release of new products.
Interest Income. Interest income increased from $0 in 1996 to $89,000 in
1997, and to $262,000 in 1998. This increase was primarily due to higher
average cash balances in 1997 as a result of our Series A preferred stock
financing, which concluded in March 1997, and higher average cash balances in
1998 as a result of our Series B preferred stock financing.
Amortization of Stock-based Compensation. Amortization of stock-based
compensation increased from $0 in 1996 to $151,000 in 1997, and to $844,000 in
1998. This increase was primarily due to the hiring of new employees and
related stock option grants, as well as an increase in the difference between
the grant price and the deemed fair value of our common stock.
24
<PAGE>
Provision for Income Taxes
We incurred operating losses from inception through June 30, 1999, and
therefore have not recorded any significant provision for income taxes. We
have recorded a valuation allowance for the full amount of our net operating
loss carry-forwards, as the future realization of the tax benefit is not
currently likely.
As of June 30, 1999, we had net operating loss carry-forwards for federal
and state tax purposes of approximately $10.4 million. The state tax loss
carry-forwards expire in 2005 and the federal tax loss carry-forwards expire
in 2012. Under the provisions of the Internal Revenue Code, certain
substantial changes in ownership may limit the amount of net operating loss
carry-forwards that could be utilized annually in the future to offset taxable
income.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the
private placement of equity securities, raising approximately $20.8 million,
including $8.4 million raised in May 1999.
At June 30, 1999, we had cash and cash equivalents of $10.8 million. We have
a $2.0 million equipment leasing line of credit with a bank, under which
$815,000 was outstanding at June 30, 1999. At June 30, 1999, we also had an
additional $103,000 in equipment financing outstanding with an equipment
leasing company.
Cash used in operating activities was $468,000 for the year ended December
31, 1996, $1.5 million for the year ended December 31, 1997, $2.1 million for
the year ended December 31, 1998 and $1.3 million for the six months ended
June 30, 1999. The increases in cash used in operating activities were
primarily due to increases in net loss.
Cash used in investing activities was $254,000 for the year ended December
31, 1996, $768,000 for the year ended December 31, 1997, $1.7 million for the
year ended December 31, 1998 and $1.0 million for the six months ended June
30, 1999. The increases in cash used in investing activities were primarily
due to infrastructure expansion to meet end user growth and a $2.0 million
expenditure for computers and other equipment for our second data center.
We have no material commitments other than obligations under our credit
facilities and operating and capital leases, including a sublease we entered
into in August 1999 to occupy additional space in our principal facility in
Calabasas, California beginning on December 1, 1999. See note 11 of notes to
financial statements included elsewhere in this prospectus. Commitments under
our new facility sublease are $528,000 for the next three years. Future
capital requirements will depend upon many factors, including the timing of
research and product development efforts and the expansion of our marketing
efforts. We expect to continue to expend significant amounts on expansion of
facility infrastructure, ongoing research and development, computer and
related data center equipment, and personnel.
We believe that our cash and cash equivalents balances and funds available
under our existing lines of credit, together with the proceeds of this
offering, will be sufficient to satisfy our cash requirements for at least the
next 18 months. We intend to invest our cash in excess of current operating
requirements in short-term, interest-bearing, investment grade securities.
Impact of Year 2000
Many computers, software and other equipment include computer code in which
calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency and severity as
the year 2000 approaches, and are commonly referred to as the "Year 2000"
problem.
General Readiness Assessment. The Year 2000 problem affects the computers,
software, other equipment that we use, operate or maintain for our operations,
and services provided by third-party vendors. As a result, we have formalized
our Year 2000 compliance plan, which is being implemented by a team of
employees led by our internal information technology staff. This staff is
responsible for monitoring the assessment, including
25
<PAGE>
potential effects and costs, of our Year 2000 projects and remediation of any
Year 2000 problems. To date, we have obtained Year 2000 readiness verification
from the majority of third-party service and product providers associated with
our critical development and operations processes.
Assessment of Digital Insight's Software and Products. Beginning in 1998, we
began assessing the ability of our software and products to operate properly
as a result of the Year 2000 problem. We believe that our current products are
Year 2000 compliant. Additionally, as we design and develop new products, we
subject them to testing for Year 2000 compliance and the ability to
distinguish between various date formats. We will continue to test our
software and products for stand-alone Year 2000 compliance as well as
compliance when used with other standard operating systems or computer
platforms. At present, we have conducted Year 2000 interface testing with our
data processing vendor partners.
Assessment of Internal Infrastructure. We have identified the majority of
information technology systems, software and other equipment that are
necessary to our internal operations. Other equipment includes office and
facilities equipment, such as fax machines, telephone switches, security
systems and other common devices which may be affected by the Year 2000
problem. We have evaluated this equipment to determine which items must be
modified, upgraded, or replaced to minimize the possibility of material
disruption to our business. Remediation is substantially complete. We expect
the remaining remediation and deployment activities to be completed by
September 30, 1999.
Costs of Remedy Necessary. To date, our costs to address Year 2000
compliance have been approximately $95,000 and are included in operating
expenses. We anticipate the additional costs to address Year 2000 compliance
will be approximately $145,000, most of which we expect to incur in 1999.
Significant uncertainty exists concerning the potential costs and effects
associated with Year 2000 compliance. The actual remediation costs may be
substantially higher than our current estimate.
Based on the activities described above, we do not believe that the Year
2000 problem will have a material adverse effect on our business or operating
results. In addition, we have not deferred any material information technology
projects or equipment purchases as a result of our Year 2000 problem
activities.
Suppliers. As part of our Year 2000 compliance plan, we have contacted our
third-party vendors of products and services integrated into our products to
identify and, to the extent possible, resolve issues relating to the Year 2000
problem. However, we have limited or no control over the actions of these
third-party vendors. Thus, while we expect that we will be able to resolve any
significant Year 2000 problems with these third parties, there can be no
assurance that these vendors will resolve any or all Year 2000 problems before
the occurrence of a material disruption to the operation of our business. Any
failure of these third parties to timely resolve Year 2000 problems with their
systems could have a material adverse effect on our business, financial
condition and results of operations.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 issues that could materially adversely affect our
business operations. However, we believe that it is not possible to determine
with complete certainty that all Year 2000 problems affecting us have been
identified or corrected. The number of devices and systems that could be
affected and the interactions among these devices and systems are too numerous
to address. In addition, no one can accurately predict which Year 2000-related
failures will occur or the severity, timing, duration, or financial
consequences of these potential failures. As a result, we believe that the
following consequences are possible:
. operational inconveniences and inefficiencies for us and our customers
that will divert management's time and attention and financial and human
resources from ordinary business activities; and
. business disputes alleging that we failed to comply with the terms of
contracts or industry standards of performance, some of which could
result in litigation or contract termination.
26
<PAGE>
Contingency Plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct Year 2000 problems
affecting our internal systems are not effective. We expect to complete our
contingency plans by September 30, 1999. Depending on the systems affected,
these plans could include:
. accelerated replacement of affected equipment or software;
. short to medium-term use of backup equipment and software or other
redundant systems;
. increased work hours for our personnel or the hiring of additional
information technology staff; and
. the use of contract personnel to correct, on an accelerated basis, any
Year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
Our failure to implement any of these contingency plans could have a
material adverse effect on our business, financial condition and results of
operations.
Worst Case Scenario. The worst case scenario for Year 2000 problems for us
would be to cease normal operations while we attempted to respond to Year 2000
problems in our internal systems. Although we do not believe that our business
would come to a standstill in the worst case scenario, we could experience
severe operational disruptions and inefficiencies resulting in delays in
delivering our products and services and a corresponding decrease in revenues.
Disclaimer. The discussion of our efforts and expectations relating to Year
2000 compliance are forward-looking statements. Our ability to achieve Year
2000 compliance, and the level of incremental costs associated therewith,
could be adversely affected by, among other things, the availability and cost
of contract personnel and external resources, third-party suppliers' ability
to modify proprietary software, and unanticipated problems not identified in
the ongoing compliance review.
Recently Issued Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." These statements, which
were adopted effective January 1, 1998, did not have a significant impact on
our financial statements.
27
<PAGE>
BUSINESS
Overview
Digital Insight is the leading provider of real time Internet banking
services to credit unions, small to mid-sized banks, and savings and loans
with assets of less than $10 billion. We offer these community financial
institutions a cost-effective outsourced service, branded in their name, which
includes home banking for their individual customers, business banking for
their commercial customers, a targeted marketing program to enable them to
effectively sell additional financial services to end users, and customized
web site design and implementation services. As of June 30, 1999, we had
contracted with over 370 financial institution customers. The contracted home
banking customers had over 9.2 million potential end users. Of these potential
end users, over 410,000 were actively using our home banking application.
We provide community financial institutions with a comprehensive and secure
Internet solution that can be installed rapidly with a high degree of
customization. Our solution is designed to be readily expandable, or scalable,
as the number of users grows. Our solution also offers high levels of service
and system redundancy. We work closely with leading data processing vendors so
that our financial institution customers can leverage the investment they have
made in existing data processing systems by fully integrating them with an
Internet solution.
We earn revenues from implementation fees that our customer financial
institutions pay us for establishing their Internet banking services, and
recurring service fees based on end user adoption and usage, as well as web
site hosting and maintenance and other monthly services. During the six months
ended June 30, 1999, approximately 77% of our revenues came from recurring
fees.
Industry Background
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing the way businesses and individuals
communicate and conduct commerce. International Data Corporation, a leading
provider of research for the information technology industry, estimates that
the number of Internet users worldwide will increase from approximately 97
million in 1998 to 320 million by 2002.
Businesses have embraced the Internet as an important means for
communicating and transacting business with customers. Although early business
web sites were primarily used for one-way presentation of basic product and
company information, technological advances now offer companies the
opportunity to make their web sites interactive and transaction-based,
enabling the development of a wide range of electronic commerce, or
e-commerce, applications. International Data Corporation estimates that
revenue from business to consumer e-commerce will increase from approximately
$15 billion in 1997 to more than $178 billion in 2003, a compound annual
growth rate of 51%. Forrester Research estimates that revenue from business to
business e-commerce will increase from approximately $43 billion in 1998 to
more than $1.3 trillion in 2003, a compound annual growth rate of 98%.
The Internet is increasingly being utilized as a medium for financial
transactions and services, including banking, brokerage and insurance.
Personal finance was the most heavily used content channel on America Online
in the first quarter of 1999, with an average of 10.7 million user hours per
month, as compared to 10.1 million user hours for games, 7.7 million user
hours for news and 4.7 million user hours for merchandise shopping. In
particular, consumers, businesses and financial institutions are recognizing
that the Internet is a powerful and efficient medium for the delivery of
banking services, including home banking, bill payment and other services for
individuals, and cash management, payroll and other services for the
commercial customers of financial institutions. Consumers and small businesses
use Internet banking because of its 24-hour-a-day, 7-day-a-week convenience
and the ability to perform a wide range of transactions from any personal
computer or Internet-enabled device.
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International Data Corporation estimates that there were approximately 3.4
million users banking over the Internet in the United States at the end of
1998 and projects that that number will increase to over 37 million by 2003.
In response to this demand, an increasing number of financial institutions are
offering Internet-based banking services. International Data Corporation
estimates the number of banks offering online banking services will increase
from 1,150 in 1998 to 15,845 by 2003, and that these services will be offered
primarily via the Internet. Internet banking enables financial institutions to
provide one-stop shopping to their customers by collecting and consolidating
financial data from a number of sources, including all of the customer's
accounts at that institution as well as information from other Internet
sources such as online brokerage and insurance firms. Internet banking also
allows a financial institution to collect and analyze customer data for use in
targeted marketing programs.
Customer service issues are motivating financial institutions to offer
Internet banking. According to a survey conducted by Mentis Corporation, a
recognized financial industry market research firm, financial institutions
offer Internet banking in order to:
. attract new customers, retain existing customers, increase customer
loyalty and improve customer access;
. offer additional value-added services and remain competitive;
. generate revenue;
. decrease service costs; and
. reduce branch traffic.
Early Internet banking initiatives were undertaken primarily by large
financial institutions. According to Online Banking Report, over 50% of the
100 largest banks in the United States offer Internet banking. By contrast,
only approximately 5% of community financial institutions currently offer
Internet banking. Nevertheless, there are approximately 22,000 credit unions,
banks, and savings and loans in the United States with assets of less than $10
billion each. These community financial institutions hold approximately $2.2
trillion in deposits, or 56% of total U.S. customer deposits. As a result of
the adoption of Internet banking services by their larger competitors,
community financial institutions are finding themselves under increasing
pressure to offer Internet home banking and business banking services.
Community financial institutions are realizing that if they do not provide
these services, or if their offerings are inadequate, they risk losing
customers to larger institutions, Internet-only banks, or locally competitive
community financial institutions who do offer these services.
Community financial institutions have been slow to adopt Internet banking
services as a result of several factors. A financial institution undertaking
its own Internet banking service must develop or acquire the relevant
expertise, dedicate appropriate information technology resources, and spend
significant time and capital on the project. In addition, a financial
institution must work closely with its data processing vendor or vendors to
develop workable interfaces between its core systems and its Internet
solution.
In order to remain competitive, community financial institutions require a
low-cost, outsourced Internet-based banking solution. The solution must be
rapidly and cost-effectively implemented, interface seamlessly and in real
time with the financial institution's data processing vendor or vendors,
preserve and extend the financial institution's own brand and provide suitable
features to end users. An Internet-based solution must also be secure,
reliable and scalable. Finally, the solution should provide a platform for
target marketing of financial services and potentially broader e-commerce
offerings. These offerings would provide community financial institutions with
additional revenue opportunities and appeal to end users who are increasingly
using the Internet to research, evaluate and purchase a broad array of
products and services.
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The Digital Insight Solution
Digital Insight is the leading provider of real time Internet banking
services to community financial institutions. The service includes a content-
rich home banking application for retail customers and a business banking
application for commercial customers. AXIS Home Banking, our consumer product,
includes account management, account transfers and interfaces to personal
financial management software, bill payment, stock quotes and other expanded
services. AXIS Cash Management, our small business product, includes similar
features as well as payroll/direct deposits and other services. To enable
financial institutions to sell additional financial services to their end
users based on individual profiles, we also offer target marketing programs to
our customers. We also provide customized web site design, implementation,
maintenance and hosting services to our customers.
Our solution offers the following benefits to community financial
institutions:
. Comprehensive and Customizable Solution. We provide full service bureau
support to customers who desire such an environment, including hosting
of web sites, web site maintenance, reporting tools and customized
online account presentations. Our home banking and business banking
applications can be configured to offer end users a variety of standard
and optional features. Our web site design and implementation services
also enable customers to establish Internet banking services with a look
and feel that preserves their unique brand identity.
. Real Time Online Architecture. Our architecture allows real time
communication with financial institutions' core data processing systems
in order to retrieve account information as needed. Unlike batch
processing, real time data processing allows for transactions conducted
on the web site to be immediately reflected on the host system, and
allows for transactions conducted at the financial institution to be
immediately reflected on the web site. As a result, the information we
present to consumers can be current with the financial institution's own
data, with as much transaction history as is then available from the
institution. For example, if an end user makes a withdrawal at a branch,
it will be reflected instantaneously online.
. Extensive Data Processing Vendor Relationships. Our solution provides
direct links, or interfaces, with multiple vendors of core banking
software and data processing services to financial institutions. We have
developed interfaces to the systems of 21 data processing vendors, who
serve more than 6,000 community financial institutions, and we have
interfaces for 10 additional vendors in development. By working directly
with these vendors, we enable our customers to offer real time
presentations of end user account data and we can quickly and cost-
effectively install our systems with customers of these vendors. Our
interfaces also allow for tight integration with other functions
supported by the data processing vendor, such as loan origination and
statement and check imaging.
. Scalable, Reliable and Secure Service. Our system can scale rapidly to
accommodate increased numbers of end users. A financial institution can
take advantage of our data center and the server infrastructure of its
data processing vendor to scale to meet demand, without building its own
separate server infrastructure. Our service is also highly reliable,
with an up-time availability record averaging 99.3% during the six-month
period ended May 31, 1999. Further, our systems incorporate
sophisticated data encryption techniques, a series of firewalls between
the Internet and our customers, and several layers of security
technology in order to minimize unauthorized access to our network.
. Rapid and Affordable Implementation. Our solution can be rapidly
implemented and represents an affordable alternative to internally
developed Internet banking services for community financial
institutions. Average implementation times for our home banking
application range from one to three months, depending on the complexity
of web site design requests and the availability of an existing
interface with a customer's data processing vendor. The typical
implementation cost for a home banking application is less than $50,000.
. Flexible Service Capabilities. Our applications are designed to be
deployed in a variety of environments, depending on a customer's needs.
A customer can use our data center in a service bureau arrangement,
house its own dedicated hardware in our data center or host our systems
in its own
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facility. Importantly, customers can migrate from one environment to
another as their needs evolve. In addition, we have the flexibility to
support data processing vendors whose systems are either batch or
realtime.
. Platform for Value-Added Services and Target Marketing. We enable
financial institutions to expand their Internet presence beyond their
core banking functions by providing additional value-added products and
services to their customers. These services include bill payment and
delivery of third- party services such as stock quotes. Our real time
solution is also capable of gathering relevant end-user account activity
information and usage profiles, enabling financial institutions to
target timely and appropriate services to their customers, thereby
creating additional revenue opportunities. We believe that these
additional product and service offerings will allow our customers to
derive additional revenue from existing and new end users.
The Digital Insight Strategy
Our objective is to increase our position as the leading provider of
Internet banking services to community financial institutions as well as to
provide these institutions with a competitive platform which will permit them
to exploit e-commerce opportunities.
. Increase the Number of Community Financial Institutions. We intend to
leverage our leading market position to further penetrate the
substantial market for an outsourced Internet banking solution among
community financial institutions. As of June 30, 1999, we had contracts
with over 370 community financial institutions in over 40 states. We
achieved early leadership among credit unions who, as a group, adopted
Internet banking more rapidly than community banks. Over the past two
years, we have begun to leverage our strong credit union customer base
to increase our sales efforts with banks. We also intend to increase the
number of customers by selectively expanding our international sales,
both directly and through strategic alliances with international
partners.
. Increase End User Penetration. As of June 30, 1999, our home banking
customers had more than 9.2 million potential end users. For the
financial institutions who had fully deployed our solution by June 30,
1998, the aggregate percentage of their customers utilizing home banking
rose from 3.9% at June 30, 1998 to 8.1% at June 30, 1999. We work with
our financial institution customers to expand the number of end users of
our home banking and business banking services through marketing
assistance programs and sharing best practices. We intend to continue to
train the staff of financial institutions in marketing and promoting
Internet banking services using the information and skills we have
gained through our experience in Internet banking implementations.
. Increase the Number of Interfaces to Core Data Processing Systems. We
intend to increase the number of our interfaces to core data processing
systems to allow our products to interface with more financial
institutions. Our strategy is to maintain neutrality among vendors, in
order to serve the broadest possible base of financial institutions. We
currently interface with vendors providing services to over 6,000
community financial institutions and our intermediate-term goal is to
increase this coverage to more than 12,000 community financial
institutions. A group of our engineers is dedicated to developing
interfaces to new data processing vendors.
. Broaden Product Offerings. We plan to offer new and enhanced products
and services to attract additional traffic onto our network of community
financial institutions and other business partners. We intend to enhance
the capabilities, or functionality, of our products to capitalize on the
trend of consumers to integrate financial services information and
transactions and to expand our target marketing capability. New
functionality and services are expected to include bill presentment, or
the delivery of interactive electronic bills over the Internet, online
loan origination, online check imaging and online statement delivery.
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Products and Services
Our primary products are home banking and business banking applications.
These applications allow a financial institution to create a customized
Internet banking service using an array of standard and optional features. We
complement our primary banking applications with additional tools, such as
target marketing, and with implementation and web site services.
Home Banking
Our AXIS Home Banking application is an Internet-based system through which
community financial institutions are able to provide home banking to their
retail customers. Standard features of this application include:
. Account information: End users can view balance information and
transaction history in real time for deposit accounts, such as checking
and savings, and loan accounts, such as consumer, credit cards,
automobile and mortgage.
. Funds transfer: End users can transfer funds among accounts, including
making loan payments.
. Interfaces with personal financial management software: End users can
download their account information into Quicken and Microsoft Money.
In addition to these standard features, financial institutions can also
choose to include the following home banking optional features:
. Bill payment: End users can pay bills electronically 24 hours a day,
seven days a week. End users can schedule one-time or recurring
payments, and can view payment history at their convenience.
. Online applications: End users can submit electronic loan, credit card
or other applications safely and securely to their financial
institution.
. Online services and additional features: End users can track stock
prices, calculate portfolio values, order U.S. Savings Bonds, make check
image requests and order checks.
Business Banking
Our AXIS Cash Management application provides a full range of Internet
business banking services for commercial customers of community financial
institutions. Standard features of this application include:
. Administration platform: Businesses can control access to business
banking and account features in order to provide financial and audit
controls for their staff.
. Account information: Businesses can view account balances and
transaction history, and reconcile accounts instantly.
. Funds transfer: Businesses can actively manage their accounts, setting
up future-dated transfers and automatic transfers of available balances
among accounts.
. Stop payment placement: Businesses can place stop payment orders on
checks.
. File export: Businesses can export their account information into a
computer file or into business financial management and accounting
software such as QuickBooks.
Optional features of AXIS Cash Management include:
. Bill payment: End users can pay bills electronically 24 hours a day,
seven days a week. End users can schedule one-time or recurring payments
and can view payment history at their convenience.
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. Automated Clearing House services: Businesses can initiate electronic
payments, including business to business, payroll direct deposit
disbursements and electronic state and federal tax payments.
. Wire transfers: Businesses can originate wire transfers of funds to
accounts with other financial institutions or trade partners.
. Online services and additional features: Businesses can complete
predefined loan and other applications, make photocopy requests, order
checks, and track portfolios.
Target Marketing
Our recently introduced Target Marketing module is designed to help make the
financial institution's web site a cost-effective sales tool. This module is
currently available for our home banking application and is expected to be
available for our business banking application later this year. Target
Marketing allows financial institutions to individually target their account
holders and present them with opportunities to buy products and services to
fit their needs. The Target Marketing module gives financial institutions the
ability to:
. analyze end users' demographic and financial profiles and online
activity, and apply a set of screening criteria to select appropriate
marketing promotions;
. present individually-targeted marketing promotions, such as
advertisements for loans, to end users when it is most appropriate;
. incorporate account sign-up forms and loan applications into specific
promotions;
. create time-limited promotions and seasonal messages; and
. change messages daily, hourly or randomly.
AXIS Management Console
Our Internet services management console provides our customers with a set
of tools to actively manage their Internet banking system. With this
management console, a financial institution can remotely manage its web site,
generate reports on daily activities and keep transaction logs and activity
records for all site events. A financial institution can also use this
management console to configure the Target Marketing module for specific
promotions.
Implementation Services and Web Site Development
For financial institutions without an existing web site, our team of experts
develop a fully interactive site. Working closely with the customer, the team
designs the site to incorporate the features and capabilities required by the
institution, including the integration of proprietary and value-added
financial services such as application forms, financial calculators and links
to other web sites. For customers with an existing web site, our
implementation services are focused on integrating the home banking and/or
business banking application into that site. In both instances, financial
institutions can elect to have Digital Insight host and maintain their web
site. We provide a team of web site experts who program the placement and
formatting of digitized text for a financial institution's Internet site,
including all connections to other web sites.
