U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2000
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-41545
ebank.com, Inc.
------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2349097
------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
2410 Paces Ferry Road, Atlanta, Georgia 30339
---------------------------------------------
(Address of Principal Executive Offices)
(770) 863-9229
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
-- --
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,630,688 shares of common stock, par value $.01 per share, were issued
and outstanding as of May 10, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- --
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2000 1999
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $ 1,499,733 $ 152,899
Federal funds sold 1,910,000 620,000
Investment securities available for sale - 994,700
Other securities 215,600 213,000
Loans, net of allowance for loan losses of $788,000, and $730,000, 50,321,854 47,867,286
respectively
Premises and equipment, net 2,197,947 1,498,568
Accrued interest receivable 350,169 185,572
Investment in Talisman Technologies, Inc. 665,932 -
Other assets 1,388,118 531,345
--------------- ---------------
Total assets $ 58,549,353 $ 52,063,370
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 48,996,850 $ 41,611,122
Accrued interest payable 102,938 86,422
Other liabilities 425,067 424,183
----------------- ----------------
Total liabilities 49,524,855 42,121,727
----------------- ----------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 1,630,688
and 1,469,250 shares issued and outstanding, respectively 16,307 14,693
Surplus 14,386,390 13,722,072
Accumulated deficit (5,378,199) (3,793,472)
Accumulated other comprehensive income (loss) - (1,650)
----------------- -----------------
Total shareholders' equity 9,024,498 9,941,643
----------------- ----------------
Total liabilities and shareholders' equity $ 58,549,353 $ 52,063,370
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
For the three months ended
--------------------------
March 31,
--------
2000 1999
---- ----
<S> <C> <C>
Interest income
Loans, including fees......................... $ 1,234,887 $ 351,116
Investment securities:
U.S. Government agencies and
Corporations.............................. 2,503 46,685
Other investments............................. 1,217 487
Federal funds sold............................ 34,032 91,300
-------------- --------------
Total interest income......................... 1,272,639 489,588
-------------- --------------
Interest expense
Interest bearing demand and money market 179,967 60,816
Savings....................................... 212 108
Time deposits of $100,000 or more............. 133,859 50,521
Other time deposits........................... 265,689 62,145
Other borrowings.............................. 2,974 --
-------------- --------------
Total interest expense........................ 582,701 173,590
-------------- --------------
Net interest income.................................... 689,938 315,998
Provision for possible loan losses..................... 58,000 70,000
-------------- --------------
Net interest income after provision
for possible loan losses...................... 631,938 245,998
-------------- --------------
Other income 24,318 1,725
-------------- --------------
Total other income............................ 24,318 1,725
-------------- --------------
Other expense
Salaries and other compensation............... 630,668 227,622
Employee benefits............................. 202,957 45,174
Net occupancy and equipment expense........... 293,054 96,188
Professional and other outside services....... 996,304 56,864
Other expense................................. 118,000 120,301
-------------- --------------
Total other expenses.......................... 2,240,983 546,149
-------------- --------------
Loss before income tax benefit......................... (1,584,727) (298,426)
Income tax benefit..................................... -- --
-------------- --------------
Net loss...................................... $ (1,584,727) $ (298,426)
=============== ==============
Basic and diluted loss per common share................ $ (1.06) $ (.20)
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
Consolidated Statements of Comprehensive Loss
(Unaudited)
For the three months ended
--------------------------
March 31,
--------
2000 1999
---- ----
<S> <C> <C>
Net loss $ (1,584,727) $ (298,426)
Other comprehensive gain (loss), net of tax:
Unrealized gain (loss) on securities
Available for sale (1,650) (379)
------------ -------------
Comprehensive loss $ (1,583,077) $ (298,805)
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
--------------------------
March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from operating activities: $ (1,584,727) $ (298,426)
Net loss
Adjustment to reconcile net loss to net cash used (3,650) (46,548)
by operating activities:
Net accretion of investment securities 112,134 34,626
Depreciation and amortization of premises and equipment 58,000 70,000
Provision for possible loan losses (856,773) 36,818
(Increase) in other assets (164,597) (30,238)
(Increase) in accrued interest receivable 16,516 17,145
(Increase) in accrued interest payable 884 (7,649)
--------------- ----------------
(Decrease) in other liabilities (2,422,213) (224,272)
---------------- ----------------
Net cash used by operating activities
Cash flows from investing activities:
Purchase of investment securities available for sale (2,600) (4,972,390)
Maturities of investment securities available for sale 1,000,000 5,000,000
Loans originated, net of principal repayments (2,512,568) (8,688,802)
(811,513) (89,216)
Purchases of premises and equipment ---------------- ----------------
(2,326,681) (8,750,408)
---------------- ----------------
Net cash used by investing activities
Cash flows from financing activities:
Net increase in deposits 7,385,728 3,973,647
--------------- ---------------
Net cash provided from financing activities 7,385,728 3,973,647
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,636,834 (5,001,033)
Cash and Cash Equivalents:
Beginning of period 772,899 9,923,677
--------------- ---------------
End of period $ 3,409,733 $ 4,922,644
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
ebank.com, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the Company's
consolidated financial statements and footnotes included in the Company's annual
report on Form 10-KSB.
ebank.com, Inc. (formerly known as Southeastern Commerce Holding
Company) provides a full range of banking and bank-related services to
individual and corporate customers through its bank subsidiary, located in north
Atlanta, Georgia. Shortly after the opening of the bank subsidiary, plans were
developed to offer Internet banking services, and regulatory approval for such
services was obtained in December 1998. Effective April 20, 1999, the corporate
name was changed to "ebank.com, Inc." and the Internet domain name "ebank.com"
was acquired. Internet banking services began on June 30, 1999. ebank.com, Inc.
and its subsidiaries are subject to intense competition for all banking
services, including Internet banking, from other financial institutions and
nonbank financial service companies.
ebank.com, Inc. (the "Parent Company") was incorporated, under the laws
of the State of Georgia on August 22, 1997, to operate as a bank holding company
with the Office of Thrift Supervision. ebank (the "Bank") began as a general
banking business on August 17, 1998, as a wholly-owned subsidiary of the Parent
Company. The Parent Company also owns 100 percent of the capital stock of
Commerce Mortgage Company, LLC ("Commerce Mortgage"). The consolidated financial
statements include the accounts of the Parent Company and its wholly-owned
subsidiaries, the Bank and Commerce Mortgage, collectively known as the
"Company." All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2 - SHARES USED IN COMPUTING NET LOSS PER SHARE
Basic and diluted loss per share are based on 1,497,635 weighted
average shares outstanding for the quarter ended March 31, 2000. There were
42,541 potential common shares outstanding at March 31, 2000, related to common
stock options. These shares were not included in the computation of the diluted
loss per share amount because the Company was in a net loss position and, thus,
any potential common shares were anti-dilutive.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncement Affecting Future Periods
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is effective for fiscal years
beginning after June 15, 2000. Under SFAS 133, a company will
<PAGE>
recognize all free-standing derivative instruments in the statement of financial
position as either assets or liabilities and will measure them at fair value.
The difference between a derivative's previous carrying amount and its fair
value shall be reported as a transition adjustment presented in net income or
other comprehensive income, as appropriate, in a manner similar to the
cumulative effect of a change in accounting principle. This statement also
determines the accounting for the changes in fair value of a derivative,
depending on the intended use of the derivative and resulting designation. The
adoption of SFAS 133 is not expected to have a significant impact on the
consolidated financial condition or results of operations of the Company.
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is as follows:
Unrealized
Gains (Losses)
On Securities
-------------
Beginning balance - December 31, 1999 $ (1,650)
Current - period change $2,750, net of tax
of $1,100 1,650
----------
Ending balance - March 31, 2000 $ 0
==========
NOTE 5 - INVESTMENT IN TALISMAN TECHNOLOGIES, INC.
On March 16, 2000, the Company entered into an exclusive 15-year
license agreement with Talisman Technologies, Inc., an affiliate of Talisman
Entertainment Inc., to use its Internet ATM technology in its installation and
operation of ATMs within the United States, and granted Talisman a 15-year
license to use its banking knowledge and know-how, trademarks, business plans,
and marketing materials outside the United States. As consideration for these
licenses, the Company issued 161,438 shares of its common stock to Talisman,
which represented 9.9% of its common stock on the closing date, and we are
committed to issue additional shares to maintain Talisman's 9.9% interest if
certain events occur. In return, Talisman issued us 9.9% of the then outstanding
shares of its common stock on a fully diluted basis. In addition, the Company
has agreed to enter into an outsourcing agreement with Talisman within 180 days
after the closing, pursuant to which Talisman will provide our core data
processing services. The Company will need a substantial amount of additional
funds, which it believes will be between $5 million and $10 million, to
implement the outsourcing agreement. The Company currently does not have these
funds and there is a risk that it will not obtain them during this 180-day
period. If the Company fails to enter into this agreement within this period,
Talisman reserves the right to rescind the entire transaction, including the
license transfers and share issuances. Because there is a substantial risk that
the outsourcing agreement will not be implemented and the transactions will be
rescinded, the Company has not attributed any value to the Talisman license in
our financial statements for the period ended March 31, 2000. In addition,
because the common stock it issued to Talisman is restricted stock and cannot be
freely transferred without registration, third party investment bankers have
applied a lack of marketability discount of approximately 45% from the closing
price of our common stock on March 16, 2000, the date of issuance. Because there
is no public market for the Talisman common stock the Company received in the
transaction, the Company valued this asset based on the value of the common
stock it issued to Talisman, taking into account the discount for lack of
liquidity.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis or Plan of Operation.
This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Other potential risks and uncertainties include, but
are not limited to:
o significant increases in competitive pressure in the banking and
financial services industries;
o changes in the interest rate environment which could reduce anticipated
or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission, including our Form 10-KSB
for the year ended December 31, 1999.
Financial Condition
- -------------------
Total consolidated assets increased by $6,485,983 or 12.5% to
$58,549,353 during the three-month period ended March 31, 2000. The increase was
generated primarily through a net increase in deposits of $7,385,728 or 17.8%.
At March 31, 2000, the Company's assets consisted primarily of federal
funds sold of $1,910,000, other investments of $215,600, net loans of
$50,321,854, property at cost less accumulated depreciation of $2,197,947, cash
due from banks of $1,499,733, investment in Talisman Technologies, Inc. of
$665,932, and other assets totaling $1,738,287. The Company's liabilities at
March 31, 2000, were $49,524,855, consisting of deposits of $48,996,850 and
accrued expenses and other liabilities of $528,005. The Company's shareholders'
equity of totaled $9,024,498 at March 31, 2000.
<PAGE>
Results of Operations
- ---------------------
From the Bank's opening date on August 17, 1998 through March 31, 2000,
the Bank has attracted approximately $49.0 million in deposits and made net
loans of $50.3 million. Net interest income for the three-month period ending
March 31, 2000 totaled $689,938 compared to net interest income of $315,998 for
the three-month period ending March 31, 1999. This increase in net interest
income in the 1st quarter of 2000 over the 1st quarter of 1999 is primarily due
to an increase in earning assets, including primarily the increase in average
loans of $34.0 million, offset somewhat by the reduction in average investment
securities of $9.2 million, respectively.
Our provision for loan losses for the three months ended March 31, 2000
and 1999 was $58,000 and $70,000, respectively. This was offset somewhat by
other income of $24,318 and $1,725, respectively.
On an annualized basis, other income represents less than .17% of total
assets. This figure is relatively low because in order to attract new banking
relationships, the Bank's fee structure and charges are low when compared to
other banks. The above fees and charges may increase in the future.