Systems Architecture
Overview
Our applications are designed to be deployed in a service bureau
environment, resource managed environment, or an in-house environment. In a
service bureau environment, the financial institution's web site and home
banking application share resources with other financial institutions in our
data center. These shared resources include hardware such as our servers, as
well as data transmission capacity, known as bandwidth. In a resource managed
environment, a financial institution has dedicated bandwidth and hardware but
the system is still located in our data center. In an in-house environment, a
financial institution runs the system out of its own data center. In all
environments, the financial institution or data processing vendor is connected
to Digital Insight through our private frame relay network.
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Our systems architecture is designed to provide real time data acquisition,
processing and presentation for Internet home banking and other applications.
Our application servers make use of information exchange brokers that retrieve
and initiate transactions using data located on financial institutions' host
systems, bill payment providers' servers, stock information databases or
relational databases. Our applications are driven by templates which define
how data is to be presented. This template driven approach allows
customization by our financial institution customers by supporting multiple
languages and multiple web site designs.
We believe that our real time architecture is more scalable than traditional
batch systems, which warehouse and store duplicate data. Instead of
duplicating each financial institution's host system by daily batch
transmittal of customer information, we communicate in real time through a
private frame relay network to retrieve account information as needed. Real
time data processing allows for transactions conducted on the web site to be
immediately reflected on the host system and vice versa. In contrast, in batch
systems, home banking transactions are not immediately sent to the financial
institution's host system for processing but are stored in a database at the
home banking data center. In addition, transactions processed at the financial
institution are only reflected in a batch system home banking application
after this data is uploaded to the data center. As a result, batch systems can
result in impairment of data integrity, as information on the host system may
be different from that of the Internet home banking application at any
particular time.
Future Impact of Second Data Center
We currently provide our services out of one data center located at our
headquarters in Calabasas, California. We expect to open a second data center
that we will manage at an Exodus Communications facility in Herndon, Virginia.
This second data center is expected to be fully operational as a working
backup data center in the fourth quarter of 1999. When operational, this data
center will allow for greater scalability and increased functionality by
providing backup functions to the Calabasas data center.
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Transaction Flow
The following simplified diagram illustrates the transaction flow in a
typical service bureau or resource managed home banking or business banking
application, either through our current Calabasas data center or through our
second backup data center under construction in Herndon, VA:
[TRANSACTION FLOW CHART APPEARS HERE]
. Step 1: An end user initiates a banking transaction from his or her
browser by going to the financial institution's secure web site. Our
system will direct the transaction to the then currently operational
data center.
. Step 2: Our protocol translation and delivery technology translates
the request from web messaging protocol into our internal messaging
protocol, and then into a protocol understood by the target host
processor.
. Step 3: Requests are sent over a private frame relay network and
processed in real time by the target host processor, which sends the
response back to us to be processed and ultimately delivered back to
the end user's browser.
Excluding presentation to the end user, all of this processing generally
takes less than five seconds.
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Customers
Our target market is the approximately 22,000 community financial
institutions in the United States with assets of less than $10 billion each.
Within our target market, we focus on community financial institutions that
rely on one or more of the data processing vendors with whom we have developed
interfaces. At present, we have interfaces with data processing vendors
serving over 6,000 community financial institutions. We are seeking to expand
the number of vendors with whom we have interfaces.
As of June 30, 1999, we had contracts with over 370 financial institutions
to provide one or more of our products and services. Of these institutions,
over 245 have contracted with us for home banking, with more than 410,000
active end users. Based on publicly available regulatory submissions, as of
June 30, 1999, our home banking customers had more than 9.2 million potential
end users. For the year ended December 31, 1998 and the six months ended June
30, 1999, no individual customer accounted for 5% or more of our revenues.
The table below sets forth our ten largest home banking customers as of June
30, 1999 in the categories of banks/savings and loans and credit unions, based
on the number of potential end users.
<TABLE>
<CAPTION>
Banks/Savings and Loans Credit Unions
----------------------- -------------
<S> <C>
Trust Company of New Jersey The Golden 1 Credit Union
Reliance Federal Savings Government Employees Federal Credit Union
Commonwealth Bank, Pennsylvania AT&T Family Federal Credit Union
First Southern Bancorp Teachers Credit Union
Keystone Savings Bank Community Credit Union
Centier Bank Portland Teachers Credit Union
American Bank of Texas ESL Federal Credit Union
Commercial Bank of New York North Island Federal Credit Union
Brookline Savings Bank Mountain America Credit Union
Patriot Bank San Diego County Credit Union
</TABLE>
Third-Party Relationships
We have relationships with multiple vendors of core data processing software
and outsourced data processing services to financial institutions. Agreements
with these vendors allow us to interface to the financial institutions' host
systems to provide real time access to a financial institution's account data.
We have developed interfaces to the systems of 21 data processing vendors who
provide services to more than 6,000 community financial institutions. We
currently have interfaces for 10 additional vendors in development. Among the
data processing vendors with whom we interface are: BancTec, CSI, EDS Cube,
EDS Miser, Fiserv divisions such as Aftech, CBS, Galaxy and Summit, Jack
Henry, OSI, Symitar Systems, USERS Inc. and XP Systems. Among the interfaces
under development are ALLTEL and M&I Data Services.
To deliver bill payment services, we have relationships with major providers
such as M&I Data Services and CheckFree. We also have relationships with third
parties, including the U.S. Treasury, DecisionOne, 800 Support, Intuit and
Microsoft, to provide other related functions to our customers.
Sales and Marketing
We utilize a direct sales model. As of June 30, 1999, our sales and
marketing staff consisted of 27 professionals, who are regionally based to
facilitate the development of strong relationships with customers. The sales
staff is responsible for prospecting and acquiring new accounts as well as
managing current accounts and cross-selling additional products into those
accounts. We expect to significantly increase our sales and marketing
infrastructure over the next 12 months.
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Our typical sales cycle is approximately six months for new customers and
approximately two months for follow-on or upgrade sales to existing customers.
Our primary customer contact for new sales in smaller community financial
institutions is generally the chief executive officer, the chief financial
officer or the chief information officer, or a combination of these three, and
in larger community financial institutions, our primary contact is generally
the head of retail banking or business banking. Our primary customer contact
for follow-on sales is usually the functional manager for the community
financial institution or the direct manager of Internet banking for that
institution.
Our primary marketing efforts are focused on building brand awareness among
community financial institutions and identifying potential customers. Our
marketing efforts include:
. telemarketing, through which we make an average of 300 new financial
institution contacts a month;
. press relations, which are managed by an outside public relations firm
that specializes in banking and financial industries;
. direct mail, which uses product and service literature as well as
reprints of news articles;
. trade shows, with 26 appearances scheduled for 1999; and
. meetings with national and regional user groups of Internet banking
services and third-party data processing vendors, with 14 scheduled for
1999.
Product Development
As of June 30, 1999, our product development staff consisted of 32 software
developers and engineers. Their development efforts are focused on:
. Enhancements to Existing Products. We are developing new features and
functions for our home banking and business banking products in order to
provide a broader range of functions, including Internet loan
origination and bill presentment. For example, we are currently
developing a bill presentment graphical user interface for release in
1999.
. Interfaces with Data Processing Vendors. We are continuing to enhance
and expand our interfaces to financial institution core data processing
systems. A variety of different systems are utilized by both banks and
credit unions. We currently interface with vendors representing over
6,000 community financial institutions and our intermediate-term goal is
to increase this coverage to more than 12,000 community financial
institutions.
. Additional Web Site Customization. We intend to offer financial
institutions additional options and capabilities for customization of
their web sites by creating more templates and making these templates
more flexible.
. Enhancements to Target Marketing. We intend to add features to Target
Marketing to support a broader range of e-commerce activities.
. Other Products and Services. We are working to expand our offerings to
include related financial service capabilities such as online insurance,
brokerage, credit history management, tax preparation and filing and
merchant services.
Competition
The market for Internet banking services is highly competitive, and we
expect that competition will intensify in the future. In the area of home
banking, we primarily compete with other companies that provide outsourced
Internet banking services to community financial institutions, including
FundsXpress, nFront, Online Resources, Q-Up and Virtual Financial. Also,
vendors such as Corillian, Edify, Integrion and Security First Technologies,
who primarily target the largest financial institutions, occasionally compete
with us for community financial
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institution customers. In addition, several of the vendors offering data
processing services to financial institutions offer their own Internet banking
solutions, including EDS, Fiserv, Jack Henry and M&I Data Services. Local
competition for home banking services is provided by more than 100 smaller
online service outsourcing companies located throughout the United States.
Our primary competition for providing the business banking services that
financial institutions offer their commercial customers are vendors of cash
management systems for large corporations such as ADP, Magnet and Pulitzer &
Haney.
We also face potential indirect competition from Internet portals such as
E*TRADE and Yahoo! which might serve as an alternative to financial
institutions' web sites, particularly for bill presentment services. In
addition, we could experience competition from our customer financial
institutions and potential customers who develop their own online banking
solutions. Rather than purchasing Internet banking products and services from
third-party vendors, community financial institutions could develop, implement
and maintain their own services and applications. We can give no assurance
that these financial institutions will perceive sufficient value in our
products and services to justify investing in them.
We believe that our ability to compete successfully depends upon a number of
factors, including:
. our market presence with community financial institutions and related
scale advantages;
. the reliability, security, speed and capacity of our systems and
technical infrastructure;
. the comprehensiveness, scalability, ease of use and service level of our
products and services;
. our ability to interface with vendors of data processing software and
services;
. our pricing policies and the pricing policies of our competitors and
suppliers;
. the timing of introductions of new products and services by us and our
competitors; and
. our ability to support unique customer requirements.
We expect competition to increase significantly as new companies enter our
market and current competitors expand their product lines and services.
Government Regulation
The financial services industry is subject to extensive and complex federal
and state regulation. Our current and prospective customers, which consist of
financial institutions such as commercial banks, savings and loans, credit
unions, thrifts, securities brokers, finance companies, other loan
originators, insurers and other providers of financial services, operate in
markets that are also subject to rigorous regulatory oversight and
supervision. Our customers must ensure that our services and related products
work within the extensive and evolving regulatory requirements applicable to
them, including those under federal and state truth-in-lending and truth-in-
deposit rules, usury laws, the Equal Credit Opportunity Act, the Fair Housing
Act, the Electronic Fund Transfer Act, the Fair Credit Reporting Act, the Bank
Secrecy Act and the Community Reinvestment Act. The compliance of our products
and services with these requirements depends on a variety of factors including
the particular functionality, the interactive design and the classification of
the customer. Our financial services customers must assess and determine what
is required of them under these regulations and are responsible for ensuring
that our system and the design of their site conform to their regulatory
needs. We do not make representations to customers regarding applicable
regulatory requirements, and rely on each customer to identify its regulatory
issues and to adequately specify appropriate responses. It is not possible to
predict the impact that any of these regulations could have on our business.
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We are not licensed by the Office of the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the National Credit Union Administration or other federal or
state agencies that regulate or supervise depository institutions or other
providers of financial services. We are subject to examination by the Federal
depository institution regulators under the Bank Service Company Act and the
Examination Parity and Year 2000 Readiness for Financial Institutions Act.
These regulators have broad supervisory authority to remedy any shortcomings
identified in any such examination. We are also subject to encryption and
security export laws and regulations which, depending on future developments,
could render our business or operations more costly, less efficient or
impossible.
Federal, state or foreign authorities could adopt laws, rules or regulations
affecting our business operations, such as by requiring us to comply with
data, record keeping and other processing requirements. We may become subject
to additional regulation as the market for our business evolves. It is
possible that laws and regulations may be enacted with respect to the
Internet, covering issues such as user privacy, pricing, content,
characteristics and quality of services and products. Existing regulations may
be modified. For example, we are not subject to the disclosure requirements of
Regulation E of the Federal Reserve Board under the Electronic Fund Transfer
Act, because we do not agree with consumers to provide them with electronic
funds transfer services or provide access devices (such as cards, codes or
other means of accessing accounts to initiate electronic funds transfers) to
them. Regulation E regulates certain electronic funds transfers made by
providers of access devices and electronic fund transfer services. Under
Regulation E, our customers are required, among other things, to provide
certain disclosure to retail customers using electronic transfer services, to
comply with certain notification periods regarding changes in the terms of
service provided and to follow certain procedures for dispute resolutions. The
Federal Reserve Board could adopt new rules and regulations for electronic
funds transfers that could lead to increased operating costs and could also
reduce the convenience and functionality of our services, possibly resulting
in reduced market acceptance. If enacted or deemed applicable to us, the laws,
rules or regulations applicable to financial services activities would render
our business or operations more costly, burdensome, less efficient or
impossible. We cannot assure that federal, state or foreign governmental
authorities will not adopt new regulations addressing electronic financial
services or operations generally that could require us to modify our current
or future products and services. The adoption of laws or regulations affecting
our business or our customer banks' business could have a material adverse
effect on our business, financial condition and results of operations.
A number of proposals at the federal, state and local level and by certain
foreign governments would, if enacted, expand the scope of regulation of
Internet-based financial services and could impose taxes on the sale of goods
and services and certain other Internet activities. Any development that
substantially impairs the growth of the Internet or its acceptance as a medium
for transaction processing could have a material adverse effect on our
business, financial condition and operating results.
Proprietary Rights
Although we believe that our success is more dependent upon our technical
expertise than our proprietary rights, our future success and ability to
compete is dependent in part upon our proprietary technology. None of our
technology is currently patented. Instead, we rely on a combination of
contractual rights and copyright, trademark and trade secret laws to establish
and protect our proprietary technology. We generally enter into
confidentiality agreements with our employees, consultants, resellers,
customers and potential customers. We also limit access to and distribution of
our source code, and further limit the disclosure and use of other proprietary
information. We cannot assure that the steps taken by us in this regard will
be adequate to prevent misappropriation of our technology or that our
competitors will not independently develop technologies that are substantially
equivalent or superior to our technology. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy or otherwise
obtain or use our products or technology. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same extent as
do the laws of the United States.
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<PAGE>
Facilities
Our principal offices currently occupy approximately 30,385 square feet in
Calabasas, California, pursuant to a lease which expires in 2003. In August
1999, we entered into a sublease to occupy an additional 16,085 square feet in
our principal facility in Calabasas, California, beginning on December 1,
1999. Our principal data center is located in this facility. We have also
entered into a service agreement for a second data center serviced by Exodus
Communications in Herndon, Virginia. We believe that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
Employees
As of June 30, 1999, we had a total of 132 full-time employees, including 57
in operations, 27 in sales and marketing, 32 in research and development and
16 in finance and administration. None of our work force is currently
unionized. We have not experienced any work stoppages and consider our
relations with our employees to be good.
Legal Proceedings
From time to time we may be involved in litigation arising in the normal
course of our business. We are not a party to any litigation, individually or
in the aggregate, that we believe would have a material adverse effect on our
financial condition or results of operations.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding the executive officers
and directors of Digital Insight as of September 8, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John Dorman............. 49 Chairman of the Board, Chief Executive Officer and President
Paul Fiore.............. 34 Executive Vice President, Co-Founder and Director
Mehariar Hasan.......... 40 Vice President, Product Management
Daniel Jacoby........... 33 Vice President, Chief Technology Officer and Co-Founder
Kevin McDonnell......... 38 Vice President, Finance, Chief Financial Officer and Secretary
Steven Reich............ 40 Vice President, Sales and Marketing
Stephen Zarate.......... 53 Vice President and Chief Information Officer
John Jarve(2)........... 43 Director
Nader Kazeminy.......... 34 Director
James McGuire(1)(2)..... 55 Director
Ofer Nemirovsky......... 41 Director
Robert North(1)(2)...... 63 Director
</TABLE>
- --------
(1) Member of the audit committee.
(2) Member of the compensation committee.
John Dorman. Mr. Dorman has been our President and Chief Executive Officer
and a director since October 1998. Mr. Dorman was appointed Chairman of the
Board in June 1999. Prior to his appointment as our President and Chief
Executive Officer, Mr. Dorman was Senior Vice President for Oracle Worldwide
Financial Services from August 1997 to October 1998. Prior to joining Oracle,
Mr. Dorman was founder, President, and Chief Executive Officer of Treasury
Services Corporation, known as TSC, a provider of management information
solutions to the financial services industry, from 1983 to 1997. TSC was sold
to Oracle in 1997. Prior to serving at TSC, Mr. Dorman spent 11 years in the
banking industry as a senior financial executive for Union Bank of California.
Mr. Dorman holds a BA degree in business administration and philosophy from
Occidental College and an MBA in finance from the University of Southern
California.
Paul Fiore. Mr. Fiore is a co-founder of Digital Insight and has served as
our Executive Vice President since October 1998 and as a director since March
1997. From March 1997 to October 1998, Mr. Fiore was President of Digital
Insight and from July 1995 to March 1997, Mr. Fiore served as President of
Digital Insight LLC, the predecessor of Digital Insight. Prior to co-founding
Digital Insight LLC in July 1995, Mr. Fiore was Vice President, Strategy &
Plans for XP Systems, a provider of turn-key data processing solutions for
credit unions, from March 1994 to July 1995. Before joining XP Systems, Mr.
Fiore was Vice President and Chief Financial Officer for AT&T Employees
Federal Credit Union from October 1989 to March 1994. Prior to joining AT&T,
Mr. Fiore was a financial analyst for Lehman Brothers. Mr. Fiore graduated
from New York University with a BS degree in management and finance.
Mehariar Hasan. Mr. Hasan joined Digital Insight as Vice President, Product
Management in July 1999. Prior to joining Digital Insight, Mr. Hasan was
Senior Vice President, Strategic Marketing for Transamerica Corporation from
June 1996 to July 1999. Prior to joining Transamerica, Mr. Hasan served as
Director of Consulting for TSC, a provider of management information solutions
to the financial services industry, from November 1994 to June 1996. Prior to
joining TSC, Mr. Hasan served in a variety of management roles for American
Savings Bank from November 1986 to November 1994. Mr. Hasan holds a BA in
Economics and an MS in Finance from the University of Arizona.
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<PAGE>
Daniel Jacoby. Mr. Jacoby is a co-founder of Digital Insight and has served
as Vice President and Chief Technology Officer since March 1997. From July
1995 to March 1997, Mr. Jacoby served as Chief Technology Officer of Digital
Insight LLC. Prior to co-founding Digital Insight in 1995, Mr. Jacoby served
in various technical and managerial positions for XP Systems from February
1989 to June 1995. Mr. Jacoby holds a BS degree in biomechanical engineering
from the University of California, San Diego.
Kevin McDonnell. Mr. McDonnell joined Digital Insight as Vice President,
Chief Financial Officer and Secretary in March of 1999. Prior to joining
Digital Insight, Mr. McDonnell was Executive Vice President and Chief
Financial Officer for Rockford Industries, a specialty finance company, from
July 1997 to February 1999. From October 1995 to July 1997, Mr. McDonnell
served as Vice President and Chief Financial Officer for Printrak
International, a provider of automated fingerprint identification systems.
From October 1992 to October 1995, Mr. McDonnell served as Vice President and
Chief Financial Officer of Mobile Technology, Inc., a medical services
company. Mr. McDonnell has a BA degree in business administration from Loyola
Marymount University and a JD degree from Loyola Law School.
Steven Reich. Mr. Reich joined Digital Insight as Vice President of Sales
and Marketing in May 1998. Prior to joining Digital Insight, Mr. Reich served
as a management consultant and spent ten years from 1987 to 1997 with TSC, a
provider of management information solutions to the financial services
industry, in a variety of management roles. Before joining TSC, Mr. Reich
worked at the consulting firm of Kaplan Smith and Associates as a Senior
Consulting Associate. He holds a BS degree in business administration from
Arizona State University and an MBA from Claremont Graduate School.
Stephen Zarate. Mr. Zarate has served as Vice President and Chief
Information Officer since March 1999. Prior to joining Digital Insight, Mr.
Zarate was Chief Information Officer for PeopleSoft from June 1993 to March
1999, where he was responsible for the company's worldwide internal
applications, communications, infrastructure and technology. Prior to joining
PeopleSoft, Mr. Zarate was the Managing Director of Golden Gate Bank from
October 1988 to April 1993. Mr. Zarate has a BA degree in political science
and history from San Francisco State University.
John Jarve. Mr. Jarve has been a director of Digital Insight since March
1997. He is a general partner and managing director of Menlo Ventures, a
venture capital firm, where he has been employed since 1985. Mr. Jarve
currently serves as a director of several privately held companies and also as
a trustee of the Massachussetts Institute of Technology. Mr. Jarve holds BS
and MS degrees in electrical engineering from the Massachusetts Institute of
Technology and an MBA from the Graduate School of Business at Stanford
University.
Nader Kazeminy. Mr. Kazeminy has been a director of Digital Insight since
February 1998. He has served as Vice President and Vice Chairman of NJK
Holding Corporation since April 1992. Mr. Kazeminy holds a BS in business and
organizational management from Gustavus Adolfus College.
James McGuire. Mr. McGuire has been a director of Digital Insight since
March 1997 and served as Chairman of the Board from our inception until June
1999. Mr. McGuire has served as President of NJK Holding Corporation since
1992. Mr. McGuire currently serves as a director for Sylvan Learning Systems,
a provider of educational services. Mr. McGuire holds a BBA in finance from
the University of Notre Dame.
Ofer Nemirovsky. Mr. Nemirovsky has served as a director of Digital Insight
since February 1998. Mr. Nemirovsky has been a Managing Director of
HarbourVest Partners, LLC since January 1997. HarbourVest Partners, LLC was
formed by the management team of Hancock Venture Partners, Inc., where
Mr. Nemirovsky had served in various capacities since 1986. Prior to joining
Hancock Venture Partners, Inc., Mr. Nemirovsky held various computer sales and
marketing positions at Hewlett-Packard Company. He is currently a director of
Primix Solutions, Inc., an electronic commerce consulting firm, Paradigm
Geophysical Limited, a provider of computer aided exploration software, and
The Ultimate Software Group, Inc., a provider of human resources management
and payroll software, as well as several privately-held companies. He holds a
BS in electrical engineering and a BS in finance from the University of
Pennsylvania and an MBA from Harvard Business School.
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<PAGE>
Robert North. Mr. North has been a director of Digital Insight since June
1997. Mr. North has served as Chief Executive Officer of HNC Software, a
provider of predictive software solutions, since 1987. Mr. North is also a
director of HNC Software, Peerless Systems, a provider of software-based
embedded imaging systems, and Abacus Direct, a provider of information
products and marketing research services. Mr. North holds BS and MS degrees in
electrical engineering from Stanford University.
Board Composition
We currently have seven directors. In accordance with the terms of our
certificate of incorporation, the terms of office of our board of directors
will be divided into three classes upon the closing of the offering: Class I,
whose term will expire at the annual meeting of stockholders to be held in
2000, Class II, whose term will expire at the annual meeting of stockholders
to be held in 2001 and Class III, whose term will expire at the annual meeting
of stockholders to be held in 2002. The Class I directors will be Messrs.
Nemirovsky and Kazeminy, the Class II directors will be Messrs. Fiore and
Jarve and the Class III directors will be Messrs. Dorman, McGuire and North.