Operating expenses for the three-month period ending March 31, 2000
totaled $2,240,984, including salaries and other compensation of $630,668,
employee benefits expenses of $202,957, occupancy and equipment expenses of
$293,054, professional and other outside services of $996,304, and other
expenses of $118,000. On an annualized basis, other expenses represents 15.4% of
total assets. Operating expense for the three-month period ending March 31, 1999
totaled $546,149. The significant increases in operating expenses in the
three-month period ending March 31, 2000 over the same period in 1999 include
additional staffing, occupancy, and professional expenses to support the
projected growth of the Company, marketing expenses to promote the Company's
products and services, and other general operating expenses.
The Company had a net loss of $1,584,727 or $1.06 per share for the
three-month period ending March 31, 2000, compared to a net loss of $298,426 or
$.20 per share for the three-month period ending March 31, 1999.
Allowance for Loan Losses
- -------------------------
There are risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from changes in economic and industry conditions, risks inherent in dealing with
individual borrowers, and, in the case of a collateralized loan, risks resulting
from uncertainties about the future value of the collateral. To address these
risks, we have developed policies and procedures to evaluate the overall quality
of our credit portfolio and the timely identification of potential problem
loans. We maintain an allowance for possible loan losses which we establish
through charges in the form of a provision for loan losses. We charge loan
losses and credit recoveries directly to this allowance.
We attempt to maintain the allowance at a level that will be adequate
to provide for potential losses in our loan portfolio. To maintain the allowance
at an adequate level, we periodically make additions to the allowance by
charging an expense to the provision for loan losses on our statement of
operations. We currently evaluate the allowance for loan losses on an overall
portfolio basis, but we intend to begin allocating the allowance to loan
categories once the loan portfolio becomes large and diversified enough to
support such an allocation system. We consider a number of factors in
determining the level of this allowance, including our total amount of
outstanding loans, our amount of past due loans, our historic loan loss
experience, general economic conditions, and our assessment of
<PAGE>
potential losses. Our evaluation is inherently subjective as it requires
estimates that are susceptible to significant change. Our losses will
undoubtedly vary from our estimates, and there is a possibility that charge-offs
in future periods will exceed the allowance for loan losses as estimated at any
point in time.
At December 31, 1999, the allowance for loan losses amounted to
$730,000. By March 31, 2000, the allowance had grown to $788,000. The allowance
for loan losses, as a percentage of total gross loans, increased from 1.50% to
1.54% during the three-month period ended March 31, 2000. We had one
non-performing loan totaling $93,000 and no significantly past due loans at
March 31, 2000 and had no charge-offs for the three-month period ending March
31, 2000.
Average Balances, Income and Expense, and Rates
- -----------------------------------------------
Net interest income represents the difference between interest received
on interest earning assets and interest paid on interest bearing liabilities.
The following represents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the three months
ended March 31, 2000.
<TABLE>
<CAPTION>
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- -------- ------- --------
<S> <C> <C> <C>
Federal funds sold $ 2,416,230 $ 34,032 5.66%
Investment securities 247,637 3,720 6.04%
Loans 48,837,571 1,234,887 10.17%
--------------- -------------- -----------
Total $ 51,501,439 $ 1,272,639 9.94%
=============== ============= ===========
Deposits $ 45,922,641 $ 582,701 5.10%
=============== ============== ===========
Net interest income $ 689,938 4.84%
============== ===========
Net yield on earning assets 5.39%
===========
</TABLE>
Liquidity and Sources of Capital
- --------------------------------
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The March
31, 2000 financial statements evidence a satisfactory liquidity position as
total cash, cash equivalents, and federal funds sold amounted to approximately
$3.4 million, representing 6% of total assets. Note that the Company's ability
to maintain and expand its deposit base and borrowing capabilities are a source
of liquidity. For the three-month period ended March 31, 2000, total deposits
increased from $41.6 million to $49.0 million, representing an increase of 18%.
The Company closely monitors and attempts to maintain appropriate levels of
interest-earning assets and interest-bearing liabilities so that maturities of
assets are such that adequate funds are available to meet customer withdrawals
and loan demand.
The Company and the Bank maintain adequate levels of capitalization as
measured by the following capital ratios and the respective minimum capital
requirements by the OTS, the Bank's primary regulator.
<TABLE>
<CAPTION>
Bank Company Minimum
Capital Capital Regulatory
Capital ratios at March 31, 2000 Ratio Ratio Requirement
----- ----- -----------
<S> <C> <C> <C> <C>
Tier 1 capital 13.1% 16.0% 4.0%
Tier 2 capital 1.2% 1.2%
----------- ----------
Total risk-based capital ratio 14.3% 17.2% 8.0%
=========== ========== ============
Leverage ratio 12.4% 15.0% 4.0%
=========== ========== ============
</TABLE>
The OTS has established a 3.0% minimum leverage ratio requirement. The
leverage ratio is computed by dividing Tier 1 capital into average assets. For
all except the highest rated banks, the minimum leverage ratio should be 3.0%
plus an additional cushion of at least 1 to 2 percent, depending upon risk
profiles and other factors.
Management believes that, as of March 31, 2000, the Company and Bank
meet all capital requirements to which they are subject.
Liquidity And Rate Sensitivity
- ------------------------------
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates.