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. Any additional directorships will be distributed among the
three classes so that, as nearly as possible, each class will consist of one-
third of our directors. This classification of the board of directors may have
the effect of delaying or preventing changes in control or our company. Our
directors may be removed for cause by the affirmative vote of the holders of a
majority of our common stock.
Board Committees
Our board of directors has a compensation committee and an audit committee.
The compensation committee consists of Messrs. Jarve, McGuire and North. The
compensation committee makes recommendations regarding our stock option plans
and all matters concerning executive compensation. The audit committee
consists of Messrs. McGuire and North. The audit committee approves our
independent auditors, reviews the results and scope of annual audits and other
accounting related services, and evaluates our internal controls. Each of
these committees was established in June 1999.
Director Compensation
We do not pay any compensation to directors for serving in that capacity.
Directors are reimbursed for all reasonable expenses incurred by them in
attending board and committee meetings. The board of directors has the
discretion to grant options and rights to directors under our stock plans.
Employee directors are also eligible to participate in our employee stock
purchase plan. See "--Employee Benefit Plans."
Compensation Committee Interlocks and Insider Participation
The compensation committee consists of Messrs. Jarve, McGuire and North,
none of whom is an employee of Digital Insight. None of our executive officers
serves as a director or member of the compensation committee or other board
committee performing equivalent functions of another entity that has one or
more executive officers serving on the board of directors or compensation
committee of Digital Insight.
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<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation
earned during the fiscal year ended December 31, 1998 by our Chief Executive
Officer and each of our other four most highly compensated executive officers
who earned more than $100,000 during the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying All Other
Name and Principal Position(1) Salary Bonus Options Compensation(2)
- ------------------------------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
John Dorman(3)................... $ 56,250 $28,125 690,000 $157
Chairman, Chief Executive
Officer and President
Paul Fiore(4).................... 140,000 20,000 -- 616
Executive Vice President and
Co-Founder
Ole Eichhorn(5).................. 160,000 50,000 -- 631
Former Vice President, Research
& Development
Daniel Jacoby.................... 100,000 12,500 -- 616
Vice President, Chief
Technology Officer and Co-
Founder
Ken Mattice(6)................... 115,000 26,667 -- 624
Controller
</TABLE>
- --------
(1) This table excludes information for Steven Reich, our Vice President,
Sales and Marketing who joined Digital Insight in May 1998. Mr. Reich's
combined salary and bonus during 1998 was $96,634 and his annualized
salary for 1998 was $150,000. Mr. Reich was also granted an option for
115,000 shares during 1998. This table also excludes information for Kevin
McDonnell, our Vice President, Finance, Chief Financial Officer and
Secretary, and Stephen Zarate, our Vice President and Chief Information
Officer, each of whom joined Digital Insight in March 1999. Mr.
McDonnell's annualized salary for 1999 is $165,000 and he has been granted
an option to purchase 115,000 shares. Mr. Zarate's annualized salary for
1999 is $175,000 and he has been granted an option to purchase 286,285
shares. This table also excludes information for Mehariar Hasan, our Vice
President, Product Management, who joined Digital Insight in July 1999.
Mr. Hasan's annualized salary for 1999 is $180,000 and he has been granted
an option to purchase 90,000 shares.
(2) Consists of premiums paid by Digital Insight for term life insurance.
(3) Mr. Dorman joined Digital Insight in October 1998. His annualized salary
for 1998 was $225,000.
(4) Mr. Fiore served as our President from inception until October 1998.
(5) Mr. Eichhorn resigned as an officer effective June 1999. Bonus includes
$20,000 earned in 1997 but paid in 1998.
(6) Mr. Mattice was an executive officer during 1998 when he served as our
Chief Financial Officer. Bonus includes $6,667 earned in 1997 but paid in
1998.
Option Grants in Last Fiscal Year
The following table sets forth stock options and stock purchase rights
granted to each of the named executive officers during the fiscal year ended
December 31, 1998. A total of 996,000 options and stock purchase rights were
granted in fiscal 1998, all under our 1997 Stock Plan. No stock appreciation
rights were granted during fiscal 1998.
Options and stock purchase rights were granted at an exercise price equal to
the fair market value of our common stock, as determined by the board of
directors, on the date of grant. In making this determination, the board
considered a number of factors, including:
. our historical and prospective future revenue and profitability;
. our cash balance and rate of cash consumption;
. the development and size of the market for our products;
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<PAGE>
. the status of our financing activities;
. the stability and tenure of our management team; and
. the breadth of our product offerings.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
reflect Digital Insight's projections or estimates of future stock price
growth.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of % of Total Price
Securities Options/Rights Appreciation for
Underlying Granted to Exercise Option Term
Options/Rights Employees Price Per Expiration -----------------
Name Granted in Fiscal Year Share Date 5% 10%
- ---- -------------- -------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John Dorman............. 115,000 11.5% $1.00 10/13/2008 $ 72,323 $183,280
575,000 57.7 1.00 10/13/2008 361,614 916,402
Paul Fiore.............. -- -- -- -- -- --
Ole Eichhorn............ -- -- -- -- -- --
Daniel Jacoby........... -- -- -- -- -- --
Ken Mattice............. -- -- -- -- -- --
</TABLE>
The 115,000 shares granted to Mr. Dorman were in the form of a stock
purchase right which was fully vested at the time of grant and has
subsequently been exercised. The 575,000 shares granted to Mr. Dorman were in
the form of a stock option which vests as to 25% percent of the shares on
October 13, 1999 and as to 1/48 of the shares each month thereafter.
Option Exercises and Holdings
The following table sets forth for each of the named executive officers
certain information concerning the number of shares subject to both
exercisable and unexercisable stock options at December 31, 1998. Also
reported are values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding stock options and
$1.00, or the fair market value of the common stock as of December 31, 1998,
as determined in good faith by the board of directors. No shares were acquired
by the named executive officers upon exercise of stock options or stock
purchase rights in the fiscal year ended December 31, 1998.
Aggregated Fiscal Year End Option/SPR Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year End Fiscal Year End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John Dorman................. 115,000 575,000 $ -- $ --
Paul Fiore.................. -- -- -- --
Ole Eichhorn................ 27,167 54,333 19,016 38,033
Daniel Jacoby............... -- -- -- --
Ken Mattice................. 12,656 27,844 8,859 19,490
</TABLE>
Employment and Change of Control Agreements
As of December 31, 1998, John Dorman, our Chairman, Chief Executive Officer
and President, had an outstanding option to purchase 575,000 shares of common
stock. Under the terms of Mr. Dorman's option
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<PAGE>
agreement with Digital Insight, 25% of the shares subject to the option vest
on October 13, 1999 and 1/48 of the shares vest at the end of each calendar
month thereafter, provided that 50% of the then unvested portion of the option
shall accelerate and immediately vest if a change in control of Digital
Insight occurs. As of December 31, 1998, no shares were vested under this
option.
As of December 31, 1998, Ken Mattice, our Controller, had an outstanding
option to purchase 40,500 shares of common stock. Under the terms of Mr.
Mattice's option agreement with Digital Insight, all shares subject to the
option shall accelerate and vest in full if Mr. Mattice is involuntarily
terminated, with or without cause. As of December 31, 1998, 27,844 shares were
unvested under this option.
Three of our current officers, Kevin McDonnell, our Vice President, Finance,
Chief Financial Officer and Secretary, Mehariar Hasan, our Vice President,
Product Management, and Stephen Zarate, our Vice President and Chief
Information Officer, were hired in 1999 and have been granted options to
purchase shares of our common stock. Under the terms of each of their option
agreements with Digital Insight, 50% of the then unvested portion of the
options will accelerate and immediately vest if a change in control of Digital
Insight occurs. None of the shares subject to these options are currently
vested.
Employee Benefit Plans
1997 Stock Plan
A total of 3,000,000 shares of common stock have been reserved for issuance
under our 1997 Stock Plan, as amended. Under the 1997 Stock Plan, as of June
30, 1999, options to purchase 1,840,011 shares were outstanding, 867,392
shares of common stock had been purchased following exercises of stock options
and stock purchase rights, or SPRs, and 292,597 shares were available for
future grant. We do not plan to grant any additional options or SPRs under
this plan following this offering.
The 1997 Stock Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code, nonstatutory stock
options and SPRs to our employees, directors and consultants. Nonstatutory
stock options and SPRs may be granted to our employees, directors and
consultants. Incentive stock options may be granted only to employees. The
1997 Stock Plan is administered by the board of directors, or a committee
appointed by the board of directors, which determines the terms of options
granted, including the exercise price and the number of shares subject to each
option. The board of directors also determines the schedule upon which options
become exercisable. Generally, initial options granted to an employee under
the 1997 Stock Plan vest 25% after the first year of employment and monthly
thereafter for 48 months and subsequent grants to an employee vest monthly
over 48 months from the date of grant. The maximum term of options granted
under the 1997 Stock Plan is ten years.
Options and SPRs granted under the 1997 Stock Plan are not transferable by
the optionee except by will or by the laws of descent or distribution, and
each option and SPR is exercisable during the lifetime of the optionee only by
that optionee. Options granted under the 1997 Stock Plan must generally be
exercised within three months after the end of optionee's status as our
employee, director or consultant, or within 12 months after the optionee's
termination by disability or death, to the extent the optionee is vested on
the date of termination. However, an option may not be exercised later than
the expiration of the option's term.
The 1997 Stock Plan provides that if we merge with or into another
corporation, or sell all or substantially all of our assets, each outstanding
option and SPR must be assumed or an equivalent option substituted for by the
successor corporation or a parent or subsidiary of the successor corporation.
If the outstanding options and SPRs are not assumed or substituted for, the
optionee will fully vest in and have the right to exercise the option or SPR
as to all of the optioned stock, including shares as to which it would not
otherwise be exercisable. The administrator shall notify the optionee that the
option or SPR shall be fully exercisable for a period of 15 days from the date
of this notice, and the option or SPR will terminate upon the expiration of
this period. If a dissolution or liquidation is proposed, the board of
directors, or any of its committees, in its discretion may accelerate the
vesting of any outstanding option or SPR before the effective date of the
proposed transaction.
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<PAGE>
1999 Stock Plan
Our 1999 Stock Plan was adopted by the board of directors in June 1999 and
was approved by the stockholders in July 1999. A total of 1,500,000 shares of
common stock, plus annual increases beginning on March 1, 2001, equal to the
lesser of 750,000 shares, 5% of our shares on that date or a lesser amount
determined by the board of directors are currently reserved for issuance under
our 1999 Stock Plan. Unless terminated sooner, the 1999 Stock Plan will
terminate automatically in June 2009.
The 1999 Stock Plan provides for the discretionary grant of incentive stock
options to employees, the grant of nonstatutory stock options and SPRs to
employees, directors and consultants.
The 1999 Stock Plan may be administered by the board of directors or a
committee of the board. The administrator has the power to determine the terms
of the options or SPRs granted, including:
. the exercise price of the option or SPR;
. the number of shares subject to each option or SPR;
. the exercisability thereof; and
. the form of consideration payable upon exercise.
In addition, the administrator has the authority to amend, suspend or
terminate the 1999 Stock Plan, provided that this action shall not impair the
rights of any optionee, unless mutually agreed upon in writing.
The exercise price of all incentive stock options granted under the 1999
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and
SPRs granted under the 1999 Stock Plan is determined by the administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must be at least equal to the fair
market value of the common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal 110% of the fair market value on
the grant date and the term of this incentive stock option must not exceed
five years. The term of all other incentive stock options granted under the
1999 Stock Plan may not exceed ten years.
In the case of SPRs, unless the administrator determines otherwise, the
restricted stock purchase agreement will grant us a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with us for any reason, including death or disability. The purchase
price for shares repurchased under the restricted stock purchase agreement
will be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
will lapse at a rate determined by the administrator.
Options and SPRs granted under the 1999 Stock Plan are generally not
transferable by the optionee, except by will or the laws of descent or
distribution, and are exercisable during the lifetime of the optionee only by
that optionee. Options granted under the 1999 Stock Plan must generally be
exercised within three months after the end of optionee's status as an
employee, director or consultant of our company, or within 12 months after the
optionee's termination by disability or death, but in no event later than the
expiration of the option's term.
The 1999 Stock Plan provides that in the event of a merger of our company
with or into another corporation, or a sale of substantially all of our
assets, each outstanding option and SPR must be assumed or an equivalent
option substituted for by the successor corporation or a parent or subsidiary
of the successor corporation. If the outstanding options and SPRs are not
assumed or substituted for, the optionee will fully vest in and have the right
to exercise the option or SPR as to all of the optioned stock, including
shares as to which it would not otherwise be exercisable. The administrator
shall notify the optionee that the option or SPR shall be fully exercisable
for a period of 15 days from the date of this notice, and the option or SPR
will terminate upon the
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<PAGE>
expiration of this period. In the event of our proposed dissolution or
liquidation, the board of directors, or any of its committees, in its
discretion may accelerate the vesting of any outstanding option or SPR prior
to the effective date of the proposed transaction.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan, or the 1999 Purchase Plan, was
adopted by the board of directors in June 1999 and was approved by the
stockholders in July 1999. A total of 300,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan, plus annual increases
beginning on March 1, 2001, equal to the lesser of 300,000 shares, 2% of the
outstanding shares or a lesser amount determined by the board of directors.
The 1999 Purchase Plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, contains successive, overlapping twenty-four month
offering periods. The offering periods generally start on the first trading
day on or after May 1 and November 1 of each year and end on the last trading
day of that twenty-four month period. Each offering period contains four six-
month purchase periods. The first offering period commences on the effective
date of this offering and ends on the last trading day on or before October
31, 2001.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, the 1999 Purchase Plan excludes
from participation any employee who:
. immediately after the grant, owns stock and/or options to purchase stock
representing 5% or more of the total combined voting power or value of
all classes of our capital stock; or
. has rights to purchase stock under all of our employee stock purchase
plans that accrue at a rate which exceed $25,000 worth of stock for each
calendar year.
The 1999 Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions, but exclusive of payments for overtime shift premium,
incentive compensation, incentive payments, bonus and any other compensation.
The maximum number of shares a participant may purchase during a single
purchase period is 5,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the 1999 Purchase Plan is 85% of the lower of the fair market
value of the common stock at the beginning or end of the offering period. In
the event the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of
the new offering period to determine the purchase price for future purchase
periods. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions credited to
their account without interest. Upon termination of employment a participant
will be deemed to have elected to withdraw from the 1999 Purchase Plan.
Payroll deductions credited to a participant's account and any rights
granted under the 1999 Purchase Plan are not transferable by a participant
other than by will, the laws of descent and distribution, or as otherwise
provided under the 1999 Purchase Plan. The 1999 Purchase Plan provides that,
in the event of our merger with or into another corporation or a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering
period then in progress will be shortened and a new exercise date will be set.
In addition, in the event of a proposed dissolution or liquidation of us the
offering period then in progress will be shortened and a new exercise date
will be set.
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The board of directors has the authority to amend or terminate the 1999
Purchase Plan, except that this action may not make a change in any option
previously granted which may adversely affect the rights of any participant,
provided that the board of directors may terminate an offering period on any
exercise date if the Board determines that the termination of the 1999
Purchase Plan is in our best interests and our stockholders' best interests.
The 1999 Purchase Plan will become effective on the consummation of this
offering and will terminate in ten years, unless sooner terminated by the
board of directors.
401(k) Plan
We maintain a tax-qualified retirement and deferred savings plan for our
employees, commonly known as a 401(k) plan. The 401(k) plan provides that each
participant may contribute up to 20% of his or her pre-tax gross compensation
up to a statutory limit, which was $10,000 in calendar year 1998. Under the
401(k) plan, we may make discretionary matching contributions. We made no
contributions to the 401(k) plan in 1998.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. breach of their duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal or state securities laws and does not affect the availability of
equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and officers, to
the maximum extent permitted by Delaware law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part
of indemnified parties. Our bylaws also permit us to secure insurance on
behalf of any current or former officer, director, employee or other agent of
Digital Insight, or of another enterprise if serving at our request, for any
liability arising out of his or her actions in that capacity, regardless of
whether we would have the power to indemnify him or her against liability
under the provisions of Delaware law.
We have entered into agreements to indemnify our directors and executive
officers, in addition to the indemnification provided for in our bylaws. These
agreements, among other things, indemnify our directors and executive officers
for any and all expenses such as federal, state, local or foreign taxes
imposed on them as a result of the actual or deemed receipt of any payments
under the indemnification agreement, judgments, fines, penalties and amounts
paid in settlement, as long as the settlement is approved in advance by us,
which approval shall not be unreasonably withheld, actually and reasonably
incurred by the officer or director in any action or proceeding, including any
action by or in the right of Digital Insight arising out of a person's
services as a director, officer, employee, agent or fiduciary of Digital
Insight, any subsidiary of Digital Insight or any other company or enterprise
to which the person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
At present, there is no pending litigation or proceeding involving a
director or officer in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for indemnification.
49
<PAGE>
CERTAIN TRANSACTIONS
The following is a description of transactions since January 1, 1996 to
which we have been a party, in which the amount involved in the transaction
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our capital stock had or will have a direct or indirect material
interest other than compensation arrangements which are otherwise described
under "Management."
Reorganization
We were incorporated in March 1997 as the successor to Digital Insight LLC.
As part of the reorganization of our company from a limited liability company
to a corporation, we issued an aggregate of 5,000,000 shares of common stock
and 481,500 shares of Series A preferred stock to the former members of
Digital Insight LLC in consideration for the transfer of all of the tangible
and intangible assets of Digital Insight LLC. During the time that they were
members of the limited liability company, certain of our executive officers
and directors and certain stockholders who own beneficially 5% or more of our
securities loaned funds to Digital Insight LLC. A portion of these loans were
subsequently contributed to the capital of Digital Insight LLC in
consideration for an increase in the lenders' respective membership interests
in the limited liability company. The remaining loans were repaid in March
1997. Listed below are those directors, executive officers and stockholders
who beneficially own 5% or more of our securities who were former members of
Digital Insight LLC and who received shares of our common stock and Series A
preferred stock and/or loaned money to Digital Insight LLC.
<TABLE>
<CAPTION>
Amount
Contributed to
Number of Shares Amount Loaned to Capital of Amount Repaid by
Number of Shares of Series A Digital Insight Digital Digital Insight
Stockholder of Common Stock Preferred Stock LLC Insight LLC LLC
- ----------- ---------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Nasser Kazeminy and
affiliated
entities(1)............ 2,226,750 214,435 $118,221 $118,221 $ --
Paul Fiore.............. 456,050 43,917 -- -- --
Edward Harris........... 791,750 76,245 109,589 67,555 42,034
Daniel Jacoby........... 456,050 43,917 -- -- --
</TABLE>
- --------
(1) Consists of shares purchased by and loans made by Nasser J. Kazeminy, The
Nasser J. Kazeminy Irrevocable Trust and Yvonne P. Kazeminy-Mofrad
Irrevocable Trust. Mr. Kazeminy is co-trustee of the Nasser J. Kazeminy
Irrevocable Trust and Yvonne P. Kazeminy-Mofrad, the wife of Nasser J.
Kazeminy, is the trustee of the Yvonne P. Kazeminy-Mofrad Irrevocable
Trust. Mr. Kazeminy disclaims beneficial ownership of the shares held by
these trusts.
Equity Transactions
In March 1997, we sold an aggregate of 1,111,100 shares of our Series A
preferred stock at a price per share of $2.70 and issued warrants to purchase
up to 763,450 shares of Series B preferred stock. These warrants were
exercisable for an exercise price per share of $3.93 and have since expired
unexercised. In February 1998, we sold an aggregate of 2,305,475 shares of our
Series B preferred stock at a price per share of $3.47. In May 1999, we sold
an aggregate of 844,036 shares of our Series C preferred stock at a price per
share of $10.00. Simultaneously with the consummation of this offering, all
shares of these series of preferred stock will be converted into shares of
common stock. Listed below are those directors, executive officers and
stockholders who beneficially own 5% or more of our securities who
participated in these financings. We believe that the shares issued in these
transactions were sold at the then fair market value and that the terms of
these transactions were no less favorable than we could have obtained from
unaffiliated third parties.
50
<PAGE>
<TABLE>
<CAPTION>
Series A Series B Series C Aggregate
Preferred Preferred Preferred Cash
Stockholder Stock Stock Stock Consideration
- ----------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Entities affiliated with Menlo
Ventures(1)...................... 1,111,100 864,553 400,000 $9,999,969
HarbourVest Partners V-Direct
Fund, L.P........................ -- 1,440,922 101,328 6,013,280
Nasser Kazeminy and affiliated
entities(2)...................... -- -- 171,669 1,716,690
Edward Harris..................... -- -- 61,039 610,390
John Dorman....................... -- -- 40,000 400,000
Stephen Zarate.................... -- -- 30,000 300,000
Paul Fiore........................ -- -- 10,000 100,000
Daniel Jacoby..................... -- -- 10,000 100,000
Kevin McDonnell................... -- -- 10,000 100,000
Steven Reich...................... -- -- 10,000 100,000
</TABLE>
- --------
(1) Consists of shares purchased by Menlo Ventures VII, L.P. and Menlo
Entrepreneurs Fund VII, L.P. John Jarve, a director of Digital Insight, is
a managing member of MV Management VII, LLC, the general partner of Menlo
Ventures VII, L.P. and Menlo Entrepreneurs Fund VII, L.P. Mr. Jarve
disclaims beneficial ownership of the shares held by these funds, except
to the extent of his proportionate pecuniary interest therein.
(2) Consists of shares purchased by Nasser J. Kazeminy, The Nasser J. Kazeminy
Irrevocable Trust and Yvonne P. Kazeminy-Mofrad Irrevocable Trust. Mr.
Kazeminy is trustee of the Nasser J. Kazeminy Irrevocable Trust and Yvonne
P. Kazeminy-Mofrad, the wife of Nasser J. Kazeminy, is the trustee of the
Yvonne P. Kazeminy Irrevocable Trust. Mr. Kazeminy has shared voting and
dispositive authority with a co-trustee for the trust in his name. Mr.
Kazeminy does not hold voting or dispositive authority over the shares
held by the Yvonne P. Kazeminy Irrevocable Trust. Mr. Kazeminy disclaims
beneficial ownership of the shares held by these trusts.
Stock Purchase Rights
In October 1997, Paul Fiore, our Executive Vice President, a director and
co-founder of Digital Insight, exercised a stock purchase right to purchase an
aggregate of 309,250 shares of common stock and entered into a restricted
stock purchase agreement with respect to this exercise. Mr. Fiore paid the
$.30 exercise price per share for these shares by delivery of a full-recourse
promissory note bearing interest at the rate of 7.0% per annum. The note is
secured by the shares of common stock purchased by Mr. Fiore. As of June 30,
1999, $103,900 in unpaid principal and interest was outstanding in the
aggregate under the note.
In October 1997, Daniel Jacoby, our Vice President, Chief Technology Officer
and a co-founder of Digital Insight, exercised a stock purchase right to
purchase an aggregate of 309,250 shares of common stock and entered into a
restricted stock purchase agreement with respect to this exercise. Mr. Jacoby
paid the $.30 exercise price per share for these shares by delivery of a full-
recourse promissory note bearing interest at the rate of 7.0% per annum. The
note is secured by the shares of common stock purchased by Mr. Jacoby. As of
June 30, 1999, $103,900 in unpaid principal and interest was outstanding in
the aggregate under the note.
In February 1999, John Dorman, our Chairman, Chief Executive Officer and
President, exercised a stock purchase right to purchase an aggregate of
115,000 shares of common stock. These shares are fully vested. Mr. Dorman paid
the $1.00 exercise price per share in cash.
Other Transactions
Digital Insight plans to enter into an indemnification agreement with each
of its executive officers and directors.
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of preferred stock. See
"Description of Capital Stock--Registration Rights."
We believe that all related-party transactions described above were on terms
no less favorable than could have been otherwise obtained from unrelated third
parties. All future transactions between us and our principal officers,
directors and affiliates will be approved by a majority of the independent and
disinterested members of the board and will be on terms deemed to be no less
favorable than could be obtained from unrelated third parties.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1999, and as adjusted to
reflect the sale of the shares of common stock offered hereby, certain
information with respect to the beneficial ownership of the common stock as
to:
. each person known by us to own beneficially more than 5% of the
outstanding shares of our common stock,
. each of the executive officers named in the Summary Compensation Table
above,
. each of our directors, and
. all of our directors and executive officers as a group.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named below have sole voting and investment power with
respect to all shares of common stock held by them.
Applicable percentage ownership in the table is based on 10,642,847 shares
of common stock outstanding as of June 30, 1999 and 14,142,847 shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Shares of common stock subject to options that are
presently exercisable or exercisable within 60 days of June 30, 1999 are
deemed outstanding for the purpose of computing the percentage ownership of
the person or entity holding the options, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person or
entity.
Unless otherwise indicated below, each person or entity named below has an
address in care of Digital Insight's principal executive offices.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Nasser J. Kazeminy and
affiliated entities(1).... 3,046,105 28.6% 21.5%
Entities affiliated with
Menlo Ventures(2)......... 2,375,653 22.3 16.8
HarbourVest Partners V-
Direct Fund, L.P.(3)...... 1,542,250 14.5 10.9
Edward Harris.............. 929,034 8.7 6.6
Paul Fiore(4).............. 759,217 7.1 5.4
Daniel Jacoby(5)........... 759,217 7.1 5.4
Directors and Named Executive
Officers:
John Dorman................ 155,000 1.5 1.1
Ole Eichhorn(6)............ 74,100 * *
Ken Mattice(7)............. 19,406 * *
John Jarve(2).............. 2,375,653 22.3 16.8
Nader Kazeminy(8).......... -- -- --
James McGuire.............. 88,149 * *
Ofer Nemirovsky(3)......... 1,542,250 14.5 10.9
Robert North(9)............ 21,937 * *
All directors and officers
as a group
(14 persons)(10).......... 5,880,866 54.9% 41.4%
</TABLE>
- --------
* Less than 1%
52
<PAGE>
(1) The address of record for Nasser J. Kazeminy and affiliated entities is
c/o NJK Holdings Corp., 7803 Glenroy Rd., Suite 300, Bloomington, MN
55439. Number of shares consists of (i) 1,553,162 shares held by Nasser
J. Kazeminy, (ii) 529,846 shares held by The Nasser J. Kazeminy
Irrevocable Trust and (iii) 529,846 shares held by the Yvonne P.
Kazeminy-Mofrad Irrevocable Trust. Mr. Kazeminy is trustee of the Nasser
J. Kazeminy Irrevocable Trust and Yvonne P. Kazeminy-Mofrad, the wife of
Nasser Kazeminy, is trustee of the Yvonne P. Kazeminy Irrevocable Trust.
Mr. Kazeminy has shared voting and dispositive authority with a co-
Trustee for the trust in his name. Mr Kazeminy does not hold authority
over the Yvonne P. Kazeminy Irrevocable Trust. Mr. Kazeminy disclaims
beneficial ownership of the shares held by these trusts.
(2) The address of record for each entity affiliated with Menlo Ventures is
3000 Sand Hill Road, Building 4, Suite 100, Menlo Park, CA 94025. Number
of shares consists of 2,276,836 shares held by Menlo Ventures VII, L.P.,
and 98,817 shares held by Menlo Entrepreneurs Fund VII, L.P. John Jarve,
a director of Digital Insight, is a managing member of MV Management VII,
LLC, the general partner of Menlo Ventures VII, L.P. and Menlo
Entrepreneurs Fund VII, L.P. Along with the other six managing members of
MV Management VII, LLC, Mr. Jarve has shared voting and dispositive
authority over the shares held by Menlo Ventures and its affiliates. Mr.
Jarve and the other managing members disclaim beneficial ownership of the
shares held by these entities except to the extent of their proportionate
pecuniary interests therein.
(3) The address of record for HarbourVest Partners V-Direct Fund, L.P. is One
Financial Center, 44th Floor, Boston, MA 02111. Ofer Nemirovsky, a
director of Digital Insight, is a member of HVP V-Direct Associates
L.L.C., a general partner of HarbourVest Partners V-Direct Fund L.P. and
a managing director of HarbourVest Partners, LLC the manager of
HarbourVest Partners V-Direct Fund L.P. Mr. Nemirovsky does not hold
voting or dispositive authority over the shares held by HarbourVest and
its affiliates. Voting and dispositive authority is held by an investment
committee consisting of two managing directors of HarbourVest Partners,
LLC. Mr. Nemirovsky disclaims beneficial ownership of these shares except
to the extent of his proportionate pecuniary interest therein.
(4) Number of shares includes 309,250 shares of common stock issued upon
exercise of a stock purchase right, 154,625 shares of which are subject
to a repurchase option held by Digital Insight as of June 30, 1999.
(5) Number of shares includes 309,250 shares of common stock issued upon
exercise of a stock purchase right, 154,625 shares of which are subject
to a repurchase option held by Digital Insight as of June 30, 1999.
(6) Number of shares includes 40,750 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999. Mr.
Eichhorn resigned as an officer effective June 1999.
(7) Number of shares includes 3,375 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(8) Excludes 3,046,105 shares held by Nasser Kazeminy and affiliated
entities. Mr. Nader Kazeminy is the adult son of Mr. Nasser Kazeminy.
(9) Number of shares consists of 21,937 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(10) Number of shares consists of shares beneficially owned by our current
officers and directors as well as 19,406 shares beneficially owned by Ken
Mattice, our Controller and former Chief Financial Officer, and 74,100
shares beneficially owned by Ole Eichhorn, our former Vice President of
Research and Development. In addition, of the 5,880,866 shares listed,
73,249 shares are issuable upon exercise of options held by our officers
and directors exercisable within 60 days of June 30, 1999, 1,542,250
shares are held by HarbourVest Partners V-Direct Fund, L.P. (see footnote
3 above) and 2,375,653 shares are held by entities affiliated with Menlo
Ventures (see footnote 2 above).
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.001 par value per share, and
5,000,000 shares of preferred stock, $.001 par value per share.
The following summary does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of our restated certificate of
incorporation, which is included as an exhibit to the registration statement
of which this prospectus is a part, and by the provisions of applicable law.
Common Stock
As of June 30, 1999, there were 10,642,847 shares of common stock
outstanding held of record by 52 stockholders, assuming the conversion of all
outstanding shares of preferred stock into common stock. After giving effect
to the sale of common stock offered hereby, there will be 14,142,847 shares of
common stock outstanding.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of common
stock have no preemptive rights or rights to convert their common stock into
any other securities. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable, and the shares of common stock to be issued
upon completion of this offering will be fully paid and non-assessable.
Preferred Stock
Under our restated certificate of incorporation, the board of directors has
the authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges and relative participating,
optional or special rights and the qualifications, limitations or restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater
than the rights of the common stock. The board, without stockholder approval,
can issue preferred stock with voting, conversion or other rights that could
adversely affect the voting power and other rights of the holders of common
stock. Preferred stock could thus be issued quickly with terms calculated to
delay or prevent a change in control of Digital Insight or make removal of
management more difficult. Additionally, the issuance of preferred stock may
have the effect of decreasing the market price of the common stock, and may
adversely affect the voting and other rights of the holders of common stock.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding and we have no plans to issue any of the preferred stock.
Warrants
Upon completion of the offering, we will have (i) a warrant outstanding to
purchase 28,819 shares of common stock at an exercise price of $3.47 per share
which expires in February 2006, and (ii) a warrant outstanding to purchase
22,222 shares of common stock at an exercise price of $2.70 per share which
expires on the earlier of January 2002 or two years from the closing of this
offering. In lieu of exercising the warrants for cash, the holders of the
warrants can elect a cashless exercise. The holders of the warrants are
entitled to registration rights with respect to the shares issued under the
warrants.
Registration Rights
Upon completion of this offering, the holders of an aggregate of 10,397,705
shares of common stock will be entitled to rights with respect to the
registration of shares under the Securities Act. In addition, the holders of
51,041 shares subject to outstanding warrants are entitled to registration
rights. Under the terms of an investor rights agreement, if we propose to
register any of our securities under the Securities Act, either for our own
account or for the account of other security holders exercising registration
rights, these holders are entitled to notice of this registration and are
entitled to include their shares of common stock in the registration. The
rights are subject to conditions and limitations, among them the right of the
underwriters to limit the number of shares
54
<PAGE>
included in the registration. Holders of common stock benefiting from these
rights may also require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock,
and we are required to use our best efforts to effect this registration,
subject to conditions and limitations. Furthermore, the holders of
registration rights may require us to file additional registration statements
on Form S-3, subject to certain conditions and limitations.
Delaware Anti-Takeover Law and Certain Charter and Bylaws Provisions
Provisions of our charter and bylaws may make it more difficult for a third
party to acquire, or may discourage a third party from attempting to acquire,
control of us. These provisions could limit the price that investors might be
willing to pay in the future for shares of our common stock. These provisions
include:
. division of the board of directors into three separate classes;
. elimination of cumulative voting in the election of directors;
. prohibitions on our stockholders from acting by written consent and
calling special meetings;
. procedures for advance notification of stockholder nominations and
proposals; and
. the ability of the board of directors to alter our bylaws without
stockholder approval.
In addition, subject to limitations prescribed by law, our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
and to determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The issuance of preferred stock, while providing flexibility
in connection with possible financings or acquisitions or other corporate
purposes, could have the effect of making it more difficult for a third party
to acquire a majority of our outstanding voting stock.
These and other provisions contained in our charter and bylaws could have
the effect of delaying or preventing a change in control.
We are also subject to Section 203 of the Delaware General Corporation Law
which, subject to exceptions, prohibits a Delaware corporation from engaging
in any business combination with any interested stockholder for a period of
three years following the date that a stockholder became an interested
stockholder, unless:
. prior to that date, the board of directors approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder; or
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock outstanding at the time the transaction
commenced; or
. on or following that date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested
stockholder.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is BankBoston, N.A.
BankBoston, N.A.'s address is 150 Royall Street, Canton, Massachusetts 02021,
and its telephone number is (781) 575-2000.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock
and any sale of substantial amounts of common stock in the open market may
adversely affect the market price of our common stock. Furthermore, since only
a limited number of shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale (as described
below), sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market
price and our ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding 14,142,847 shares
of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of options after June 30, 1999. Of these shares, the
3,500,000 shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act; provided
however, that if shares are purchased by "affiliates" as that term is defined
in Rule 144 of the Securities Act, their sales of shares would be subject to
certain limitations and restrictions that are described below.
The remaining 10,642,847 shares of common stock held by existing
stockholders as of June 30, 1999 were issued and sold by us in reliance on
exemptions from the registration requirements of the Securities Act. These
shares of common stock are limited by restrictions under securities laws and
lock-up agreements applicable to these shares and will be eligible for sale in
the public market as follows:
<TABLE>
<CAPTION>
First Eligible Date Number
------------------- ---------
<S> <C>
180 days after the date of this prospectus......................... 9,277,411
May 25, 2000....................................................... 521,400
May 26, 2000....................................................... 844,036
</TABLE>
In addition, as of June 30, 1999 we had 1,840,011 shares subject to
outstanding options and 1,792,597 shares of our common stock available for
future grant pursuant to our stock plans. All of these outstanding options are
also subject to the 180-day lock-up. We intend to register, prior to the
expiration of the lock-up, all of the shares of common stock subject to
outstanding options and reserved for issuance under our stock option plans and
an additional 300,000 shares of common stock reserved for issuance under our
employee stock purchase plan. This registration will permit the resale of
vested shares by non-affiliates in the public market without restriction
beginning on expiration of the lock-up. We also have 51,041 shares underlying
outstanding warrants, also subject to lock-ups, that will be eligible for
resale in the public market upon expiration of the warrant holder's respective
one-year holding periods under Rule 144, which will begin upon the date of
exercise or, in the case of a net exercise, on the date of grant of the
warrant.
Each of our officers, directors and substantially all other stockholders
have agreed with Morgan Stanley & Co. Incorporated not to sell or otherwise
dispose of any their shares for a period of 180 days after the date of this
prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time and without notice, release all or any portion of the
shares subject to its lock-up agreements.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 141,428 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market System during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to other requirements regarding the
manner of sale, notice filing and the availability of current public
information about us.
56
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, would be entitled to
sell these shares under Rule 144(k) without regard to the requirements
described above. Therefore, unless otherwise restricted, "144(k) shares" may
be sold immediately upon the completion of this offering.
Rule 701
In general, any employee, director, officer, consultant or advisor who
purchases shares from us in connection with a compensatory stock or option
plan or other written agreement before the effective date of the offering is
entitled to resell these shares 90 days after the effective date of the
offering in reliance on Rule 144, without having to comply with certain
restrictions, including the holding period, contained in Rule 144.
The SEC has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements
of the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of these options, including exercises after the date of this
prospectus. Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this prospectus, may be sold by persons
other than "affiliates" subject only to the manner of sale restrictions of
Rule 144 and by "affiliates" under Rule 144 without compliance with its one-
year minimum holding requirement.
57
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Deutsche Bank Securities Inc., Banc of
America Securities LLC and Friedman, Billings, Ramsey & Co., Inc. are acting
as representatives, have severally agreed to purchase, and we have agreed to
sell to them the respective number of shares of common stock set forth
opposite the names of the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
Deutsche Bank Securities Inc.......................................
Banc of America Securities LLC.....................................
Friedman, Billings, Ramsey & Co., Inc. ............................
Total............................................................
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to other conditions.
The underwriters are obligated to take and pay for all of the shares of common
stock offered by this prospectus, other than those covered by the over-
allotment option described below, if any of these shares are taken. Discover
Brokerage Direct, Inc., an affiliate of Morgan Stanley & Co. Incorporated, is
acting as a selected dealer in connection with the offering and will be a
distributor of shares of common stock over the Internet to its eligible
account holders.
The underwriting agreement provides that the underwriters will severally
agree to purchase shares of common stock from Digital Insight at $ per
share and propose to make a public offering of those shares at the initial
public offering price set forth on the cover of this prospectus. If the shares
are sold at the initial public offering price, the underwriters will receive a
fee, referred to as the underwriting fee, of $ per share. The underwriting
fee is expected to be 7% of the initial public offering price.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriters may allow, and any of these dealers may
reallow, a concession not in excess of $ per share to other underwriters
or to certain other dealers. After the initial offering of the shares of
common stock, the offering price and other selling terms may from time to time
be varied by the representatives of the underwriters.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to an aggregate of additional shares of common stock at
the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise this
option solely for the purpose of covering over-allotments, if any, made in
connection with this offering of common stock. To the extent this over-
allotment option is exercised, each underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of
additional shares of common stock as the number set forth next to that
underwriter's name in the preceding table bears to the total number of shares
of common stock set forth next to the names of all underwriters in the
preceding table.
At our request, the underwriters have reserved ten percent of the shares of
common stock to be issued by us and offered hereby for sale, at the initial
public offering price, to directors, officers, employees, business associates
and related persons of us. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
58
<PAGE>
Each of the directors and officers, and certain other stockholders and
optionholders of Digital Insight have each agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, during the period ending 180 days after the date of this
prospectus, they will not, directly or indirectly:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock,
whether any transaction described above is to be settled by delivery of common
stock or these other securities, in cash or otherwise.
The restrictions described above do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement,
. the issuance by Digital Insight of shares of common stock upon exercise
of an option or a warrant or the conversion of a security outstanding on
the date of this prospectus which is described in this prospectus,
. transactions by any person other than Digital Insight relating to shares
of common stock or other securities acquired in open market transactions
after the completion of the offering of the shares, or
. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of this prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied to have our common stock listed for quotation on the Nasdaq
National Market under the symbol "DGIN."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
Pricing of the Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for the shares of
common stock was determined by negotiations between us and the representatives
of the underwriters. Among the factors considered in determining the initial
public offering price were our record of operations, our current financial
position and future prospects, the future prospects of Digital Insight's
industry in general, the experience of our management, sales, earnings and
certain of our other financial and operating information in recent periods,
the price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to ours.
59
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Digital Insight by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Menlo Park, California.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus and the financial statement schedules included in the Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
exhibits, schedules and amendments filed with this registration statement,
under the Securities Act with respect to the common stock to be sold under
this prospectus. Prior to the offering we were not required to file reports
with the SEC. This prospectus does not contain all the information set forth
in the registration statement. For further information about our company and
the shares of common stock to be sold in the offering, please refer to the
registration statement. Statements made in this prospectus concerning the
contents of any contract, agreement or other document filed as an exhibit to
the registration statement are summaries of the terms of contract, agreements
or documents and are not necessarily complete. Complete exhibits have been
filed with the registration statement.
The registration statement and exhibits may be inspected, without charge,
and copies may be obtained at prescribed rates, at the SEC's Public Reference
facility maintained by the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The registration
statement and other information filed with the SEC is available at the web
site maintained by the SEC on the worldwide web at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
financial statements.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations .................................................. F-4
Statement of Stockholders' Deficit ........................................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Digital Insight Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Digital Insight Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
February 12, 1999, except as to note 12,
which is as of May 28, 1999
F-2
<PAGE>
DIGITAL INSIGHT CORPORATION
BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
Pro Forma
December 31, Stockholders'
-------------- June 30, Equity at
1997 1998 1999 June 30, 1999
------ ------ -------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 886 $4,758 $10,753
Accounts receivable, net............... 766 356 969
Tax refund receivable.................. 73 73 73
Accumulated implementation costs....... 71 135 164
Other current assets................... 45 80 360
------ ------ -------
Total current assets.................. 1,841 5,402 12,319
Property and equipment, net............. 789 2,353 3,776
Deposits................................ 240 240 169
Intangible assets, net.................. 201 53 8
Other assets............................ -- 29 126
------ ------ -------
$3,071 $8,077 $16,398
====== ====== =======
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Accounts payable....................... $ 587 $ 214 $ 845
Accrued compensation and related
benefits.............................. 91 542 984
Current portion of lease obligation.... 41 71 369
Deferred revenue....................... 785 1,036 1,549
Other accruals......................... 353 472 858
------ ------ -------
Total current liabilities............. 1,857 2,335 4,605
Long-term portion of lease obligation... 92 82 564
------ ------ -------
1,949 2,417 5,169
Commitments and contingencies (Note 11)
Mandatorily redeemable convertible
preferred stock:
$.001 par value; 2,431,616, 3,973,641,
and 4,846,496 shares authorized;
1,645,944, 3,951,419, and 4,775,455
(unaudited) shares issued and
outstanding; no shares pro forma
(unaudited)........................... 4,444 12,444 20,847 --
Stockholders' equity (deficit):
Common stock; $.001 par value,
16,250,000 shares authorized;
5,618,500, 5,621,156, and 5,867,392
(unaudited) shares issued and
outstanding; 10,642,847 shares issued
and outstanding pro forma
(unaudited)........................... 6 6 6 11
Additional paid-in-capital............. 1,994 3,977 6,056 26,898
Notes receivable from stockholders..... (186) (201) (208) (208)
Deferred stock-based compensation...... (1,658) (2,732) (3,937) (3,937)
Accumulated deficit.................... (3,478) (7,834) (11,535) (11,535)
------ ------ ------- -------
Total stockholders' equity (deficit).. (3,322) (6,784) (9,618) $11,229
------ ------ ------- =======
$3,071 $8,077 $16,398
====== ====== =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DIGITAL INSIGHT CORPORATION
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Implementation fees... $ 1,053 $ 1,926 $ 2,420 $ 1,260 $ 1,666
Service fees.......... 508 2,046 5,810 2,237 5,426
--------- --------- --------- --------- ---------
Total revenues...... 1,561 3,972 8,230 3,497 7,092
--------- --------- --------- --------- ---------
Cost of revenues:
Implementation........ 643 1,217 1,631 695 1,241
Service............... 261 1,014 3,616 1,355 3,502
--------- --------- --------- --------- ---------
Total cost of
revenues........... 904 2,231 5,247 2,050 4,743
--------- --------- --------- --------- ---------
Gross profit............ 657 1,741 2,983 1,447 2,349
--------- --------- --------- --------- ---------
Operating expenses:
Sales, general and
administrative....... 809 2,516 4,183 1,774 3,609
Research and
development.......... 565 1,612 2,555 1,178 1,794
Amortization of stock-
based compensation... -- 151 844 248 563
--------- --------- --------- --------- ---------
Total operating
expenses........... 1,374 4,279 7,582 3,200 5,966
--------- --------- --------- --------- ---------
Loss from operations.... (717) (2,538) (4,599) (1,753) (3,617)
Interest income......... -- 89 262 122 102
Other income (expense),
net.................... 5 (3) (19) (12) (40)
--------- --------- --------- --------- ---------
Net loss................ $ (712) $ (2,452) $ (4,356) $ (1,643) $ (3,555)
========= ========= ========= ========= =========
Basic and diluted net
loss per share......... $ (.14) $ (.49) $ (.85) $ (.33) $ (.66)
========= ========= ========= ========= =========
Shares used to compute
basic and diluted net
loss per share......... 5,000,000 5,000,000 5,108,444 5,017,940 5,414,865
========= ========= ========= ========= =========
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (.50) $ (.37)
========= =========
Shares used to compute
pro forma basic and
diluted net loss per
share (unaudited)...... 8,712,463 9,534,048
========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
DIGITAL INSIGHT CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
(in thousands except share data)
<TABLE>
<CAPTION>
Common Stock
----------------
Additional Stockholders' Deferred Total
Members' Paid-In Notes Stock-Based Accumulated Stockholders'
Capital Shares Amount Capital Receivable Compensation Deficit Deficit
-------- --------- ------ ---------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ (11) -- $-- $ -- $ -- $ -- $ -- $ --
Contribution of
capital................ 750 -- -- -- -- -- -- --
Net loss................ (712) -- -- -- -- -- -- --
-----
Balance at December 31,
1996................... 27 -- -- -- -- -- -- --
Contribution of
capital................ 192 -- -- -- -- -- -- --
Distribution............ (50) -- -- -- -- -- -- --
LLC loss from January 1,
1997 through March 17,
1997................... (23) -- -- -- -- -- -- --
Conversion of members'
capital to Series A
preferred and common
stock.................. (146) 5,000,000 5 -- -- -- (1,049) (1,044)
Stock options exercised
with note receivable... -- 618,500 1 185 (186) -- -- --
Deferred stock-based
compensation........... -- -- -- 1,809 -- (1,809) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 151 -- 151
Net loss................ -- -- -- -- -- -- (2,429) (2,429)
----- --------- ---- ------ ----- ------- -------- -------
Balance at December 31,
1997................... -- 5,618,500 6 1,994 (186) (1,658) (3,478) (3,322)
Interest on stockholder
notes.................. -- -- -- -- (15) -- -- (15)
Stock options
exercised.............. -- 2,656 -- 1 -- -- -- 1
Warrants to purchase
Series A preferred
stock.................. -- -- -- 64 -- -- -- 64
Deferred stock-based
compensation........... -- -- -- 1,918 -- (1,918) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 844 -- 844
Net loss................ -- -- -- -- -- -- (4,356) (4,356)
----- --------- ---- ------ ----- ------- -------- -------
Balance at December 31,
1998................... -- 5,621,156 6 3,977 (201) (2,732) (7,834) (6,784)
Interest on stockholder
notes (unaudited)...... -- -- -- (7) -- -- (7)
Stock options exercised
(unaudited)............ -- 246,236 -- 164 -- -- -- 164
Warrants to purchase
Series B preferred
stock (unaudited)...... -- -- -- 147 -- -- -- 147
Repurchase of Series A
preferred stock
(unaudited)............ -- -- -- -- -- -- (146) (146)
Deferred stock-based
compensation
(unaudited)............ -- -- -- 1,768 -- (1,768) -- --
Amortization of deferred
stock-based
compensation
(unaudited)............ -- -- -- -- -- 563 -- 563
Net loss (unaudited).... -- -- -- -- -- -- (3,555) (3,555)
----- --------- ---- ------ ----- ------- -------- -------
Balance at June 30, 1999
(unaudited)............ $ -- 5,867,392 $ 6 $6,056 $(208) $(3,937) $(11,535) $(9,618)
===== ========= ==== ====== ===== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DIGITAL INSIGHT CORPORATION
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended June 30,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(712) $(2,452) $(4,356) $(1,643) $(3,555)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization..... 59 166 587 307 488
Amortization of debt issuance
cost............................. -- -- 20 8 26
Amortization of deferred stock-
based compensation............... -- 151 844 249 563
Interest income on stockholder
notes............................ -- -- (15) (7) (7)
Net loss from sale of property and
equipment........................ -- -- 33 -- --
Changes in operating assets and
liabilities:
Accounts receivable.............. (50) (654) 410 360 (613)
Tax refund receivable............ -- (73) -- -- --
Accumulated implementation
costs........................... (28) (43) (64) (27) (29)
Other assets..................... (6) (36) (18) (27) (256)
Deposits......................... -- (240) -- (36) 71
Accounts payable................. (38) 582 (373) 46 631
Accrued compensation and related
benefits........................ 72 12 451 28 386
Deferred revenue................. 232 779 251 (74) 442
Other accruals................... 3 341 119 8 513
----- ------- ------- ------- -------
Net cash used in operating
activities....................... (468) (1,467) (2,111) (808) (1,340)
----- ------- ------- ------- -------
Cash flows used in investing
activities:
Proceeds from sale of assets...... -- -- 29 -- --
Acquisition of property and
equipment........................ (254) (488) (1,774) (1,254) (970)
Acquisition of customer base...... -- (280) -- -- --
----- ------- ------- ------- -------
Net cash used in investing
activities....................... (254) (768) (1,745) (1,254) (970)
----- ------- ------- ------- -------
Cash flows provided by financing
activities:
Principal payments on lease
obligations...................... -- -- (273) (157) (116)
Distribution...................... -- (50) -- -- --
Contribution of capital........... 750 -- -- -- --
Issuance of common stock.......... -- -- 1 -- --
Proceeds from exercise of stock
options.......................... -- -- -- -- 164
Proceeds from issuance of Series A
preferred stock.................. -- 3,143 -- -- --
Proceeds from issuance of Series B
preferred stock.................. -- -- 8,000 8,000 --
Proceeds from issuance of Series C
preferred stock.................. -- -- -- -- 8,403
Repurchase of Series A preferred
stock............................ -- -- -- -- (146)
----- ------- ------- ------- -------
Net cash provided by financing
activities....................... 750 3,093 7,728 7,843 8,305
----- ------- ------- ------- -------
Net increase in cash................ 28 858 3,872 5,781 5,995
----- ------- ------- ------- -------
Cash and cash equivalents, beginning
of period.......................... -- 28 886 886 4,758
----- ------- ------- ------- -------
Cash and cash equivalents, end of
period............................. $ 28 $ 886 $ 4,758 $ 6,667 $10,753
===== ======= ======= ======= =======
Supplementary disclosures of cash
flow information:
Cash paid during the year for
interest......................... $ -- $ -- $ 12 $ 3 $ 20
Non-cash financing activities:
Capital lease obligations
incurred......................... -- 133 293 -- 896
Series A warrants issued in
conjunction with capital lease... -- -- 64 64 --
Series B warrants issued in
conjunction with capital lease... -- -- -- -- 147
Conversion of members' capital to
Series A
preferred and common stock....... -- 1,305 -- -- --
Notes receivable from
stockholders..................... -- 186 -- -- --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary Significant Accounting Policies
The Company
Digital Insight Corporation (the "Company"), incorporated in March 1997,
provides real time Internet banking services to credit unions, small to mid-
sized banks and savings and loans. Its Internet banking services include home
banking for individual customers, business banking for commercial customers, a
target marketing program to increase financial services to end users, and
customized web site design and implementation services. Substantially all of
the Company's revenues are derived from these services.