The Company measures interest rate sensitivity as the difference
between amounts of interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of time. The difference, or
the interest rate repricing "gap," provides an indication of the extent to which
an institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-sensitive liabilities, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-sensitive assets. Generally, during a period of rising
interest rates, a negative gap within shorter maturities would adversely affect
net interest income, while a positive gap within shorter maturities would result
in an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
<PAGE>
The table below shows the interest rate sensitivity of the Company's
assets and liabilities as of March 31, 2000:
<TABLE>
<CAPTION>
After three
Within but within After one
three twelve but within After five
months months five years Years Total
------------- --------------- --------------------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 1,910 $ -- $ -- $ -- $ 1,910
Other securities 0 -- -- 215 215
Loans 26,569 2,520 16,698 5,323 51,110
---------- ---------- ----------- ----------- -----------
Total earning assets $ 28,479 $ 2,520 $ 16,698 $ 5,538 $ 53,235
========= ========== =========== ========== ===========
Interest-bearing liabilities:
Money market, savings and NOW $ 13,856 $ -- $ -- $ -- $ 13,856
Time deposits 4,183 25,601 85 -- 29,869
---------- ---------- ----------- ----------- -----------
Total interest-bearing liabilities $ 18,039 $ 25,601 $ 85 $ -- $ 43,725
========== ========== =========== ========== ===========
Interest-sensitivity gap $ 10,440 $ (23,081) $ 16,613 $ 5,538 $ 9,510
========== =========== =========== ========== ===========
Cumulative interest-sensitivity gap $ 10,440 $ (12,641) $ 3,972 $ 9,510 $ 9,510
========== =========== =========== ========== ===========
Ratio of interest-sensitivity gap to
total earning assets 19.61% (43.36)% 31.21% 10.40%
Ratio of cumulative
interest-sensitivity gap to total
earning assets 19.61% (23.75)% 7.46% 17.86%
</TABLE>
As evidenced by the table above, the Company is cumulatively
liability-sensitive at one year. However, the Company's gap analysis is not a
precise indicator of its interest sensitivity position. The analysis presents
only a static view of the timing of maturities and repricing opportunities,
without taking into consideration that changes in interest rates do not affect
all assets and liabilities equally. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
<PAGE>
Loan Portfolio
- --------------
Since loans typically provide higher interest yields than do other
types of earning assets, the Company's intent is to channel a substantial
percentage of its earning assets into the loans category. Average loans, on an
annualized basis, were approximately $48,800,000 for the three-month period
ended March 31, 2000. Total gross loans outstanding at March 31, 2000 were
$51,109,854.
The following table summarizes the composition of the loan portfolio at
March 31, 2000:
Percent
Amount of total
---------------- -----------
Commercial $ 10,899,145 21.25%
Real estate - individual 3,124,081 6.09%
Real estate - commercial 35,182,059 68.59%
Installment loans to individuals 2,085,823 4.07%
---------------- -----------
Total loans 51,291,108 100.00%
===========
Less: Net deferred loan fees (181,254)
Allowance for loan loss (788,000)
----------------
Total net loans $ 50,321,854
================
The principal components of the Company's loan portfolio at March 31,
2000 were mortgage loans and commercial loans, which represented 95.93% of the
portfolio. Due to the short time the portfolio has existed, the current mix of
loans may not be indicative of the ongoing portfolio mix. The Company will
attempt to maintain a relatively diversified loan portfolio to help reduce the
risk inherent in concentration of collateral.
Other Matters
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act contains a number of provisions specifically applicable to
federal thrifts. For example, the Act repeals the Savings Association Insurance
Fund special reserve; modernizes the Federal Home Loan Bank System; provides
regulatory relief for community banks with satisfactory or outstanding Community
Reinvestment Act ratings in the form of less frequent compliance examinations;
and creates privacy provisions that address consumer needs without disrupting
necessary information sharing between community banks and their financial
services partners.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or affiliating with nonfinancial entities.
The prohibition applies to a company that becomes a unitary thrift holding
company pursuant to an application filed with the OTS after May 4, 1999.
However, a grandfathered unitary thrift holding company, such as our Company,
retains its authority to engage in nonfinancial activities.
<PAGE>
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the banking
industry, and these changes could have a material effect on our business and
prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
Other than as described in this Form 10-QSB, the Company is not aware
of any current recommendation by the regulatory authorities which, if
implemented, would have a material effect on the Company's liquidity, capital
resources, or results of operations.
Year 2000
Like many financial institutions, we rely upon computers for conducting
our business and for information systems processing. Industry experts were
concerned that on January 1, 2000, some computers would not be able to interpret
the new year properly, causing computer malfunctions. While we have not
experienced any material computer malfunctions to date, there remains a risk
that our computers will be unable to read or interpret data on Year
2000-sensitive dates, including October 10, 2000. Our regulators have issued
guidelines to require compliance with Year 2000 issues. In accordance with these
guidelines, we have developed and executed a plan to ensure that our computer
and telecommunication systems do not have these Year 2000 problems. We generally
rely on software and hardware developed by independent third parties for our
information systems. We believe that our internal systems and software,
including our network connections, are programmed to comply with Year 2000
requirements, although there is a risk they may not be. We incurred
approximately $30,000 in expenses in 1999 to implement our Year 2000 plan. Under
our plan, we are continuing to monitor the situation throughout 2000. Based on
information currently available, we believe that we will not incur significant
additional expenses in connection with the Year 2000 issue.