The Company originally operated as Digital Insight LLC, a Minnesota limited
liability company, which was formed in July 1995. On March 18, 1997, all
members of Digital Insight LLC, converted their members' capital balances to
shares of Series A mandatorily redeemable convertible preferred and common
stock of Digital Insight Corporation, a Delaware corporation, in accordance
with the Member Control Agreement (Note 6).
Cash and cash equivalents
Cash and cash equivalents consist of cash, money market funds, and other
highly liquid investments with maturities of three months or less at the date
of original purchase. The carrying value of these instruments approximates
fair value.
Property and equipment
Property and equipment are stated at cost, less accumulated depreciation.
Assets held under capital leases are recorded at the present value of the
minimum lease payments at lease inception. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to five years.
Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Revenue recognition
Recurring fees are recognized as services are provided, and relate to the
number of end-users or end-user transactions and for hosting and maintaining
web sites. One-time implementation fees consist of salaries for implementation
personnel and fees for third parties, including bill payment and data
processing vendors. These fees are recognized upon completion of
implementation and customer approval. Implementation generally occurs over a
two to four month period. Costs and related revenues are deferred on the
balance sheet until that time. Accumulated implementation costs consist
primarily of salaries for implementation personnel in advance of related
billings. Losses on implementation, if any, are recognized in the period when
such losses are identified.
Income taxes
The Company accounts for income taxes under the liability method. Deferred
income tax assets are provided for as temporary differences between financial
and income tax reporting. The Company has not recorded any deferred tax assets
or liabilities prior to the recapitalization, since Digital Insight LLC was a
limited liability company treated as a partnership for federal and Minnesota
income tax purposes. As a result, prior to March 18, 1997, federal and
Minnesota income tax attributes passed to the Digital Insight LLC members.
Stock-based compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans based on
the fair market value of options granted. The Company has chosen to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles
F-7
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation for stock options is measured as
the excess, if any, of the fair market value of the Company's stock price at
the date of grant as determined by the Board of Directors over the amount an
employee must pay to acquire the stock.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and SEC Staff Accounting Bulletin No. 98 ("SAB 98").
Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss
per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average number of shares of common
stock outstanding during the period. Shares of common stock issued in
connection with the conversion of members' capital (Note 6) have been
considered outstanding for all periods presented. The calculation of diluted
net loss per share excludes potential common shares if the effect is
antidilutive. Potential common shares are composed of common stock subject to
repurchase rights and incremental shares of common stock issuable upon the
exercise of stock options and warrants and upon conversion of Series A and B
mandatorily redeemable convertible preferred stock.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
98, common shares issued in each of the periods presented for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No such shares have been
issued.
The following table sets forth the computation of basic and dilutive net
loss per share for the years indicated (in thousands, except share and per
share data):
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1998
---------- ----------
<S> <C> <C>
Net loss........................................... $ (2,452) $ (4,356)
========== ==========
Weighted average shares.......................... 5,000,000 5,348,183
Weighted average unvested common shares subject
to repurchase................................... -- (239,739)
---------- ----------
Denominator for basic and diluted calculation...... 5,000,000 5,108,444
========== ==========
Net loss per share:
Basic and diluted................................ $ (.49) $ (.85)
========== ==========
</TABLE>
The following table sets forth common stock equivalents that are not
included in the diluted net loss per share calculation above because to do so
would be antidilutive for the periods indicated:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1998
--------- ---------
<S> <C> <C>
Weighted average effect of common stock equivalents:
Series A mandatorily redeemable convertible preferred
stock............................................... 1,307,736 1,645,944
Series B mandatorily redeemable convertible preferred
stock............................................... -- 1,958,075
Warrants............................................. -- 21,065
Unvested common shares subject to repurchase......... -- 239,739
Employee stock options............................... 439,923 1,086,292
--------- ---------
1,747,658 4,951,115
========= =========
</TABLE>
F-8
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1998 and the
six months ended June 30, 1999 is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's mandatorily redeemable convertible Series A,
Series B, and Series C mandatorily convertible preferred stock into shares of
the Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1998, or at date
of original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic net loss per
share of 3,604,019 and 4,119,183 for the year ended December 31, 1998 and the
six months ended June 30, 1999, respectively. Pro forma diluted net loss per
share is computed using the pro forma weighted average number of common and
common equivalent shares outstanding. Pro forma common equivalent shares,
composed of common stock subject to repurchase and incremental common shares
issuable upon the exercise of stock options and warrants, are excluded from
diluted net loss per share as they are antidilutive.
Pro forma stockholder's equity (unaudited)
Effective upon the closing of this Offering, the outstanding shares of
mandatorily redeemable convertible preferred stock will automatically convert
into 4,775,455 shares of common stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro
forma balance sheet at June 30, 1999.
Interim financial information (unaudited)
The accompanying interim financial statements as of June 30, 1999 and for
the six months ended June 30, 1998 and 1999 are unaudited. In the opinion of
management, the unaudited interim financial statements have been prepared on
the same basis as the annual audited financial statements and reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's financial position as of June 30, 1999 and its
results of operations and its cash flows for the six months ended June 30,
1998 and 1999. The results for the six months ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.
Intangible assets
Intangible assets include a non-compete agreement and an acquired customer
base. The non-compete agreement is being amortized over the term of the
agreement, which is two years. The acquired customer base is being amortized
over one year. All intangibles are amortized using the straight-line method.
Long-lived assets
In 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of." The statement
requires the recognition of an impairment loss on a long-lived asset including
the customer base held for use when events and circumstances indicate that the
estimate of undiscounted future cash flows expected to be generated by the
asset are less than its carrying amount.
Fair value of financial instruments
The Company's financial instruments include cash, accounts receivable,
accumulated implementation costs, deposits and other assets, accounts payable,
accrued and other current liabilities. The carrying value of these
F-9
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
financial instruments approximates fair value due to their short-term nature.
The mandatorily redeemable convertible preferred stock is carried at its
respective redemption price as such stock is not traded in the open market and
a market price is not readily available.
Concentration of credit risk
The market for Internet banking in the United States, in which the Company
operates, is characterized by rapid technological developments, frequent new
product introductions and changes in end user requirements. The Company's
future success will depend on its ability to develop, introduce and market
enhancements to its existing products and services, to introduce new products
and services in a timely manner which meet customer requirements and to
respond to competitive pressures and technological advances. Further, the
emergence of new industry standards, whether through adoption by official
standards committees or widespread use by financial institutions or other
financial institution data processing vendors, could require the Company to
redesign its products and services.
During the years ended December 31, 1996, 1997 and 1998, and the six months
ended June 30, 1999 (unaudited), no customer accounted for more than 10% of
net revenues or net accounts receivable.
The Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when deemed necessary, but
generally does not require collateral. Management believes that any risk of
loss is significantly reduced due to the number of its customers and
geographic sales areas. The Company maintains a provision for potential credit
losses, and write-offs of accounts receivable were insignificant during the
years ended December 31, 1996, 1997 and 1998, and for the six months ended
June 30, 1999.
The Company from time to time maintains a substantial portion of its cash
and cash equivalents in money market accounts with one financial institution.
The Company has not experienced any significant losses on its cash
equivalents.
New accounting standards
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement, which was adopted effective
January 1, 1998, did not have a significant impact on the financial
statements.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
The Company operates in one business segment: developing, marketing,
implementing and supporting Internet banking solutions for community financial
institutions throughout the United States. The Company identifies its
operating segments based on business activities, management responsibility and
geographical location. During the years ended December 31, 1996, 1997 and
1998, the Company operated in a single business segment providing Internet
banking services to credit unions, small to mid-sized banks and savings and
loans, primarily in the United States.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective
for financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company will adopt the provisions of SOP 98-1
in its fiscal year ending December 31, 1999, and does not expect such adoption
to have a material effect on the Company's financial statements.
F-10
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. Related Party Transactions
The Company paid royalties totaling $0, $37,000 and $162,000 during 1996,
1997 and 1998, respectively, to a business partner who is also a stockholder.
The Company paid $60,000, $169,000 and $0 in 1996, 1997 and 1998,
respectively, to a business partner, who is also a stockholder, for employee
medical benefits coverage under the affiliates plan, accounting services,
payroll and related expenses, and rent.
3. Property and Equipment
Property and equipment includes the following (in thousands):
<TABLE>
<CAPTION>
December 31, June 30,
-------------- -----------
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Leasehold improvements............................. $ -- $ 282 $ 299
Data processing equipment.......................... 849 2,128 3,903
Furniture and fixtures............................. 186 597 673
------ ------ -------
1,035 3,007 4,875
Less accumulated depreciation and amortization..... (246) (654) (1,099)
------ ------ -------
$ 789 $2,353 $ 3,776
====== ====== =======
</TABLE>
Assets acquired under capitalized lease obligations are included in property
and equipment and totaled $133,000, $213,000, and $705,000 (unaudited) with
related accumulated amortization of $16,000, $85,000, and $896,000 (unaudited)
at December 31, 1997, December 31, 1998, and June 30, 1999, respectively.
4. Acquisition
On August 18, 1997, the Company acquired the customer base of RJE Internet
Services, Inc. ("RJE"). RJE develops, hosts and maintains web sites. The
acquisition of this customer base was accounted for as a purchase. The results
of operations and cash flows of the acquisition have been included from the
date of the acquisition of the customer base. The purchase price of the
customer base totaled $100,000 plus $180,000 for a covenant not to compete.
The accumulated amortization of the customer base was $42,000 at December 31,
1997. The customer base was fully amortized at December 31, 1998. Accumulated
amortization of the covenant not to compete totaled $38,000 and $128,000 at
December 31, 1997 and 1998, respectively.
5. Income Taxes
Prior to March 18, 1997, Digital Insight was a limited liability company
that was treated as a partnership for federal and Minnesota income tax
purposes. As a result, all federal and Minnesota tax matters for Digital
Insight LLC, prior to March 18, 1997, are the responsibility of the members.
As of December 31, 1997 and 1998, the Company had net operating loss carry-
forwards for federal and state purposes of $2,429,000 and $6,785,000,
respectively. Federal and state net operating loss carry-forwards expire in
the years 2012 and 2005, respectively.
Given its history of operating losses, the Company has recorded a full
valuation allowance against its deferred tax assets generated from operating
losses because it is more likely than not that the deferred tax benefits will
not be utilized. Accordingly, the accompanying statements of operations
include no benefit for income taxes.
F-11
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred taxes are (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Net operating loss carryforwards........................... $ 829 $ 2,093
Research credit carryforwards.............................. 155 392
Stock compensation......................................... 60 398
Other...................................................... 63 171
------- -------
Gross deferred tax assets.................................. 1,107 3,054
------- -------
Gross deferred tax liabilities............................. -- --
------- -------
Net deferred tax assets.................................... 1,107 3,054
------- -------
Deferred tax asset valuation allowance..................... (1,107) (3,054)
------- -------
Deferred tax assets........................................ $ -- $ --
======= =======
</TABLE>
6. Mandatorily Redeemable Convertible Preferred Stock
Mandatorily redeemable convertible preferred stock consists of the
following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------- June 30, 1999
1997 1998 (Unaudited)
---------------------- ---------------------- ----------------------
Issued and Issued and Issued and
Authorized Outstanding Authorized Outstanding Authorized Outstanding
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series A.. 1,668,166 1,645,944 1,668,166 1,645,944 1,668,166 1,625,944
Series B.. 763,450 -- 2,305,475 2,305,475 2,334,294 2,305,475
Series C.. -- -- -- -- 844,036 844,036
--------- --------- --------- --------- --------- ---------
2,431,616 1,645,944 3,973,641 3,951,419 4,846,496 4,775,455
========= ========= ========= ========= ========= =========
</TABLE>
The Company's mandatorily redeemable convertible preferred stockholders have
the option to require the Company to repurchase all of the preferred shares
upon written request (election) of at least 60% of the outstanding shares of
preferred holders. The shares shall be redeemed on the earlier of February 28,
2002 or 180 days following the date of the election. Shares are to be redeemed
from any source of funds legally available at the redemption price of $2.70
per share of Series A preferred stock, $3.47 per share of Series B preferred
stock or $10.00 per share of Series C preferred stock, as originally issued,
plus all declared but unpaid dividends, if any, through the redemption date.
Effective on the incorporation and Member Control Agreement date, March 18,
1997, Digital Insight LLC converted its members' capital balances to shares of
Series A preferred stock and common stock in accordance with the Member
Control Agreement. As a result, 481,500 and 5,000,000 shares of Series A
preferred stock and common stock, respectively, were issued.
F-12
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In March 1997, the Company issued 1,164,444 shares of Series A preferred
stock for $2.70 per share. In February 1998, the Company issued 2,305,475
shares of Series B preferred stock for $3.47 per share. In May 1999, the
Company issued 844,036 shares of Series C preferred stock for $10.00 per
share.
Dividend rights
Dividends shall be paid, when and if declared by the Board of Directors, at
the rate of $0.24, $0.31, and $0.90 per share of the outstanding Series A,
Series B and Series C preferred stock, respectively, and shall be payable out
of funds legally available. No dividends have been declared to date.
Liquidation
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the Series A, Series B, and Series C preferred
stock will be entitled to be paid, before any payment shall be made to the
common shareholders, an amount in cash or property equal to the sum of $2.70
per share of Series A preferred stock, $3.47 per share of Series B preferred
stock and $10.00 per share of Series C preferred stock, plus all accrued but
unpaid dividends.
Conversion right
Each share of preferred stock shall be convertible, at the option of the
holder, at any time after the date of issuance, into one share of common
stock, subject to adjustment. The preferred shares will automatically convert
into shares of common stock, at the then-applicable conversion price, upon the
closing of an underwritten public offering of the Company's common shares at a
price of not less than $8.68 per share and from which the gross proceeds to
the Company are not less than $20.0 million.
Voting rights
The holders of the preferred shares are entitled to the number of votes to
which they would be entitled if the preferred shares were converted into
common shares.
7. Notes Receivable from Stockholders
Effective October 23, 1997, under the Company's 1997 Stock Plan (the "Option
Plan"), two officers of the Company exercised their options to purchase
309,250 shares each, of the Company's common stock. In consideration, each
officer executed a note payable to the Company for $93,000. The note is
payable at the earlier of ten years from the date of execution or 30 days
after termination. Interest is being charged at the rate of 7% per annum.
Interest income realized in 1998 and for the six months ended June 30, 1999 on
the loans was $15,000 and $7,000, (unaudited) respectively. The officers have
the option to prepay all or any portion of the principal or interest without
penalty.
8. Preferred Stock Warrants
In March 1997, the Company issued warrants to purchase 763,450 shares of
Series B preferred stock at an exercise price of $3.93 per share in
conjunction with the issuance of 1,111,100 shares of Series A preferred stock.
The warrants expired without being exercised on January 31, 1998.
On January 31, 1998, the Company issued a warrant to purchase 22,222 shares
of Series A preferred stock, at $2.70 per share, to a leasing company in
connection with the Company obtaining certain leases which were accounted for
as capitalized leases. The warrant issued is exercisable for a period of
(i) four years or (ii) two
F-13
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
years from the effective date of the Company's initial public offering,
whichever is shorter. The value of the warrant using the Black-Scholes option
pricing model totaled $64,000. This value was recorded as capital lease issue
costs and is being amortized as additional interest costs over the three year
life of the capitalized leases. Accordingly, the Company has recorded
additional interest expense of $20,000 and $10,000 (unaudited) at December 31,
1998 and June 30, 1999, respectively. The Company has reserved 22,222 shares
of Series A preferred stock for the exercise of this warrant. The warrant was
outstanding at December 31, 1998.
9. 1997 Stock Plan
The Company's 1997 Stock Plan (the "Plan") was approved by the Board of
Directors on August 11, 1997. Under the Plan, the maximum aggregate number of
shares which may be optioned and sold is 1,500,000 shares of common stock,
subject to adjustments upon changes in capitalization or merger. In February
1998, the Company adopted, and the Board of Directors and stockholders
approved, a resolution to increase the aggregate number of shares reserved for
options to 2,500,000 shares. Incentive and non-statutory stock options may be
granted to employees, and non-statutory stock options may be granted to
directors and consultants. Generally options granted under the Plan are fully
exercisable on and after the date of grant. Shares generally vest in monthly
installments over four years following the date of grant (as determined by the
Board of Directors), subject to the optionee's continuous service. However,
for first time grants, the initial vesting shall occur twelve months from the
vesting start date, at which time 25% of the shares will be vested. The
remaining shares are vested monthly over the remaining three years. Options
expire ten years from the date of grant with the exception of an incentive
stock option granted to an optionee who owns stock representing more than 10%
of the voting power of all classes of stock of the Company or any parent or
subsidiary, in which case the term of the option shall be five years. An
option shall generally terminate three months after termination of employment.
Options are generally granted at a fair market value determined by the Board
of Directors subject to the following:
(a) With respect to options granted to an employee or service provider who,
at the time of this grant owns stock representing more than 10% of the
voting power of all classes of stock of the Company or any parent or
subsidiary, the per share exercise price shall be no less than 110% of
the fair market value on the date of the grant.
(b) With respect to options granted to any employee or service provider
other than described in the preceding paragraph, the exercise price
shall be no less than 100% for incentive stock options and 85% for non-
statutory stock options of the fair market value on the date of the
grant.
Stock option activity under the Plan was as follows:
<TABLE>
<CAPTION>
Exercise
Options Price Per
Outstanding Share
----------- -------------
<S> <C> <C>
Granted.......................................... 1,210,500 $ 0.30
Canceled......................................... (44,500) $ 0.30
Exercised........................................ (618,500) $ 0.30
--------- -------------
Balance December 31, 1997........................ 547,500 $ 0.30
Granted.......................................... 996,000 $0.30 - $1.00
Canceled......................................... (104,640) $0.30 - $0.50
Exercised........................................ (2,656) $ 0.30
--------- -------------
Balance December 31, 1998........................ 1,436,204 $0.30 - $1.00
Granted (unaudited).............................. 705,535 $1.75 - $9.00
Canceled (unaudited)............................. (55,492) $0.30 - $9.00
Exercised (unaudited)............................ (246,236) $0.30 - $1.75
--------- -------------
Balance June 30, 1999 (unaudited)................ 1,840,011 $0.30 - $9.00
========= =============
</TABLE>
F-14
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------------------
Weighted-Average
Remaining Contractual Weighted Average Weighted-Average
Exercise Prices Shares Life (Years) Exercise Price Shares Exercise Price
--------------- --------- --------------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$0.30 388,721 8.2 $0.30 129,077 $0.30
$0.50 190,795 9.0 $0.50 23,410 $0.50
$1.00 575,000 9.3 $1.00 --
$1.75 113,960 9.6 $1.75 5,414 $1.75
$2.25 401,285 9.7 $2.25 --
$9.00 170,250 9.8 $9.00 1,674 $9.00
--------- --- ----- ------- -----
$0.30-$9.00 1,840,011 9.2 $1.86 159,575 $0.47
========= === ===== ======= =====
</TABLE>
On March 17, 1997, the Board of Directors approved and the Company entered
into a stock option agreement (the "Agreement") with an officer of the
Company. The Company reserved 106,700 shares of Series A preferred stock for
issuance upon the exercise of options at an exercise price of $2.70. These
options expired on March 28, 1997. Prior to the expiration of these options,
53,350 shares were exercised for an aggregate purchase price of $145,000. Had
compensation cost for these options granted been determined using the Black-
Scholes option pricing model under SFAS No. 123, the difference between the
Company's net loss as reported and as adjusted for the compensation cost for
the year ended December 31, 1997 would have been insignificant.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" to account for its employee stock option plans. Under APB
No. 25, when the exercise price of the Company's employee stock options equals
or exceeds the fair value price of the underlying stock on the date of grant,
no compensation expense is recognized in the Company's financial statements.
The Company granted options at exercise prices based upon the fair value of
the underlying stock as determined by its Board of Directors. Subsequently, it
was determined that the Company had granted options in 1997, 1998 and the six
months ended June 30, 1999 at exercise prices that were below the fair value
price of the underlying stock. Accordingly, the Company has recorded deferred
stock-based compensation of $1,809,000, $1,918,000 and $1,768,000 (unaudited)
in the years ended December 31, 1997 and 1998 and the six months ended June
30, 1999, respectively, based upon the intrinsic value of the options at the
grant date. The deferred stock-based compensation is being amortized to
expense over the vesting periods of the underlying options which is generally
four years.
The fair value of each option grant is estimated on the date of grant using
the minimum value method as prescribed in SFAS 123. Assumptions used for
options granted during the year ended December 31, 1997 and 1998 were a risk-
free interest rate of 5.9% to 6.2%, and 4.6% to 5.8%, respectively, and a
weighted-average expected option term of four years.
The stock-based compensation cost associated with the Company's stock-based
compensation plan, determined using the minimum value method prescribed by
SFAS No. 123, did not result in a material difference from the reported net
loss for the years ended December 31, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999 (unaudited).
The minimum value method requires input of highly subjective assumptions,
changes in which could materially affect the fair value estimate. In addition,
the minimum value method is only allowed for non-public entities as public
entities are required to include an expected volatility factor in addition to
the factors described above. As a result, the effects on pro forma disclosures
of applying SFAS 123 are not likely to be representative of the effects on pro
forma disclosures of future years.
F-15
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Employee Benefits
Effective September 1, 1998, the Company adopted a Defined Contribution
Profit Sharing Plan. This plan includes a 401(k) salary deferral plan. All
employees are eligible to participate in the plan after six months of
continued service. Contributions to the 401(k) are in the form of employee-
salary deferrals which are not subject to employer-matching contributions.
11. Commitments and Contingencies
The Company leases its facilities and certain equipment under noncancelable
operating leases. Rent expense under the operating leases was $46,000, $71,000
and $174,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
Future minimum lease payments under all noncancelable capitalized and
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Capital Operating
----------------------- ------- ---------
<S> <C> <C>
1999....................................................... $ 80 $ 321
2000....................................................... 80 401
2001....................................................... 11 419
2002....................................................... -- 438
2003....................................................... -- 219
---- ------
Total minimum lease payments............................... 171 $1,798
======
Amounts representing interest.............................. 18
----
Present value of capitalized lease obligations............. 153
Less: current portion...................................... 71
----
Noncurrent portion of capitalized lease obligations........ $ 82
====
</TABLE>
In December 1997, the Company entered into a Business Continuity Services
Master Agreement, which provides backup capability. The agreement is for a
term of five years with monthly payments of $6,000. Future minimum payments
under the agreement are $71,000 for each of the five years beginning 1998
through 2002.
12. Subsequent Events
In January 1999, the Company entered into an Internet Data Center Services
Agreement to obtain redundant data center capabilities. The initial term of
the agreement is for one year and will automatically renew for additional one
year terms. Minimum payments under the agreement are $31,000 per month through
the initial term ending February 2000.
On March 1, 1999, the Company entered into a Master Lease Agreement (the
"Agreement") with a leasing company. The Agreement provides a line of credit
of $2,000,000 for capital equipment purchases with an additional $500,000
based upon attaining revenue targets. As a condition to the lessor for
entering into the Agreement, the Company issued a warrant to purchase 28,819
shares of Series B preferred stock at $3.47 per share. The warrant issued is
exercisable for a period of seven years. The value of the warrant using the
Black-Scholes option pricing model totaled $147,000. This value is being
recorded as capital lease issue costs and is being amortized as additional
interest costs over the three year life of the capitalized leases. As of
May 13, 1999, the Company purchased approximately $493,000 of capital
equipment under the lease.
On March 30, 1999, the Board of Directors and stockholders approved a
resolution to increase the aggregate number of shares of common stock reserved
for options under the Company's 1997 Stock Plan to 3,000,000 shares.
F-16
<PAGE>
DIGITAL INSIGHT CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In May 1999, the Company completed the private placement of 844,036 shares
of its Series C mandatorily redeemable convertible preferred stock at a price
per share of $10.00. Dividends shall be paid, when and if declared by the
Board of Directors, at the rate of $0.89 per share. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the holders
of Series C preferred stock will be entitled to be paid, before any payments
shall be made to common stockholders, an amount in cash or property equal to
the sum of $10.00 per share. The Series C preferred stock shall be
convertible, at the option of the holder, at any time after the date of
issuance, into one share of common stock, subject to adjustment. The Series C
preferred stock is mandatorily redeemable and will automatically convert into
shares of common stock on the same terms as the Series A and B mandatorily
redeemable convertible preferred stock.
13. Subsequent Events (unaudited)
On June 21, 1999, the Board of Directors approved a resolution to increase
the number of shares of authorized common stock to 100,000,000 shares.
Additionally, the Board of Directors approved the creation of an undesignated
class of authorized preferred stock consisting of 5,000,000 shares.
On June 21, 1999, the Board of Directors approved a resolution to adopt the
1999 Stock Plan and reserved 1,500,000 shares of the Company's common stock
for issuance under this plan.
On June 21, 1999, the Board of Directors approved a resolution to adopt the
1999 Employee Stock Purchase Plan and reserved 300,000 shares of the Company's
common stock to be reserved for issuance under this plan.
On June 29, 1999, the Company repurchased 20,000 shares of Series A
mandatorily redeemable convertible preferred stock at $10.00 per share from a
former executive officer.
F-17
<PAGE>
[Artwork incorporating multiple squares in shades of blue, green and black as a
background to a rectangular box in the lower right corner of the page which
contains, on the left, Digital Insight's logo and, on the right, the words
"Digital Insight." Beneath this box appear the words "Beyond Internet Banking."
Near the top of the page appears text containing Digital Insight's address,
telephone and fax numbers, and its website.]
<PAGE>
[LOGO OF DIGITAL INSIGHT]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of common stock being registered. All amounts are
estimates except the registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
Amount
To Be Paid
----------
<S> <C>
SEC Registration Fee................................................ $ 16,541
NASD Fee............................................................ 6,450
Nasdaq National Market Listing Fee.................................. 88,500
Legal Fees and Expenses............................................. 350,000
Accounting Fees and Expenses........................................ 250,000
Printing............................................................ 250,000
Transfer Agent Fees................................................. 10,000
Miscellaneous....................................................... 128,509
----------
Total............................................................. $1,100,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of
their fiduciary duty as a director. In addition, as permitted by Section 145
of the Delaware General Corporation Law, the Bylaws of the Registrant provide
that: (1) the Registrant is required to indemnify its directors and executive
officers and persons serving in these capacities in other business enterprises
(including, for example, subsidiaries of the Registrant) at the Registrant's
request, to the fullest extent permitted by Delaware law, including in those
circumstances in which indemnification would otherwise be discretionary; (2)
the Registrant may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required by law; (3) the rights
conferred in the Bylaws are not exclusive, and the Registrant is authorized to
enter into indemnification agreements with its directors, executive officers
and employees; and (4) the Registrant may not retroactively amend the Bylaw
provisions in a way that is adverse to the directors, executive officers and
employees who benefit from these protections.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum
indemnity allowed to directors and executive officers by Section 145 of the
Delaware General Corporation Law and the Bylaws, as well as certain additional
procedural protections. In addition, these indemnity agreements provide that
parties to the indemnification agreements will be indemnified to the fullest
possible extent not prohibited by law against any and all expenses such as
federal, state, local or foreign taxes imposed on the Indemnitee as a result
of the actual or deemed receipt of any payments under the indemnification
agreement, judgments, fines, penalties and amounts paid in settlement, as long
as the settlement is approved in advance by Digital Insight, which approval
shall not be unreasonably withheld, actually and reasonably incurred in
relation to the Indemnitee's position as a director, officer, employee, agent
or fiduciary of the Registrant, or any subsidiary of the Registrant, or in
relation to the Indemnitee's service at the request of the Registrant as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise or in relation to
Indemnitee's action or inaction while serving in such a capacity. Digital
Insight will not be obligated pursuant to the indemnity agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified party and not by way of
defense, counterclaim or crossclaim, except with respect to proceedings
specifically authorized by Digital
II-1
<PAGE>
Insight's Board of Directors or brought to enforce a right to indemnification
under the indemnity agreement, Digital Insight's Bylaws or any statute or law.
Under the agreements, Digital Insight is not obligated to indemnify the
indemnified party (1) for any expenses incurred by the indemnified party with
respect to any proceeding instituted by the indemnified party to enforce or
interpret the agreement, if a court of competent jurisdiction determines that
each of the material assertions made by the indemnified party in that
proceeding was not made in good faith or was frivolous; (2) for any amounts
paid in settlement of a proceeding unless Digital Insight consents to the
settlement; (3) with respect to any proceeding brought by Digital Insight
against the indemnified party for willful misconduct, unless a court
determines that each of the claims was not made in good faith or was
frivolous; (4) on account of any suit in which judgment is rendered against
the indemnified party for an accounting of profits made from the purchase or
sale by the indemnified party of securities of Digital Insight under the
provisions of (S) 16(b) of the Securities Exchange Act of 1934 and related
laws; (5) on account of the indemnified party's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct or a knowing violation of the law; (6) an
account of any conduct from which the indemnified party derived an improper
personal benefit; (7) on account of conduct the indemnified party believed to
be contrary to the best interests of Digital Insight or its stockholders; (8)
on account of conduct that constituted a breach of the indemnified party's
duty of loyalty to Digital Insight or its stockholders; or (9) if a final
decision by a court having jurisdiction in the matter shall determine that the
indemnification is not lawful.
The indemnification provision in the Certificate of Incorporation, Bylaws
and the indemnification agreements entered into between the Registrant and its
directors and executive officers, may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the 1933 Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
- -------- -------
<S> <C>
Form of Underwriting Agreement......................................... 1.1
Second Amended and Restated Certificate of Incorporation of
Registrant............................................................ 3.1
Form of Restated Certificate of Incorporation of Registrant to be filed
upon closing of the offering.......................................... 3.2
Amended and Restated Bylaws of Registrant, as amended.................. 3.3
Form of Indemnification Agreement to be entered into by the Registrant
with each of its directors and executive officers..................... 10.1
</TABLE>
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued and sold the
following securities:
(a) During the past three years, the Registrant sold an aggregate of
867,392 shares of unregistered common stock to directors, officers,
employees, former employees and consultants at prices ranging from $.30
to $1.75 per share, for aggregate cash consideration of $349,932.20.
These shares were sold pursuant to the exercise of options granted by
the Board. As to each director, officer, employee, former employee and
consultant of the Registrant who was issued these securities, the
Registrant relied upon Rule 701 of the Securities Act of 1933, as
amended (the "Securities Act"). Each of these persons purchased
securities of the Registrant under a written contract between that
person and the Registrant. In addition, the Registrant met the
conditions imposed under Rule 701(b).
(b) On March 18, 1997, the Registrant issued 5,000,000 shares of common
stock and 481,500 shares of Series A Preferred Stock to a limited
liability company in consideration for the transfer of all of the
tangible and intangible assets of that limited liability company. The
Registrant relied upon Section 4(2) of the Securities Act in connection
with the sale of these shares. All of these shares have subsequently
been distributed by the limited liability company to its members.
II-2
<PAGE>
(c) On March 20, 1997, the Registrant sold in the aggregate (i) 1,111,100
shares of unregistered Series A Preferred Stock at a price per share of
$2.70 and (ii) warrants to purchase up to 763,450 shares of Series B
Preferred Stock, to two investors for aggregate cash consideration of
$2,999,970. The Registrant relied upon Section 4(2) of the Securities
Act in connection with the sale of these shares.
(d) On March 27, 1997, the Registrant sold 53,350 shares of unregistered
Series A Preferred Stock at a price per share of $2.70 to one investor
for aggregate cash consideration of $144,045. The Registrant relied
upon Section 4(2) of the Securities Act in connection with the sale of
these shares.
(e) On October 23, 1997, the Registrant sold 618,500 shares of unregistered
common stock at a price per share of $0.30 to two officers for
aggregate consideration of $185,550. These shares were sold under a
restricted stock purchase agreement between the Registrant and each
officer following the exercise of a stock purchase right. The
purchasers of the shares paid the aggregate consideration in the form
of full-recourse promissory notes bearing interest at 7.0% per year.
The Registrant relied upon Rule 701 of the Securities Act in connection
with the sale of these shares.
(f) On January 31, 1998, the Registrant issued a warrant to purchase up to
22,222 shares of unregistered Series A Preferred Stock at a price per
share of $2.70 in connection with an equipment leasing transaction.
This issuance was made in reliance upon Section 4(2) of the Securities
Act.
(g) On February 27, 1998, the Registrant sold in the aggregate 2,305,475
shares of unregistered Series B Preferred Stock at a price per share of
$3.47 to three investors for aggregate cash consideration of
$7,999,998.25. The Registrant relied upon Section 4(2) of the
Securities Act in connection with the sale of these shares.
(h) On February 1, 1999, the Registrant issued a warrant to purchase up to
28,819 shares of unregistered Series B Preferred Stock at a price per
share of $3.47 in connection with an equipment leasing transaction.
This issuance was made in reliance upon Section 4(2) of the Securities
Act.
(i) On February 3, 1999, the Registrant sold 115,000 shares of unregistered
common stock at a price per share of $1.00 to an officer for aggregate
cash consideration of $115,000. These shares were sold to such officer
under the exercise of a stock purchase right. The Registrant relied
upon Rule 701 of the Securities Act in connection with the sale of
these shares.
(j) On May 26, 1999, the Registrant sold in the aggregate 844,036 shares of
unregistered Series C Preferred Stock at a price per share of $10.00 to
13 investors for aggregate cash consideration of $8,440,360. The
Registrant relied upon Section 4(2) of the Securities Act in connection
with the sale of these shares.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through
their relationships with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Second Amended and Restated Certificate of Incorporation of
Registrant, as currently in effect.
3.2* Form of Third Amended and Restated Certificate of Incorporation of
Registrant, to be in effect upon the closing of the offering.
3.3* Amended and Restated Bylaws of Registrant, as amended, as currently
in effect.
3.4* Form of Restated Bylaws of Registrant, to be in effect upon the
closing of the offering.
4.1 Form of Registrant's Common Stock Certificate.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
4.2* Second Amended and Restated Rights Agreement, dated as of May 26,
1999, between the Registrant and the parties named therein.
4.3* Warrant to Purchase Stock dated February 18, 1999 issued to
Silicon Valley Bank.
4.4 Warrant Agreement dated January 31, 1998 issued to Comdisco, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.
10.2* Stock Option Agreement dated October 13, 1998 between John Dorman
and the Registrant.
10.3* Stock Option Agreement dated March 30, 1999 between Kevin
McDonnell and the Registrant.
10.4* Stock Option Agreement dated March 30, 1999 between Stephen
Zarate and the Registrant.
10.5* 1997 Stock Plan and related agreements.
10.6 1999 Stock Plan and related agreements.
10.7* 1999 Employee Stock Purchase Plan and related agreements.
10.8* Commercial Office Lease by and between Arden Realty Limited
Partnership, a Maryland Limited Partnership, and Registrant
dated August 4, 1997.
10.9* Master Lease Agreement dated March 1, 1999 between Registrant and
Silicon Valley Bank.
10.10* Internet Data Center Services Agreement dated March 1, 1999
between Registrant and Exodus Communications, Inc.
10.11*+ Moneyline Express (M&I) Agreement dated February 27, 1997.
10.12 Commercial Office Sublease by and between Breath Asure, Inc., a
California Corporation, and Registrant dated August 3, 1999.
10.13 Stock Option Agreement dated July 28, 1999 between Mehariar Hasan
and the Registrant.
11.1* Statement of computation of net loss per share and pro forma net
loss per share (see note 1 of notes to financial statements).
21.1* Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
24.1* Power of Attorney (See page II-6).
27.1 Financial Data Schedule.
</TABLE>
--------
* Previously filed.
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
(b) Financial Statement Schedules.
Schedule II-Valuation and Qualifying Accounts and Reserves Allowance
for Doubtful Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in those
denominations and registered in those names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
under the provisions referenced in Item 14 of this Registration Statement or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against those liabilities, other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding, is asserted by a director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether the indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of that issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of those securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Calabasas, State of California, on this 13th day of September, 1999.
DIGITAL INSIGHT CORPORATION
/s/ Kevin McDonnell
By: _________________________________
Kevin McDonnell
Vice President of Finance, Chief
Financial Officer and Secretary
Under the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, Chief September 13, 1999
____________________________________ Executive Officer and
John Dorman President (Principal
Executive Officer)
/s/ Kevin McDonnell Vice President of Finance, September 13, 1999
____________________________________ Chief Financial Officer and
Kevin McDonnell Secretary (Principal
Financial and Accounting
Officer)
* Executive Vice President and September 13, 1999
____________________________________ Director
Paul Fiore
* Director September 13, 1999
____________________________________
John Jarve
* Director September 13, 1999
____________________________________
Nader Kazeminy
* Director September 13, 1999
____________________________________
James McGuire
* Director September 13, 1999
____________________________________
Ofer Nemirovsky
* Director September 13, 1999
____________________________________
Robert North
</TABLE>
*By: /s/ Kevin McDonnell
- -------------------------------
Kevin McDonnell
(Attorney-in-fact)
<PAGE>
SCHEDULE II
DIGITAL INSIGHT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<TABLE>
<CAPTION>
Additions
to and
Balance at Charges to
Beginning Costs and Deductions- Balance at
Year Ended December 31, of Period Expenses Write-offs End of Period
----------------------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
1996...................... $ 0 $ 0 $ 0 $ 0
1997...................... 0 40 0 40
1998...................... 40 1 22 19
Deferred Tax Asset
Valuation Allowance:
1996...................... $ 0 $ 0 $ 0 $ 0
1997...................... 0 1,107 0 1,107
1998...................... 1,107 1,947 0 3,054
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Second Amended and Restated Certificate of Incorporation of
Registrant, as currently in effect.
3.2* Form of Third Amended and Restated Certificate of Incorporation
of Registrant, to be in effect upon the closing of the offering.
3.3* Amended and Restated Bylaws of Registrant, as amended, as
currently in effect.
3.4* Form of Restated Bylaws of Registrant, to be in effect upon the
closing of the offering.
4.1 Form of Registrant's Common Stock Certificate.
4.2* Second Amended and Restated Rights Agreement, dated as of May 26,
1999, between the Registrant and the parties named therein.
4.3* Warrant to Purchase Stock dated February 18, 1999 issued to
Silicon Valley Bank.
4.4 Warrant Agreement dated January 31, 1998 issued to Comdisco, Inc.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1* Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.
10.2* Stock Option Agreement dated October 13, 1998 between John Dorman
and the Registrant.
10.3* Stock Option Agreement dated March 30, 1999 between Kevin
McDonnell and the Registrant.
10.4* Stock Option Agreement dated March 30, 1999 between Stephen
Zarate and the Registrant.
10.5* 1997 Stock Plan and related agreements.
10.6 1999 Stock Plan and related agreements.
10.7* 1999 Employee Stock Purchase Plan and related agreements.
10.8* Commercial Office Lease by and between Arden Realty Limited
Partnership, a Maryland Limited Partnership, and Registrant
dated August 4, 1997.
10.9* Master Lease Agreement dated March 1, 1999 between Registrant and
Silicon Valley Bank.
10.10* Internet Data Center Services Agreement dated March 1, 1999
between Registrant and Exodus Communications, Inc.
10.11*+ Moneyline Express (M&I) Agreement dated February 27, 1997.
10.12 Commercial Office Sublease by and between Breath Asure, Inc., a
California Corporation, and Registrant dated August 3, 1999.
10.13 Stock Option Agreement dated July 28, 1999 between Mehariar Hasan
and the Registrant.
11.1* Statement of computation of net loss per share and pro forma net
loss per share (see note 1 of notes to financial statements).
21.1* Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
24.1* Power of Attorney (See page II-6).
27.1 Financial Data Schedule.
</TABLE>
--------
* Previously filed.
+ Confidential treatment has been requested with respect to certain
portions of this exhibit. Omitted portions have been filed separately
with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
_______________ Shares
Digital Insight Corporation
Common Stock, par value $0.001
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
Deutsche Bank Alex. Brown
Bank of America Securities LLC
Friedman, Billings, Ramsey & Co.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Digital Insight Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters") for whom you (the "Managers") are acting as
representatives, _______________ shares of its voting Common Stock, par value
$0.001 (the "Firm Shares"). The Company also proposes to issue and sell to the
several Underwriters not more than an additional ______________ shares of its
voting Common Stock, par value $0.001 (the "Additional Shares") if and to the
extent that you, as Managers of the offering, shall have determined to exercise,
on behalf of the Underwriters, the right to purchase such shares of common stock
granted to the Underwriters in Section 2 hereof. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares." The
shares of Common Stock, par value $0.001 of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
2
<PAGE>
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule II to this Agreement, up to
________________ shares, for sale to the Company's employees, officers, and
directors and other parties associated with the Company (collectively,
"Participants"), as set forth in the Prospectus under the heading "Underwriting"
(the "Directed Share Program"). The Shares to be sold by Morgan Stanley
pursuant to the Directed Share Program (the "Directed Shares") will be sold by
Morgan Stanley pursuant to this Agreement at the public offering price. Any
Directed Shares not orally confirmed for purchase by any Participants by the end
of the business day on which this Agreement is executed will be offered to the
public by Morgan Stanley as set forth in the Prospectus.
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, when it becomes
effective will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder and (iii) the Prospectus
did not contain and, as of the date amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company.
3
<PAGE>
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association or other business entity.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company that is material to the Company or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company from that set forth in the Prospectus (exclusive
of any amendments or supplements thereto subsequent to the date of this
Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the
properties of the Company are subject to that are required to be described
in the Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described or
filed as required.