The Year 2000 issue may also negatively affect the business of our
customers, but to date we are not aware of any material Year 2000 issues
affecting them. We include Year 2000 readiness in our lending criteria to
minimize risk. However, this will not eliminate the issue, and any financial
difficulties that our customers experience caused by Year 2000 issues could
impair their ability to repay loans to us.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In late May 1999, we received a notice from Huntington Bancshares
Incorporated asserting that it has superior trademark rights in the name
"ebank." In 1996, Huntington Bancshares Incorporated obtained a federal
trademark registration for the term "E-BANK." Based on our review of materials
Huntington sent us describing its use of the term "E-BANK," we believe that
Huntington's use of the term is limited to a description of a system platform
which Huntington at one time offered or planned to offer on a wholesale basis to
other banks. We do not believe that Huntington has used the term in connection
with offering financial services to the public. Consequently, we do not believe
that our ownership rights in the service mark "ebank" and our use of the mark to
provide financial services on the Internet and elsewhere infringe upon
Huntington's federal trademark. In order to clarify the
<PAGE>
situation, on June 30, 1999 we filed an action in the United States District
Court for the Northern District of Georgia, asking for a declaratory judgment
that we have the right to use "ebank.com" as a trademark for Internet banking
services despite Huntington's registration. Rather than answering our complaint,
Huntington filed suit against us on August 10, 1999 in the United States
District Court for the Eastern District of Ohio, alleging trademark infringement
over our use of the name "ebank.com." In the Ohio action, Huntington is seeking
an injunction against our use of the name "ebank.com" and "ebank," as well as
treble damages and all profits realized by us by reason of our use of the name
"ebank." Huntington has submitted a motion to dismiss the Georgia action, and we
have submitted a motion to dismiss the Ohio action, in each case on the grounds
of lack of jurisdiction. On March 29, 2000, the district court in the Georgia
action granted Huntington's motion to dismiss on the grounds that the court did
not have jurisdiction over Huntington. Although we intend to vigorously defend
our rights to the name "ebank.com," we cannot predict the outcome of this
litigation. Although we do not expect this, in the worst case we could be
required to pay damages, change our name, and choose a new domain name from
which to host our Internet operations, and the amount of damages could even
include the actual amount of damages sustained by Huntington, multiplied by
three, plus all profits we realize through the use of the name "ebank," and even
punitive damages.
There are no other material legal proceedings to which the Company or
any of its properties are subject.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
(c) On March 16, 2000, we issued 161,438 shares of common stock to
Talisman Technologies, Inc. in return for 9.9% of its common
stock. We are committed to issue additional shares to maintain
Talisman's 9.9% interest if certain events occur. For its
services in connection with the Talisman transaction, we have
agreed to pay Sutro & Co. Incorporated an advisory fee of
$300,000 and 7.5% of the Talisman shares we received. Please
see a more detailed discussion of this transaction under Note
5 to the financial statements.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1. Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of
the Company's Registration Statement on Form SB-2, File No. 333-41545.)
<PAGE>
3.2. Bylaws (Incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form SB-2, File No. 333-41545.)
4.1. See Exhibits 3.1 and 3.2 for provisions in the Company's Articles of
Incorporation and Bylaws defining the rights of holders of the Common
Stock (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form SB-2, File No. 333-41545.)
4.2. Form of Certificate of Common Stock (Incorporated by reference to
Exhibit 4.2 of the Company's Registration Statement on Form SB-2, File
No. 333-41545.)
4.3. ebank.com, Inc. 1998 Stock Incentive Plan (incorporated by reference to
Exhibit 4.3 of the company's Form S-8 filed October 5, 1999)
4.4. ebank.com, Inc. First Amendment to the 1998 Stock Incentive Plan as
adopted by the Board of Directors on September 20, 1999
10.1. Letter of Employment dated November 18, 1997, between the Company and
Louis J. Douglass, III (Incorporated by reference to Exhibit 10.1 of
the Company's Registration Statement on Form SB-2, File No. 333-41545.)
10.2. Line of Credit Agreement dated August 27, 1997, between The Company and
The Bankers Bank (Incorporated by reference to Exhibit 10.2 of the
Company's Registration Statement on Form SB-2, File No. 333-41545.)
10.3. Lease Agreement dated October 14, 1997, between the Company, as lessee,
and Regent Paces Ferry Office I, Inc., as lessor (Incorporated by
reference to Exhibit 10.3 of the Company's Registration Statement on
Form SB-2, File No. 333-41545.)
10.4. Form of Escrow Agreement among the Company, Banc Stock Financial
Services, Inc., and The Bankers Bank (Incorporated by reference to
Exhibit 10.4 of the Company's Registration Statement on Form SB-2, File
No. 333-41545.)
10.5. Phoenix International Ltd., Inc. Software License Agreement
(Incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form SB-2, File No. 333-41545.)
10.6. Letter of Intent dated February 20, 1998 between the Company and Banc
Stock Financial Services, Inc. (Incorporated by reference to Exhibit
10.6 of the Company's Registration Statement on Form SB-2, File No.
333-41545.)
10.7. Form of Underwriting Agreement among the Company and Banc Stock
Financial Services, Inc. (Incorporated by reference to Exhibit 10.7 of
the Company's Registration Statement on Form SB-2, File No. 333-41545.)
10.8. First Amendment to Lease Agreement dated June 4, 1998 between the
Company and Regent Paces Ferry Office I, Inc. (incorporated by
reference in the Company's Form 10KSB filed with the SEC on April 12,
2000.)
10.9. Sublease dated March 15, 1999 between the Bank and The Bankers Bank
(incorporated by reference in the Company's Form 10KSB filed with the
SEC on April 12, 2000.)
10.10. Engagement letter dated December 13, 1999 between the company and Sutro
& Co., Inc. (incorporated by reference in the Company's Form 10KSB
filed with the SEC on April 12, 2000.)
<PAGE>
10.11. Integrated Business Center Agreement dated December 15, 1999 between
the company and Office.com (incorporated by reference in the Company's
Form 10KSB filed with the SEC on April 12, 2000.)
10.12. Letter of Agreement dated May 14, 1999 between the Company and
Fountainhead Strategic Solutions, LLC (incorporated by reference in the
Company's Form 10KSB filed with the SEC on April 12, 2000.)
10.13. Form of employment agreement for Richard A. Parlontieri with the
Company (incorporated by reference in the Company's Form 10KSB filed
with the SEC on April 12, 2000.)
10.14 Stock Exchange and Rights Agreement with Tailsman Technologies, Inc.
dated January 25, 2000.
21.1. Subsidiaries of the Company (incorporated by reference in the Company's
Form 10KSB filed with the SEC on April 12, 2000.)