4
<PAGE>
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(n) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) has received all permits, licenses or other approvals required
of them under applicable Environmental Laws to conduct their respective
businesses and (iii) is in compliance with all terms and conditions of any
such permit, license or approval. The representations and warranties set
forth in this paragraph do not apply where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the aggregate, have
a material adverse effect on the Company.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company.
(p) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement. Subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, (1) the Company has not incurred any material
liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (2) the
Company has not purchased any of its outstanding capital stock, nor
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, except in
each case as described in the Prospectus.
5
<PAGE>
(q) The Company has good and marketable title to all personal
property owned by it which is material to the business of the Company, free
and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not interfere with the use made
and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company is held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company, in each case except as
described in the Prospectus. The Company does not own any real property.
(r) The Company owns or possesses, or can acquire on reasonable
terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks and trade names currently employed
by them in connection with the business now operated by them, and the
Company has not received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse affect on the Company.
(s) No material labor dispute with the employees of the Company
exists, except as described in the Prospectus, or, to the knowledge of the
Company, is imminent that could have a material adverse effect on the
Company.
(t) The Company is insured against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged; the
Company has not been refused any insurance coverage sought or applied for;
and the Company does not have any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a material
adverse effect on the Company, except as described in the Prospectus.
(u) The Company has reviewed its operations to evaluate the extent to
which the business or operations of the Company will be affected by the
Year 2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company will not, in the case of dates
or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000; as a result of such review, (i) the Company has no reason
to believe, and does not believe, that (A) there are any issues related to
the Company's preparedness to address the Year 2000 Problem that are of a
character required to be described or referred to in the Registration
Statement or Prospectus which have not been accurately described in the
Registration Statement or Prospectus and (B) the Year 2000 Problem will
have a material adverse effect on the condition, financial or otherwise,
or on the earnings, business or operations of the Company, taken as a
whole, or result in any material loss or interference with the business or
operations of the Company; and (ii) the Company reasonably believes, after
due inquiry, that the suppliers, vendors, customers or other material
third parties used or served by the Company are addressing or will address
the Year 2000 Problem in a timely manner, except to the extent that a
failure to address the Year 2000 Problem by any supplier, vendor, customer
or material third party would not have a material adverse effect on the
condition, financial or otherwise, or on the earnings, business or
operations of the Company.
<PAGE>
(v) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business except where the absence of
such possession would not have a material adverse effect on the Company and
the Company has not received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect on the
Company, except as described the Prospectus.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(x) The Company has not offered, or caused the Underwriters to offer,
Shares pursuant to the Directed Share Program to any person outside the
United States.
(y) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the
specific intent to unlawfully influence (i) a customer or supplier of the
Company to alter the customer's or supplier's level or type of business
with the Company, or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
2. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the
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Purchase Price. If you, on behalf of the Underwriters, elect to exercise such
option, you shall so notify the Company in writing not later than 30 days after
the date of this Agreement, which notice shall specify the number of Additional
Shares to be purchased by the Underwriters and the date on which such shares are
to be purchased. Such date may be the same as the Closing Date (as defined
below) but not earlier than the Closing Date nor later than ten business days
after the date of such notice. Additional Shares may be purchased as provided in
Section 4 hereof solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. If any Additional Shares are to
be purchased, each Underwriter agrees, severally and not jointly, to purchase
the number of Additional Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm Shares
set forth in Schedule I hereto opposite the name of such Underwriter bears to
the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing, or (C) issuance of shares of Common
Stock or options to purchase shares of Common Stock pursuant to the Company's
employee benefit plans as in existence on the date hereof. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Morgan Stanley & Co.
Incorporated.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
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<PAGE>
4. Payment and Delivery. Payment for the Firm Shares shall be made
to the Company by wire transfer in immediately available funds to the account
specified by the Company against delivery of such Firm Shares for the respective
accounts of the several Underwriters at 10:00 a.m., New York City time, on
____________, 1999, or at such other time on the same or such other date, not
later than _________, 1999, as shall be designated in writing by you. The time
and date of such payment are hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company by wire
transfer in immediately available funds to the account specified by the Company
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 a.m., New York City time, on the date specified in
the notice described in Section 2 or at such other time on the same or on such
other date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to
as the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:00 p.m.(New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
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<PAGE>
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Section 1 of this Agreement are true and correct as of the Closing
Date and that the Company has complied with all of the agreements, and
satisfied all of the conditions, on its part to be performed or satisfied
hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, A Professional Corporation
("Wilson Sonsini") outside counsel for the Company, dated the Closing Date,
to the effect that:
(i) the Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company;
(ii) to such counsel's knowledge, the Company does not own or
control, directly or indirectly, any interest in any other
corporation, association or other business entity;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully
paid and non-assessable;
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<PAGE>
(v) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vi) to the knowledge of such counsel, there is no legal or
beneficial owner of any securities of the Company who has any rights,
not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing
of the Registration Statement;
(vii) this Agreement has been duly authorized, executed and delivered
by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or, to the best of such
counsel's knowledge, any agreement or other instrument binding upon
the Company that is material to the Company or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Management - Employee Benefit Plans," "Certain Transactions,"
"Description of Capital Stock" and "Underwriters" and (B) in the
Registration Statement in Items 14 and 15, in each case insofar as
such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company is
a party or to which any of the properties of the Company is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement
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<PAGE>
or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended;
(xii) to the best of such counsel's knowledge: (I) the Registration
Statement has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Securities Act, and (II) any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b)
under the Securities Act has been made in the manner and within the
time period required by such Rule 424(b);
(xiii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data derived therefrom
as to which such counsel need not express any opinion) comply as to
form in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder, (B) has
no reason to believe that (except for financial statements and
schedules and other financial and statistical data derived therefrom
as to which such counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data
derived therefrom as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
("Gunderson Dettmer"), counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in Sections 5(c)(v), 5(c)(vii),
5(c)(ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Wilson Sonsini and Gunderson
Dettmer may state that their opinion and belief are based upon their
participation
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<PAGE>
in the preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the contents
thereof, but are without independent check or verification, except as
specified.
The opinion of Wilson Sonsini described in Section 5(c) above shall be
rendered to the Underwriters at the request of the Company and shall so
state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Pricewaterhouse Coopers LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus; provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five (5) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
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<PAGE>
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the reasonable opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the reasonable opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission
and furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which Shares
may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so
that the statements in the Prospectus as so amended or supplemented will
not, in the light of the circumstances when the Prospectus is delivered to
a purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending ________ __, ____ that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of
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<PAGE>
the Shares for offer and sale under state securities laws as provided in
Section 6(d) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements
of counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating
to the Common Stock and all costs and expenses incident to listing the
Shares on the Nasdaq National Market, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar or depositary, (viii) the reasonable costs and
expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants but
not of any representatives of the Underwriters, (ix) all fees and
disbursements of counsel incurred by the Underwriters in connection with
the Directed Share Program and stamp duties, similar taxes or duties or
other taxes, if any, incurred by the Underwriters in connection with the
Directed Share Program, and (x) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which
provision is not otherwise made in this Section. It is understood, however,
that except as provided in this Section, Section 7 entitled "Indemnity and
Contribution", and the last paragraph of Section 9 below, the Underwriters
will pay all of their costs and expenses, including fees and disbursements
of their counsel, stock transfer taxes payable on resale of any of the
Shares by them and any advertising expenses connected with any offers they
may make.
(g) that in connection with the Directed Share Program, the Company
will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation and in any event for a period of one hundred and eighty (180)
days following the date of the effectiveness of the Registration Statement.
All Participants shall be so restricted. The Company will direct the
transfer agent to place stop transfer restrictions upon such securities for
such period of time.
7. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the
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meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the foregoing indemnity agreement
with respect to any preliminary prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages or liabilities purchased Shares, or any person controlling such
Underwriter, if a copy of the Prospectus (as then amended or supplemented
if the Company shall have furnished any amendments or supplements thereto)
was not sent or given by or on behalf of such Underwriter to such person,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such
failure is the result of noncompliance by the Company with Section 6(a)
hereof.
(b) The Company agrees to indemnify and hold harmless Morgan Stanley
and its affiliates and each person, if any, who controls Morgan Stanley or
its affiliates within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act ("Morgan Stanley Entities"), from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i)
caused by the failure of any Participant to pay for and accept delivery of
the shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement to
purchase; or (ii) related to, arising out of, or in connection with the
Directed Share Program, provided that, the Company shall not be responsible
under this subparagraph (ii) for any losses, claim, damages or liabilities
(or expenses relating thereto) that are finally judicially determined to
have resulted from the bad faith or gross negligence of Morgan Stanley
Entities.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Underwriter, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
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(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 7(a)(b) or (c), such person (the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (the "indemnifying party") in writing and the indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all such indemnified parties
and that all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified pursuant to Section 7(a)
and 7(b), and by the Company, in the case of parties indemnified pursuant
to Section 7(c). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding. Notwithstanding anything contained herein to the
contrary, if indemnity may be sought pursuant to Section 7(b) hereof in
respect of such action
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or proceeding, then in addition to such separate firm for the indemnified
parties, the indemnifying party shall be liable for the reasonable fees and
expenses of not more than one separate firm (in addition to any local
counsel) for Morgan Stanley for the defense of any losses, claims, damages
and liabilities arising out of the Directed Share Program, and all persons,
if any, who control Morgan Stanley within the meaning of either Section 15
of the Act or Section 20 of the Exchange Act.
(e) To the extent the indemnification provided for in Section 7(a),
(b) or (c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 7(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause 7(e)(i) above but also the
relative fault of the Company on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear to
the aggregate Public Offering Price of the Shares. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(f) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 7(e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred
18
<PAGE>
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for
in this Section 7 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law
or in equity.
(g) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Shares.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 8(a)(i) through 8(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or
19
<PAGE>
they have agreed to purchase hereunder on such date, and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the number of Firm Shares set forth opposite
their respective names in Schedule I bears to the aggregate number of Firm
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such number of
Shares without the written consent of such Underwriter. If, on the Closing Date,
any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and
the aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
20
<PAGE>
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
21
<PAGE>
12. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
Digital Insight Corporation
By:
------------------------------
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Deutsche Bank Alex. Brown
Bank of America Securities LLC
Friedman, Billings, Ramsey & Co.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
--------------------------------
Name:
Title:
22
<PAGE>
SCHEDULE I
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. Incorporated
Deutsche Bank Alex. Brown
Bank of America Securities LLC
Friedman, Billings, Ramsey & Co.
[NAMES OF OTHER UNDERWRITERS]
_______________
Total ........
===============
<PAGE>
EXHIBIT 4.1
FACE
Number Shares
DI
[LOGO OF DIGITAL INSIGHT]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN THE CUSIP 25385P 10 6
CITIES OF BOSTON, MA OR NEW YORK, NY
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LEGENDS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF
DIGITAL INSIGHT CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[CORPORATE SEAL OF DIGITAL INSIGHT CORPORATION]
/s/ Kevin McDonnell /s/ ILLEGIBLE SIGNATURE
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ ILLEGIBLE SIGNATURE
AUTHORIZED SIGNATURE
--------------------------------------------------------
AMERICAN BANK NOTE COMPANY JULY 30, 1999 fm
3504 ATLANTIC AVENUE
SUITE 12 062844fc
LONG BEACH, CA 90807
(562) 989-2333
(FAX) (562) 426-7450 12MX Proof ILLEGIBLE INITIALS REV 2
------------------
--------------------------------------------------------
- --------------------------------------------------------------------------------
BACK
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporation's Secretary at the
principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ..................... Custodian ......................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ..................................................
in common (State)
UNIF TRF MIN ACT -- ................... Custodian (until age ............)
(Cust)
................................... under Uniform Transfers
(Minor)
to Minors Act .............................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
X _________________________________________
X _________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By__________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
---------------------------------------------------
AMERICAN BANK NOTE COMPANY JULY 27, 1999 fm
3504 ATLANTIC AVENUE
SUITE 12 062844bk
LONG BEACH, CA 90807
(562) 989-2333
(FAX) (562) 426-7450 Proof ILLEGIBLE INITIALS NEW
------------------
---------------------------------------------------
<PAGE>
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
DIGITAL INSIGHT
Dated as of January 31, 1998 (the "Effective Date")
WHEREAS, Digital Insight, a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of May 21, 1997, and Equipment
Schedule No. VL-2 dated as of January 20, 1998, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
For value received, the Company hereby grants to the Warrantholder, and the
Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe to and purchase, from the Company, 22,222
fully paid and non-assessable shares of the Company's Series A Preferred Stock
("Preferred Stock") at a purchase price of $2.70 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) four (4) years
or (ii) two (2) years from the effective date of the Company's initial public
offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event
<PAGE>
later than twenty-one (21) days thereafter, the Company shall issue to the
Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the acknowledgment of exercise in the form attached
hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public offering
of the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the closing
prices over a twenty-one (21) day period ending three days before the
day the current fair market value of the securities is being
determined and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the closing
bid and asked prices quoted on the NASDAQ system (or similar system)
over the twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x)
the highest price per share which the Company could obtain from a willing
buyer (not a current employee or director) for shares of Common Stock sold
by the Company, from
-2-
<PAGE>
authorized but unissued shares, as determined in good faith by its Board
of Directors and (y) the number of shares of Common Stock into which each
share of Preferred Stock is convertible at the time of such exercise,
unless the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Preferred Stock shall be deemed to be
the value received by the holders of the Company's Preferred Stock on a
common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
-----------------------
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the Securities Act of 1933, as amended ("1933 Act"), as then
in effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered, listed or
approved for listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or a merger or consolidation of the Company with or
into another corporation
-3-
<PAGE>
whether or not the Company is the surviving corporation, or the sale of all or
substantially all of the Company's properties and assets to any other person
(hereinafter referred to as a "Merger Event"), then, as a part of such Merger
Event, lawful provision shall be made so that the Warrantholder shall thereafter
be entitled to receive, upon exercise of the Warrant, the number of shares of
preferred stock or other securities of the successor corporation resulting from
such Merger Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger Event.
In any such case, appropriate adjustment (as determined in good faith by the
Company's Board of Directors) shall be made in the application of the provisions
of this Warrant Agreement with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, conversion, exchange or subdivision of securities
or otherwise, change any of the securities as to which purchase rights under
this Warrant Agreement exist into the same or a different number of securities
of any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior to
such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which has been provided to the Warrantholder. The Company shall
promptly provide the Warrantholder with notice of any restatement, amendment,
modification or waiver of the Charter.
(f) Notice of Adjustments. If: (i) the Company shall declare any
---------------------
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) there shall be any Merger Event; or (iii) there shall be
any voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least ten (10) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend or
distribution; and (B) in the case of any such Merger Event, dissolution,
liquidation or winding up, at least twenty (20) days' prior written notice of
the date when the same shall take place (and specifying the date on
-4-
<PAGE>
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up).
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to,registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
-5-
<PAGE>
(e) Other Commitments to Register Securities. Except as set forth in this
----------------------------------------
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the
------------------------
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
-6-
<PAGE>
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
-------------------
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee, provided, however, in no
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the
books of the Company upon receipt by the Company of a notice of transfer in the
form attached hereto as Exhibit III (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by
-7-
<PAGE>
registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, Attention: James Labe, Venture
Group, cc: Legal Department, Attention.: General Counsel, [and/or, if by
facsimile, (847) 518-5465 and (847) 518-5088] and (ii) to the Company at 26025
Mureau Road, Calabasas, CA 91302, Attention: Chief Financial Officer, [and/or if
by facsimile, (818) 880-3772], or at such other address as any such party may
subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
--------
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
----------
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be
executed by its officers thereunto duly authorized as of the Effective Date.
Company: DIGITAL INSIGHT
By: /s/ Kevin McDonnell
---------------------------
Title: CFO
---------------------------
Warrantholder: COMDISCO, INC.
By:
---------------------------
Title:
---------------------------
-9-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:
----------------------
(1) The undersigned Warrantholder hereby elects to purchase _____ shares of the
Series _____ Preferred Stock of _______________, pursuant to the terms of
the Warrant Agreement dated the _____ day of ________________, 19___ (the
"Warrant Agreement") between __________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _____ Preferred Stock of
________________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series _____ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
- --------------------------------
(Name)
- --------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
-------------------------
Title:
-------------------------
Date:
-------------------------
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned __________________________, hereby acknowledge receipt of
the "Notice of Exercise" from Comdisco, Inc., to purchase ______ shares of the
Series _______ Preferred Stock of _______________________________, pursuant to
the terms of the Warrant Agreement, and further acknowledges that _______ shares
remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:
---------------------
Title:
---------------------
Date:
---------------------
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- -----------------------------------------------------------------------
(Please Print)
whose address is
------------------------------------------------------
- -----------------------------------------------------------------------
Dated:
--------------------------------------------
Holder's Signature:
-------------------------------
Holder's Address:
-------------------------------
---------------------------------------------------
Signature Guaranteed:
-------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
<PAGE>
[ON WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
EXHIBIT 5.1
September 13, 1999
Digital Insight Corporation
26025 Mureau Road
Calabasas, California 91302
Re: Registration Statement on Form S-1 of
Digital Insight Corporation, a Delaware corporation
(the "Company")
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on June 25, 1999, as amended on September 11,
1999 (as such may be further amended or supplemented, the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of 4,025,000 shares of Common Stock of the Company (the
"Shares"). The Shares, which include up to 525,000 shares of Common Stock
issuable pursuant to an over-allotment option granted to the underwriters, are
to be sold to the underwriters as described in such Registration Statement for
the sale to the public or issued to the Representatives of the underwriters. As
your counsel in connection with this transaction, we have examined the
proceedings proposed to be taken in connection with said sale and issuance of
the Shares.
It is our opinion that, upon approval by the pricing committee duly
authorized by the Company's Board of Directors, the Shares when issued and sold
in the manner referred to in the Registration Statement will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 10.6
DIGITAL INSIGHT CORPORATION
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as
-------------
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Digital Insight Corporation, a Delaware
-------
corporation.
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice
---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1999 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
-3-
<PAGE>
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 1,500,000 Shares plus an annual increase to be added on March
1 of the Company's fiscal year beginning in 2001 equal to the lesser of (i)
750,000 shares, (ii) 5% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-4-
<PAGE>
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
-5-
<PAGE>
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 750,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 750,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For
-6-
<PAGE>
this purpose, if the exercise price of an Option is reduced, the transaction
will be treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
-7-
<PAGE>
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the
-8-
<PAGE>
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
-9-
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and
-10-
<PAGE>
Stock Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the
-11-
<PAGE>
merger or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
-12-
<PAGE>
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE>
DIGITAL INSIGHT CORPORATION
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
<TABLE>
<S> <C>
Grant Number _________________________________
Date of Grant _________________________________
Vesting Commencement Date _________________________________
Exercise Price per Share $________________________________
Total Number of Shares Granted _________________________________
Total Exercise Price $________________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________________
</TABLE>
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
<PAGE>
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
---------
A. Grant of Option.
----------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
-------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
------------------
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to Secretary of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
C. Method of Payment.
------------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. to the extent permitted by the Administrator, surrender of other
Shares which (i) in the case of Shares acquired upon exercise of an option, have
been owned by the Optionee for more than six (6) months on the date of
surrender, and (ii) have a Fair Market Value on the date of surrender equal to
the aggregate Exercise Price of the Exercised Shares; or
5. with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement; or
6. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale proceeds required to pay
the Exercise Price.
D. Non-Transferability of Option.
------------------------------
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. Term of Option.
---------------
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
-----------------
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
-3-
<PAGE>
G. Exercising the Option.
----------------------
1. Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO, the
----------------------
Optionee will have no regular federal income tax liability upon its exercise,
although the excess, if any, of the Fair Market Value of the Exercised Shares on
the date of exercise over their aggregate Exercise Price will be treated as an
adjustment to alternative minimum taxable income for federal tax purposes and
may subject the Optionee to alternative minimum tax in the year of exercise. In
the event that the Optionee ceases to be an Employee but remains a Service
Provider, any Incentive Stock Option of the Optionee that remains unexercised
shall cease to qualify as an Incentive Stock Option and will be treated for tax
purposes as a Nonstatutory Stock Option on the date three (3) months and one (1)
day following such change of status.
3. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one
---
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
--------------------------------
-4-
<PAGE>
The Plan is incorporated herein by reference. The Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
I. NO GUARANTEE OF CONTINUED SERVICE.
---------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT
TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
<TABLE>
<S> <C>
OPTIONEE: DIGITAL INSIGHT CORPORATION
_________________________________ ______________________________________
Signature By
_________________________________ ______________________________________
Print Name Title
_________________________________
Residence Address
_________________________________
</TABLE>
-5-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
____________________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
DIGITAL INSIGHT CORPORATION
1999 STOCK OPTION PLAN
EXERCISE NOTICE
DIGITAL INSIGHT CORPORATION
26025 Mureau Road
Calabasas, CA 91302
Attention: Secretary
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Digital Insight Corporation (the
"Company") under and pursuant to the 1999 Stock Plan (the "Plan") and the Stock
Option Agreement dated, _____ (the "Option Agreement"). The purchase price for
the Shares shall be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
<TABLE>
<S> <C>
Submitted by: Accepted by:
PURCHASER: DIGITAL INSIGHT CORPORATION
_________________________________ _____________________________________
Signature By
_________________________________ _____________________________________
Print Name Its
Address: Address:
- ------- -------
_________________________________ DIGITAL INSIGHT CORPORATION
_________________________________ 26025 Mureau Road
Calabasas, CA 91302
_____________________________________
Date Received
</TABLE>
-2-
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between Digital
Insight Corporation, a Delaware corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1999 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
-2-
<PAGE>
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<C> <S>
"PLEDGOR" _____________________________________________
Signature
_____________________________________________
Print Name
Address: __________________________________
__________________________________
"PLEDGEE" DIGITAL INSIGHT CORPORATION
a Delaware corporation
_____________________________________________
Signature
_____________________________________________
Print Name
_____________________________________________
Title
"PLEDGEHOLDER" _____________________________________________
Secretary of Digital Insight Corporation
</TABLE>
-4-
<PAGE>
EXHIBIT C
---------
FULL RECOURSE PROMISSORY NOTE
-----------------------------
$__________________ ______________, ____
FOR VALUE RECEIVED, the undersigned, ___________________ ("Maker"),
promises to pay to the order of Digital Insight Corporation, a Delaware
corporation ("Company"), the principal sum of
_____________________________________ ($_____________) with interest from the
date hereof at a rate of ________%, compounded annually, principal and interest
payable on _________________ (the "Maturity Date"). All money paid toward the
satisfaction of this Note shall be applied first to the payment of interest as
required hereunder and then to the retirement of the principal. This Note is
secured by shares of the Company's Common Stock (the "Shares") held by the
Secretary of the Company pursuant to the terms of that certain Security
Agreement of even date herewith.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
The validity, construction and performance of this Note shall be governed
by the laws of the State of California, excluding the body of law pertaining to
conflicts of law. Maker, for himself and his heirs, successors and assigns,
hereby waves presentment, demand, notice and protest and any defense by reason
of an extension of time for payment or other indulgences. Failure of the holder
hereof to assert any right hereunder shall not be deemed to be a waiver thereof.
If an action is instituted for collection of this Note, the undersigned
agrees to pay court costs and reasonable attorneys' fees incurred by the holder
hereof.
This Note or any portion thereof may be prepaid at any time without
penalty.
THE UNDERSIGNED FURTHER UNDERSTANDS THAT THIS IS A FULL RECOURSE PROMISSORY
NOTE AND THAT THE COMPANY SHALL HAVE, AT ITS OPTION AND IN ADDITION TO ITS
RIGHTS AND REMEDIES UNDER THE SECURITY AGREEMENT, FULL RECOURSE AGAINST ANY
REAL, PERSONAL, TANGIBLE OR INTANGIBLE ASSETS OF THE UNDERSIGNED IN THE EVENT OF
A DEFAULT, AND MAY PURSUE ANY LEGAL OR EQUITABLE REMEDIES THAT ARE AVAILABLE TO
IT.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as
of the date and year first written above.
___________________________________________
[Print Name]
<PAGE>
DIGITAL INSIGHT CORPORATION
1999 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
<TABLE>
<S> <C>
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
</TABLE>
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 1999 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
<TABLE>
<S> <C>
GRANTEE: DIGITAL INSIGHT CORPORATION
________________________________ _____________________________________
Signature By
________________________________ _____________________________________
Print Name Title
</TABLE>
<PAGE>
EXHIBIT A-1
-----------
DIGITAL INSIGHT CORPORATION
1999 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser
-------------
and the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of
<PAGE>
(i) and (ii) so that the combined payment and cancellation of indebtedness
equals the aggregate Repurchase Price. Upon delivery of such notice and the
payment of the aggregate Repurchase Price, the Company shall become the legal
and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of
--------
Grant and __________________ percent (______%) of the Shares [on the last day of
------------------
each full month thereafter], provided that the Purchaser does not cease to be a
- --------------------------
Service Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section
-----------------------
6 or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
-2-
<PAGE>
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's
----------------
own tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands
-3-
<PAGE>
that Section 83 of the Internal Revenue Code of 1986, as amended (the "Code"),
taxes as ordinary income the difference between the purchase price for the
Shares and the Fair Market Value of the Shares as of the date any restrictions
on the Shares lapse. In this context, "restriction" includes the right of the
Company to buy back the Shares pursuant to the Repurchase Option. The Purchaser
understands that the Purchaser may elect to be taxed at the time the Shares are
purchased rather than when and as the Repurchase Option expires by filing an
election under Section 83(b) of the Code with the IRS within 30 days from the
date of purchase. The form for making this election is attached as Exhibit A-5
hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
-4-
<PAGE>
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
<TABLE>
<S> <C>
DATED: __________________________
PURCHASER: DIGITAL INSIGHT CORPORATION
__________________________________ ____________________________________
Signature By
__________________________________ ____________________________________
Print Name Title
</TABLE>
-5-
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________________________, hereby sell, assign
and transfer unto_______________________ (__________) shares of the Common Stock
of Digital Insight Corporation, standing in my name of the books of said
corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint _____________________________________________
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, _____.
Dated: _______________, _____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
__________________, ____
Corporate Secretary
Digital Insight Corporation
26025 Mureau Road
Calabasas, CA 91302
Dear __________:
As Escrow Agent for both Digital Insight Corporation, a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
<TABLE>
<S> <C>
COMPANY: DIGITAL INSIGHT CORPORATION
26025 Mureau Road
Calabasas, CA 91302
PURCHASER: _______________________________
_______________________________
_______________________________
ESCROW AGENT: Corporate Secretary
DIGITAL INSIGHT CORPORATION
26025 Mureau Road
Calabasas, CA 91302
</TABLE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
DIGITAL INSIGHT CORPORATION
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
-4-
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
I, _________________________, spouse of ________________________, have read
and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").
In consideration of the Company's grant to my spouse of the right to purchase
shares of Digital Insight Corporation, as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: ____________________, _____
__________________________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
<TABLE>
<S> <C> <C>
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
</TABLE>
2. The property with respect to which the election is made is described as
follows:_____________ shares (the "Shares") of the Common Stock of Digital
Insight Corporation (the "Company").
3. The date on which the property was transferred is:_____________________,
_______.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $__________.
6. The amount (if any) paid for such property is: $___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _________________, ____ ______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, ____ ______________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.12
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(Short-form to be used with post 1995 AIR leases)
1. Parties. This Sublease, dated, for reference purposes only, August 3,
---------
1999, is made by and between Breath Asure, Inc., a California corporation
- ---- --------------------------------------------
("Sublessor") and Digital Insight Corporation, a Delaware corporation
---------------------------------------------------
("Sublessee").
2. Premises. Sublessor hereby subleases to Sublessee and Sublessee
hereby subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 26025 Mureau
------------
Road, Suite A, Calabasas, 91302 located in the County of Los Angeles , State of
- ------------------------------- -----------
California and generally described as (describe briefly the nature of the
- ----------
property) approximately 15,486 rentable square feet located on the western
----------------------------------------------------------------
portion of the first and second floors of the above referenced building.
- ------------------------------------------------------------------------
("Premises").
3. Term.
3.1 Term. The term of this Sublease shall be for Thirty one (31)
---------------
months commencing on December 1, 1999 and ending on June 30, 2002 unless sooner
- ------ ---------------- -------------
terminated pursuant to any provision hereof.
3.2 Delay in Commencement. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in section 18 of this agreement (as modified by Paragraph
7.3 of this Sublease).
4. Rent.
4.1 Base Rent. Sublessee shall pay to Sublessor as Base Rent for
the Premises equal monthly payments of $17,034.60 in advance, on the first day
---------- -----
of each month of the term hereof via wire transfer. Sublessee shall pay
Sublessor upon the execution hereof $17,034.60 as Base Rent for December, 1999.
---------- ---------------
Base Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment.
4.2 Rent Defined. All monetary obligations for Sublessee to
Sublessor under the terms of this Sublease (except for the Security Deposit) are
deemed to be rent ("Rent"). Rent shall be payable in lawful money of the United
States to Sublessor at the address stated herein or to such other persons or at
such other places as Sublessor may designate in writing.
5. Security Deposit. Sublessee shall deposit with Sublessor upon
execution hereof $38,715.00 as security for Sublessee's faithful performance of
----------
Sublessee's obligations hereunder. The rights and obligations of Sublessor and
Sublessee as to said Security Deposit shall be as set forth in the Master Lease
(as modified by Paragraph 7.3 of this Sublease).
6. Use.
6.1 Agreed Use. The Premises shall be used and occupied only for
any legally permitted use under the Master Lease and for no other purpose.
- ------------------------------------------------
6.2 Compliance. Sublessee is responsible for complying with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances ("Applicable Requirements") in effect on the
commencement date. Sublessee is responsible for determining whether or not the
zoning is appropriate for its intended use, and acknowledges that past uses of
the Premises may no longer be allowed.
<PAGE>
6.3 Acceptance of Premises and Lessee. Sublessee acknowledges that:
(a) it has been advised by Brokers to satisfy itself with
respect to the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security, environmental aspects,
and compliance with Applicable Requirements), and their suitability for
Sublessee's intended use,
(b) Sublessee has made such investigation as it deems necessary
with reference to such matters and assumes all responsibility therefor as the
same relate to its occupancy of the Premises, and
(c) neither Sublessor, Sublessor's agents, nor any Broker has
made any oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and
(b) it is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.
7. Master Lease.
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "Master Lease", a copy of which is attached hereto marked
Exhibit 1, wherein Sublessor leased the Premises from LAOP IV, LLC, a Nevada
---------------------------------------------------------
Limited Liability Company, hereinafter the "Master Lessor."
- -------------------------
7.2 This Sublease is and shall be at all times subject to the Master
Lease.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Master Lease except for those provisions of the Master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the Master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent
for obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with, for
the benefit of Sublessor and Master Lessor, each and every obligation of
Sublessor under the Master Lease except for the following paragraphs which are
excluded therefrom: Basic Lease Information Sections 3, 4, 5, 6, 11, 12 and 13,
-----------------------------------------------------------
Lease Sections 1.2, 1.3, 1.4, 2.2, 2.5.3, 3.1*.
- ----------------------------------------------
7.5 The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations." The
obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6 Sublessee shall hold Sublessor free and harmless from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys' fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless from
all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
- -----------------------
*(third paragraph commencing with word "Notwithstanding"), 4.1 (first
paragraph), 22.24, 22.32, 22.33, Exhibit B (sections A, C and D), and Exhibit C.
-2-
<PAGE>
7.8 Sublessor represents to Sublessee that the Master Lease is in
full force and effect and that no default exists on the part of any Party to the
Master Lease.
8. Assignment of Sublease and Default.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the provisions of
Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, receive and collect, directly from Sublessee, all Rent owing and to
be owed under this Sublease. Master Lessor shall not, by reason of this
assignment of the Sublease nor by reason of the collection of the Rent from the
Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to
perform and comply with Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee
upon receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease
without the consent of Master Lessor.
9. Consent of Master Lessor.
9.1 In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then, this Sublease
shall not be effective unless, within ten days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the
Master Lease have been guaranteed by third parties then neither their Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10 days of
the date hereof, said guarantors sign this Sublease thereby giving their consent
to this Sublease.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the Rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall Default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid Rent nor any
-3-
<PAGE>
Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any
other Defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of
Sublessor at the end of this document shall constitute their consent to the
terms of this Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any Default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such Default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. Brokers Fee.
10.1 Upon execution hereof by all parties, Sublessee shall pay to
WESTMAC Commercial Brokerage Company, a licensed real estate broker ("Broker"),
- ------------------------------------
the sum of $21,060.88 for brokerage services rendered by Broker to Sublessor in
----------
this transaction.
10.2 Any transferee of Sublessee's interest in this Sublease, by
accepting an assignment thereof, shall be deemed to have assumed the respective
obligations of Sublessee or Master Lessor under this Paragraph 10. Broker shall
be deemed to be a third-party beneficiary of this paragraph 10.
11. Attorney's Fees. If any party or the Broker named herein brings an
action to enforce the terms hereof or to declare rights hereunder, the
prevailing party in any such action, on trial and appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. Additional Provisions. [If there are no additional provisions, draw a
line from this point to the next printed word after the space left here. If
there are additional provisions, place the same here.]
*Addendum attached.
-4-
<PAGE>
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
---------
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA,
-------
CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH THE
LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Executed at: Breath Asure, Inc., a California corporation
______________________________________________ ----------------------------------------------
on: ______________________________________________________ By _________________________________________
Address: __________________________________________________ By _________________________________________
"Sublessor" (Corporate Seal)
Executed at: Digital Insight Corporation, a Delaware
_______________________________________________ ----------------------------------------------
on: _______________________________________________________ By __________________________________________
Address: __________________________________________________ By _________________________________________
"Master Lessor" (Corporate Seal)
Executed at:________________________________________________ ______________________________________________
on: _______________________________________________________ By _________________________________________
Address: __________________________________________________ By _________________________________________
"Sublessor" (Corporate Seal)
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South
Flower St., Suite 600, Los Angeles, CA 90017. (213) 687-8777.
-5-
<PAGE>
ADDENDUM TO STANDARD SUBLEASE
Dated August 3, 1999
Between Breath Asure, Inc. and Digital Insight Corporation
13. CONTINGENCIES:
(A) If Sublessor shall not have executed a lease for alternative
Premises prior to September 15, 1999, Sublessor may terminate
this Sublease by delivering written notice to Sublessee not later
than September 17, 1999. In the event of such termination,
Sublessor shall return all advance payments to Sublessee and each
party shall thereupon be released from all liability hereunder.
If Sublessor shall fail to deliver such a termination notice to
Sublessee on or before September 17, 1999, this Sublease shall
remain in full force and effect.
(B) This Sublease is contingent upon Master Lessor not terminating
the Master Lease. If Master Lessor terminates the Master Lease,
then Sublessor may provide Master Lessor and Sublessee with a
"Revocation Notice" (as that term is defined in the Master Lease)
and this Sublease shall thereupon be terminated and Sublessor's
Master Lease shall remain in effect. In the event of such
termination, Sublessee shall vacate the Temporary Space,
Sublessor shall return all advance payments to Sublessee and each
party shall thereupon be released from all liability hereunder.
If Sublessor shall fail to deliver a Revocation Notice to
Sublessee within two (2) days following Master Lessor's delivery
to Sublessor of a notice terminating the Master Lease, this
Sublease shall remain in full force and effect.
14. BASE RENT ADJUSTMENT:
The Base Rent shall be adjusted during the term as follows:
December 1, 1999 - June 30, 2000: $17,034.60 per month, NNN
July 1, 2000 - June 30, 2001: $18,583.20 per month, NNN
July 1, 2001 - June 30, 2002: $19,357.50 per month, NNN
15. ADDITIONAL CHARGES:
The Base Rent is on a triple net basis where Sublessee shall pay
for all the triple net charges and any other additional costs as
they are described in the Master Lease. All additional charges
shall be included with the Base Rent payment (as described in
Paragraph 4.1) on the first day of each month of the Sublease
term. Upon the Sublease commencement date Sublease shall, at its
sole cost and expense, change the utilities within the Premises,
as well as the telephone line in the elevator, from the
Sublessor's name to Sublessee's name
<PAGE>
(the foregoing shall not apply to the occupancy by Sublessee of
the Temporary Space prior to the Sublease Commencement Date).
In addition to all other amounts payable by Sublessee under this
Sublease, Sublessee shall pay to Sublessor $70,000.00 (the
"Additional Payment") to contribute toward Sublessor's costs of
moving expenses and tenant improvement costs in connection with
Sublessor's new lease transaction. The Additional Payment shall
be paid in two installments: (a) $52,500.00 upon the execution
of this Sublease; and (b) $17,500.00 upon the commencement of the
Sublease Term. By consenting to this Sublease, Master Lessor
agrees that the Additional Payment shall not constitute "Bonus
Rent" (as that term is defined in the Master Lease) and that
Master Lessor shall not be entitled to any "Bonus Rent" as a
result of this Sublease.
16. TENANT IMPROVEMENTS:
Sublessee shall accept the Premises and the Temporary Space in an
"as is" "where is" condition and Sublessor makes no
representations or warranties, express or implied, regarding the
Premises or the Temporary Space or their condition or suitability
for Sublessee's intended use. Sublessor shall not be responsible
for completing any Tenant Improvements whatsoever.
17. TEMPORARY SPACE:
The Sublessor shall vacate the second floor (as per Exhibit "A")
of the Premises by a date which is twenty-one (21) days following
the date of mutual execution of this Sublease (the "Temporary
Space Date"). Sublessee shall utilize such Temporary Space for
Sublessee's business commencing on the date which is ten (10)
days after Sublessee's delivery to Sublessor of written notice of
Sublessee's intention to occupy the Temporary Space (provided
that, regardless of the date of such notice or whether such
notice is delivered, Sublessee shall be obligated to pay rent for
the Temporary Space commencing on a date which is no later than
the Temporary Space Date) and continuing until the Sublease term
commences on December 1, 1999. Sublessee shall pay to Sublessor
$8,000.00 upon the execution hereof as base rent for such use of
the Temporary Space for the first one-month period. Thereafter,
Sublessee shall pay to Sublessor, in advance, base rent for the
use of the Temporary Space at the rate of $8,000 per month
(prorated for any partial months) until the Sublease term
commences on December 1, 1999. Sublessor shall also pay all
parking, utilities and the triple net costs during the three (3)
months of the Temporary Space term. If this Sublease is
terminated pursuant to the terms of Paragraph 13 hereof,
Sublessee shall thereupon vacate the Temporary Space. Except for
the payment of rent, which shall be as set forth above, Sublessee
shall comply with all other terms of this Sublease during the
Temporary Space term including, without limitation, the
obligation to maintain insurance, indemnify Sublessor and Master
Lessor, and the
-2-
<PAGE>
obligation to surrender the Temporary Space in the condition
required under the Sublease.
18. DEFAULT BY MASTER LANDLORD:
Sublessee acknowledges and agrees that: (a) Sublessor shall not
be liable or responsible for any breach or default by Master
Lessor of any of the covenants and obligations of Master Lessor
under the Master Lease; and (b) no such breach of default by
Master Lessor shall constitute a default by Sublessor under this
Sublease or subject Sublessor to any liability to Sublessee for
damages or otherwise.
19. CONSENTS:
Wherever Sublessee is required to obtain consent to an action
under this Sublease, Sublessee shall be required to obtain the
consent of both Master Lessor and Sublessor at the sole cost of
Sublessee. Sublessor shall not unreasonably withhold its consent
to any action of Sublessor to which Master Lessor has consented.
20. BROKERS:
Sublessee represents and warrants that although it is responsible
for paying both Sublessor's broker and Sublessee's broker,
Sublessee is utilizing only Cushman and Wakefield of California,
Inc., and has not utilized any other broker or finder in this
transaction, and agrees to protect, defend, indemnify and hold
harmless Sublessor from any claims made by any such broker or
finder. Sublessor represents and warrants that it is utilizing
only Westmac Commercial Brokerage Company and that it has not
utilized any other broker or finder in this transaction and
agrees to protect, defend, indemnify and hold harmless Sublessee
from any claims made by any broker or finder except for Westmac
Commercial Brokerage Company.
21. INSURANCE:
Sublessee shall cause both Master Lessor and Sublessor to be
named as additional insureds under all policies of insurance
required under Section 12.3 of the Master Lease.
22. TERMINATION RIGHT:
Notwithstanding the commencement date stated in Paragraph 3.1, if
Sublessor fails to deliver the entire Premises to Sublessee by
December 31, 1999, because, and only because, the landlord for
Sublessor's new premises has not delivered such new premises to
Sublessor by December 31, 1999, Sublessee or Sublessor shall have
the right to terminate this Sublease by delivering written notice
to the other on or before January 5, 2000. If neither party
shall
-3-
<PAGE>
deliver such a termination notice, this Sublease shall
remain in full force and effect.
BREATH ASURE, INC. DIGITAL INSIGHT CORPORATION
a California corporation a Delaware corporation
By: ________________________________ By: ____________________________
Its: ________________________________ Its: ____________________________
-4-
<PAGE>
EXHIBIT 10.13
DIGITAL INSIGHT CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
Mehariar Hasan
___________________
___________________
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Date of Grant 7/28/99
------------------
Vesting Commencement Date 7/27/99
------------------
Exercise Price per Share $13.00
-----------------------------------
Total Number of Shares Granted 90,000
------------------------------
Total Exercise Price $1,170,000
------------------------------
Type of Option: X Incentive Stock Option
----- (ISO to the maximum extent
permissible under law.)
Nonstatutory Stock Option
-----
Term/Expiration Date: 7/28/09
------------------
Vesting Schedule:
----------------
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
<PAGE>
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest at the end of each calendar month thereafter, subject in each case to
Optionee's continuing to be a Service Provider on such dates; provided, however,
-----------------
that, 50% of the then unvested portion of the Option shall immediately vest and
become exercisable in full in the event of a Change of Control of the Company,
and the Optionee shall have the right to exercise such additional vested portion
of the Option at such time. For purposes hereof, a "Change of Control" shall
include any of the following shareholder-approved transactions to which the
Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for (A) a transaction the principal purpose of which is
to change the state of the Company's incorporation, or (B) a transaction in
which the Company's shareholders immediately prior to such merger or
consolidation hold (by virtue of securities received in exchange for their
shares in the Company) securities of the surviving entity representing more than
fifty percent (50%) of the total voting power of such entity immediately after
such transaction;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company unless the Company's shareholders immediately
prior to such sale, transfer or other disposition hold (by virtue of securities
received in exchange for their shares in the Company) securities of the
purchaser or other transferee representing more than fifty percent (50%) of the
total voting power of such entity immediately after such transaction; or
(iii) any reverse merger in which the Company is the surviving entity
but in which the Company's shareholders immediately prior to such merger do not
hold (by virtue of their shares in the Company held immediately prior to such
transaction) securities of the Company representing more than fifty percent
(50%) of the total voting power of the Company immediately after such
transaction. Notwithstanding the foregoing, in the event the acceleration of
the vesting of this Option upon a Change in Control would prevent an acquisition
from being treated as a "pooling-of-interests" for financial accounting purposes
by the surviving entity, and such treatment is a condition to the acquisition,
the foregoing benefits shall be equitably adjusted to the extent necessary to
effectuate such pooling-of-interests treatment.
Termination Period:
------------------
This Option shall be exercisable for three months after Optionee ceases to
be a Service Provider. Upon Optionee's death or disability, this Option may be
exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of
-2-
<PAGE>
Shares set forth in the Notice of Grant, at the exercise price per Share set
forth in the Notice of Grant (the "Exercise Price"), and subject to the terms
and conditions of the Plan, which is incorporated herein by reference. Subject
to Section 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and this Option Agreement, the terms and conditions of
the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B, and shall read the applicable rules of the Commissioner of Corporations
attached to such Investment Representation Statement.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold
-3-
<PAGE>
on behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
-4-
<PAGE>
(b) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is
an Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS
-5-
<PAGE>
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH
OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS
A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
OPTIONEE: DIGITAL INSIGHT CORPORATION
Signature By
Print Name Title
________________________________
Residence Address
-6-
<PAGE>
EXHIBIT A
---------
1997 STOCK PLAN
EXERCISE NOTICE
Digital Insight Corporation
26025 Mureau Road
Calabasas, CA 91032
Attention: Chief Financial Officer
1. Exercise of Option. Effective as of today, ___________, ____, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Digital Insight
Corporation (the "Company") under and pursuant to the 1997 Stock Plan (the
"Plan") and the Stock Option Agreement dated ________, 1998 (the "Option
Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced
---------------------
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
<PAGE>
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
<PAGE>
6. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
-3-
<PAGE>
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Administrator shall be final and binding on
all parties.
10. Governing Law; Severability. This Agreement is governed by the
---------------------------
internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
----------------
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE: DIGITAL INSIGHT CORPORATION
_________________________________ ___________________________________
Signature By
_________________________________ ___________________________________
Print Name Its
Address: Address:
- ------- -------
_________________________________ 26025 Mureau Road
Calabasas, CA 91032
_________________________________
___________________________________
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: DIGITAL INSIGHT CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the
<PAGE>
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than one year after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than two years, the satisfaction of the conditions set forth in
sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
Signature of Optionee:
_____________________________________
Date:_________________________
-2-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 12, 1999, except
as to Note 12, which is as of May 28, 1999, relating to the financial statements
of Digital Insight Corporation, which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement schedule
for each of the three years in the period ended December 31, 1998 listed under
Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
references to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Costa Mesa, California
September 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS OF DIGITAL INSIGHT CORPORATION AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998 AND UNAUDITED AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 4,758 10,753
<SECURITIES> 0 0
<RECEIVABLES> 429 1,042
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,402 12,319
<PP&E> 3,007 4,875
<DEPRECIATION> 654 1,099
<TOTAL-ASSETS> 8,077 16,398
<CURRENT-LIABILITIES> 2,335 4,605
<BONDS> 0 0
12,444 20,847
0 0
<COMMON> 6 6
<OTHER-SE> (6,790) (9,624)
<TOTAL-LIABILITY-AND-EQUITY> 8,077 16,398
<SALES> 8,230 7,092
<TOTAL-REVENUES> 8,230 7,092
<CGS> 5,270 4,743
<TOTAL-COSTS> 7,559 5,966
<OTHER-EXPENSES> (243) (62)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (4,356) (3,555)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,356) (3,555)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,356) (3,555)
<EPS-BASIC> (.85) (.66)
<EPS-DILUTED> (.85) (.66)
</TABLE>