23.1 Independent Certified Public Accountants
27.1. Financial Data Schedule (for electronic filing purposes)
99.1(a) Press Release dated August 17, 1998 to announce Commerce Mortgage
Company, LLC (incorporated by reference in the Company's Form 10QSB
filed for the period ended June 30, 1998)
99.1(b) Press Release dated April 23, 1999 to announce the Company's name
change to ebank.com, Inc. (incorporated by reference in the Company's
Form 8-K filed with the SEC on April 23, 1999)
99.2. Press Release dated May 3, 1999 to announce the Company's new stock
trading symbol (incorporated by reference in the Company's Form 8-K
filed with the SEC on May 5, 1999)
- ------------------------
(b) The following reports on were filed by the Company on Form 8-K
during the quarter ended March 31, 2000.
99.3(a) Press Release dated January 26, 2000 to announce the Company's
agreement to enter into strategic relationship with Talisman
Technologies, Inc. (incorporated by reference to Exhibit 99.1 of the
Company's Form 8-K filed with the SEC on February 17, 2000)
99.3(b) Press Release dated January 30, 2000 to announce the Company's
initiative to be a leading Internet provider of financial services for
small business and retail customers (incorporated by reference to
Exhibit 99.2 of the Company's Form 8-K filed with the SEC on February
17, 2000)
99.3(c) Press Release dated February 8, 2000 to announce the Company's alliance
with Office.com (incorporated by reference to Exhibit 99.3 of the
Company's Form 8-K filed with the SEC on February 17, 2000)
99.3(d) Press Release dated February 16, 2000 to announce the Company's
alliance with GoRate.com (incorporated by reference to Exhibit 99.4 of
the Company's Form 8-K filed with the SEC on February 17, 2000)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ebank.com, Inc.
Date: May 15, 2000 By: /s/ Richard A. Parlontieri
---------------- -------------------------------
Richard A. Parlontieri
Chairman and Chief Executive
Officer
By: /s/ Mark D. Little
--------------------------------
Mark D. Little
Chief Financial Officer
STOCK EXCHANGE AND RIGHTS AGREEMENT
January 25, 2000
Parties:
Talisman Entertainment, Inc. ("Talisman") ebank.com, Inc. ("ebank")
a British Virgin Islands corporation a Georgia corporation
c/o Ervin, Cohen & Jessup LLP 2410 Paces Ferry Road
9401 Wilshire Boulevard, Ninth Floor Atlanta, GA 30339
Beverly Hills, CA 90212-2974
ebank and Talisman have entered into this Stock Exchange and Rights
Agreement as of the date set forth above. ebank and its subsidiaries
(collectively, the "ebank Companies") are providers of traditional and online
commercial banking and financial and related services, in connection with which
they own certain trademarks, trade names, service marks and related intellectual
property assets. Talisman and its subsidiaries own or control certain software
and other technology used to provide products and services using Internet
protocols through ATMs and other networkable devices. The parties wish to enter
into a series of agreements pursuant to which they will exchange equity
interests and enter into certain licenses and other agreements, as provided
herein. In furtherance thereof, the parties, intending to be legally bound,
agree as follows: 1 DEFINITIONS.
1.1 Affiliate of an entity means a party which directly or indirectly controls,
is controlled by, or is under common control with such entity.
1.2 The Bank means ebank, a federally chartered thrift which is a wholly owned
subsidiary of ebank.
1.3 Closing means the consummation of the exchange of equity securities and the
execution and delivery of other agreements, documents and instruments by
the parties under the terms of this Agreement.
1.4 Liens means all liens and encumbrances of any kind or nature, including but
not limited to liens, encumbrances, security interests, restrictions,
claims of third parties, and other defects of title.
1.5 Material Adverse Effect shall mean (unless otherwise indicated) any
circumstance, change in, or effect on the business and affairs of such
person or entity that, individually or in the aggregate with any other
circumstances, changes in, or effects on the business and affairs of such
person or entity: (i) is, or would reasonably be expected to be, materially
adverse to the business, operations, assets or liabilities, prospects,
results of operations, or financial condition of such person or entity and
its subsidiaries, or (ii) would reasonably be expected to materially
adversely affect the ability of such person or entity and its subsidiaries
to operate or conduct its or their business and affairs in the manner in
which they are currently operated or conducted or contemplated by such
person or entity and its subsidiaries to be operated or conducted.
<PAGE>
1.6 New Talisman shall mean a new entity to be formed by Talisman under the
laws of the British Virgin Islands, or another entity to be formed by
Talisman, which entity will own all of Talisman's ATM and internet
technology.
1.7 OTS shall mean the United States Office of Thrift Supervision.
1.8 Placement shall mean a private placement of ebank's Common Stock for at
least $25,000,000 in net proceeds.
1.9 SEC Filings shall mean all forms, documents, and exhibits and schedules
thereto which ebank has filed with the Securities and Exchange Commission
(the "SEC").
1.10 Transaction Documents means collectively this Agreement, the Talisman
License Agreement, the ebank License Agreement, the Outsourcing Agreement,
the ebank Investor Rights Agreement, and the Talisman Investor Rights
Agreement.
2 EXCHANGE OF STOCK.
2.1 Issuance of ebank stock to Talisman. Subject to the conditions described in
this Agreement, ebank agrees to issue to Talisman a number of shares of its
common stock such that Talisman will receive 9.9% of ebank's common shares,
taking into account (a) the shares of ebank common stock outstanding as of
the date of this Agreement (1,469,250 shares), (b) the shares of ebank
common stock issuable upon exercise of the options, warrants, convertible
securities, or other rights exchangeable or exercisable for ebank common
stock that are outstanding as of the date of this Agreement (202,125
shares), (c) the shares of ebank common stock issued by ebank in the
Placement, (d) the shares issuable upon exercise of the warrants to be
granted to Sutro in connection with the Placement, (e) the 200,000 shares
issuable pursuant to the options which ebank plans to grant to officers and
directors of ebank shortly following the Placement (or such number of
shares as ebank actually issues to its officers and directors shortly
following the Placement), and (f) the shares to be issued to Talisman
pursuant to this Section 2.1 (collectively, "Talisman Investment Shares").
ebank shall issue the Talisman Investment Shares sequentially so that
Talisman shall not at any time own more than 9.9% of ebank's issued and
outstanding shares of common stock, unless Talisman obtains OTS approval to
own more than 9.9% of ebank's common stock. Such sequential issuances shall
proceed as follows: (i) at the Closing, ebank shall issue to Talisman
161,438 Talisman Investment Shares; (ii) ebank shall issue to Talisman an
additional number of Talisman Investment Shares immediately following the
closing(s) of the Placement, in amount(s) sufficient to restore Talisman's
holdings to 9.9% of ebank's outstanding common shares in accordance with
the first two sentences of this Section 2.1; and (iii) ebank shall issue to
Talisman additional shares at the end of each fiscal quarter equal to 9.9%
of the number of shares of ebank's common stock issued during such fiscal
quarter, whether pursuant to the exercise of options, warrants, convertible
securities, or pursuant to capital raising activities, until ebank has
issued to Talisman all of the ebank common shares to which Talisman is
entitled under the first sentence of this paragraph, but in no event shall
the number of shares issued to Talisman exceed the number of shares to
which Talisman is entitled hereunder. Notwithstanding the foregoing, in the
event that ebank declares or pays a stock or cash dividend, effects a stock
split, enters into a merger or other business combination, or makes any
other distribution or other such event to holders of shares of its common
stock, immediately prior to the record, effective, or closing date for such
event, ebank shall issue any shares to which Talisman is entitled but which
have not yet been
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<PAGE>
issued, provided that Talisman's ownership of ebank shall not in any event
exceed 9.9% of the outstanding voting shares.
2.2 Issuance of Talisman Stock to ebank. Subject to the conditions described in
this Agreement, Talisman (or as provided in Section 3.6, New Talisman)
agrees to issue ebank shares of its common stock such that ebank will own
9.9 percent of Talisman's (or, as the case may be, New Talisman's) common
shares after taking to account (a) the shares of Talisman (or, as the case
may be, New Talisman) common stock outstanding as of the date of this
Agreement (or, in the case of New Talisman, immediately before the Closing)
(Talisman - 50,000 shares; New Talisman - to be determined at the closing),
(b) the shares of Talisman (or, as the case may, New Talisman) common stock
issuable upon exercise of all options, warrants, convertible securities or
other rights exercisable for Talisman (or, as the case may, New Talisman)
common stock that are outstanding as of the date of this Agreement (or, in
the case of New Talisman, to be outstanding immediately before the Closing)
(Talisman - 0 shares; New Talisman - 5,556 shares), (c) the shares of
Talisman (or as the case may be, New Talisman) to be issued to Compaq
pursuant to any investment agreement between Talisman (or New Talisman) and
Compaq, relating to the contemplated issuance of approximately 5% of
Talisman's (or New Talisman's) Common Stock to Compaq, as described in
Section 3.6 below, and (d) the shares to be issued to ebank pursuant to
this Section 2.2 (collectively "ebank investment shares"). Talisman shall
issue the ebank Investment Shares at the Closing.
2.3 Talisman Investor Rights. At the Closing, Talisman and ebank shall enter
into an Investor Rights Agreement substantially in the form attached as
Exhibit A (the "ebank Investor Rights Agreement").
2.4 ebank Investor Rights. At the Closing, Talisman and ebank shall enter into
an amendment to the Talisman (or New Talisman) Shareholder Agreement
substantially in the form attached as Exhibit B (the "Talisman Investor
Rights Agreement").
3 OTHER AGREEMENTS.
3.1 Talisman Technology License. At the Closing, Talisman will enter into a
technology license agreement with ebank substantially in the form attached
as Exhibit C (the "Talisman License Agreement"), pursuant to which Talisman
will grant ebank the exclusive right in the United States to use and
sublicense Talisman's ATM and other internet delivery technology solely for
use in connection with the delivery of commercial banking activities.
3.2 ebank License Agreement. At the Closing, ebank will enter into a license
agreement with Talisman substantially in the form attached as Exhibit D
(the "ebank License Agreement"), pursuant to which ebank will grant
Talisman the exclusive right in all countries and territories other than
the United States of America and its territories and possessions (with a
right to sublicense, including to the Bank of Queensland) to use its
trademarks, trade names, service marks, and other business assets as
defined in such agreement.
3.3 Outsourcing Arrangement. ebank and New Talisman or one of its Affiliates
shall enter into an outsourcing agreement within 120 days following the
Closing (the "Outsourcing Agreement"), pursuant to which ebank will engage
Talisman as ebank's exclusive services outsource provider to design, build,
implement, maintain and operate ebank's computer systems and information
applications and technology relating to the implementation,
3
<PAGE>
command, control, and support of ebank's banking and related operations
within the Territory (as defined in the Talisman License Agreement). Such
agreement shall be subject to terms and conditions mutually agreeable to
the parties, shall provide that all services are to be provided according
to ebank's needs and specifications, shall be subject to approval by the
OTS, and shall provide that any third party vendors engaged by Talisman or
one of its Affiliates to provide systems or services thereunder shall be
subject to ebank's approval, which shall not be unreasonably withheld. With
respect to any country in which ebank intends to establish banking
operations outside the Unites States, ebank shall enter into a services
outsourcing agreement engaging Talisman as ebank's exclusive services
outsource provider to design, build, implement, maintain and operate
ebank's computer systems and information applications and technology
relating to the implementation, command, control and support for ebank's
banking and related operations within the such country, on terms and
conditions to be mutually agreed upon by the parties. Notwithstanding
anything contained in this Agreement to the contrary, if, within 120 days
following the Closing (subject to extension by mutual agreement of the
parties, in their respective reasonable discretion, but in no event later
than 180 days following the Closing), (a) the Outsourcing Agreement has not
been mutually executed and delivered by ebank and Talisman (or one of its
Affiliates), or (b) all conditions to each party's being bound by such
agreement have not been satisfied (including, without limitation, approval
by the OTS), or (c) the parties have not delivered to one another legal
opinions of their respective counsel concerning, among other things, the
enforceability of the Outsourcing Agreement and other reasonable and
customary matters related thereto, then, in any such event, this Agreement,
the other Transaction Documents, and all transactions contemplated hereby
and thereby may be rescinded by either ebank or Talisman (or, as the case
may be, New Talisman) upon delivery of written notice to the other party.
In the event of such rescission, (i) each of the Transaction Documents
shall be deemed null and void and no further force and effect except to the
extent necessary to the rescission or to the protection and return of
Confidential Information or Trade Secrets delivered by one party to the
other, (ii) ebank shall return to Talisman (or as the case may be, New
Talisman) the stock certificate(s) representing all ebank Investment Shares
duly endorsed for surrender and cancellation, and (iii) Talisman (or as the
case may be, New Talisman) shall deliver to ebank the stock certificate(s)
representing all Talisman Investment Shares, duly endorsed for surrender
and cancellation.
3.4 Cash Payment. If Talisman enters into a sublicense with the Bank of
Queensland for the Australian and/or New Zealand markets pursuant to the
ebank License Agreement, within 7 business days thereafter, Talisman shall
pay to ebank the sum of $250,000 by wire transfer to a bank account
designated by ebank.
3.5 ebank Placement. ebank is in the process of commencing the Placement. If
ebank does not print and distribute the private placement memorandum for
the Placement on or before February 28, 2000, Talisman may cancel the
Talisman License Agreement and require ebank to return the ebank Investment
Shares.
3.6 New Talisman. If New Talisman has been formed prior to the Closing and can
reasonably demonstrate to ebank that it has received ownership of all of
Talisman's technology which is the subject of the Talisman License
Agreement and related assets, and has been assigned all material contracts
and relationships relating to Talisman's technology (including the
commitment of Compaq Computer Corporation or one of its Affiliates to
contribute cash,
4
<PAGE>
services, or other consideration with an equivalent value of at least $20
million U.S. in exchange for approximately 5% of Talisman's (or New
Talisman's) common shares), then Talisman may assign, and ebank consents to
the assignment of, this Agreement to New Talisman, and New Talisman shall
be responsible for all of the obligations of and shall be entitled to all
of the rights of Talisman hereunder, including but not limited to the
following: the Talisman Shares shall be issued to New Talisman; the ebank
Shares shall be newly issued shares of New Talisman rather than Talisman;
New Talisman shall enter into all of the other Transaction Documents at the
Closing; the documents to be delivered by ebank to Talisman hereunder shall
be delivered to and be reasonably acceptable to New Talisman; New Talisman
shall execute a document at Closing making representations and warranties
regarding New Talisman substantially the same as those made by Talisman in
Section 6 below.
4 CLOSING.
4.1 OTS Approval. As soon as practical following the execution of this
Agreement, ebank shall submit this Agreement (with Exhibits) to the OTS
along with a notice of its intention to consummate the transactions
described herein. ebank shall respond to all requests from the OTS for
additional information or clarification in a prompt and timely manner. New
Talisman shall provide all information as reasonably necessary for ebank to
respond to all such requests. The parties shall make such changes and
additions to this Agreement and the Transaction Documents as may be
reasonably requested or required by the OTS, and which do not materially
adversely affect or prejudice either parties' rights or obligations
hereunder.
4.2 Closing Date. The Closing shall occur as soon as reasonably practicable
following the receipt of a letter from the OTS stating that it will not
object to the consummation of the transactions contemplated hereby. The
Closing shall occur at a time and place to be mutually agreed upon.
4.3 Closing Deliveries of ebank. At the Closing, ebank shall deliver to
Talisman the following in a form reasonably acceptable to Talisman:
(a) legal opinions of counsel to ebank concerning, among other things, the
existence and authority of ebank, the due authorization, execution, and
delivery of the Transaction Documents by ebank, the validity of the
issuance of the Talisman Investment Shares to be issued by ebank to New
Talisman hereunder, the enforceability of the Transaction Documents,
and other reasonable and customary matters;
(b) a secretary's certificate certifying ebank's articles of incorporation
and bylaws and the authority of the persons executing this Agreement
and the other Transaction Documents on behalf of ebank;
(c) the ebank License Agreement duly executed by ebank;
(d) the New Talisman License Agreement duly executed by ebank;
(e) the ebank Investor Rights Agreement duly executed by ebank;
(f) the New Talisman Investor Rights Agreement duly executed by ebank;
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<PAGE>
(g) an officer's certificate executed by ebank's Chairman certifying that
all of the representations and warranties of ebank contained in the
Transaction Documents are true and correct in all material respects as
of the Closing; and
(h) certificates, duly endorsed, representing the shares to be issued at
the Closing to New Talisman pursuant to Section 2.1 hereof.
4.4 Closing Deliveries of New Talisman. At the Closing, New Talisman shall
deliver to ebank the following in a form reasonably acceptable to ebank:
(a) legal opinions of counsel to New Talisman concerning, among other
things, the existence and authority of New Talisman, the due
authorization, execution, and delivery of the Transaction Documents by
New Talisman, the issuance of the shares to be issued by New Talisman
to ebank hereunder, the enforceability of the Transaction Documents,
and other reasonable and customary matters;
(b) a secretary's certificate, on behalf of Talisman and New Talisman,
certifying Talisman's and New Talisman's respective certificates of
incorporation and bylaws, and the authority of the persons executing
this Agreement on behalf of Talisman and the authority of the persons
executing the other Transaction Documents on behalf of New Talisman;
(c) the ebank License Agreement duly executed by New Talisman;
(d) the New Talisman License Agreement duly executed by New Talisman;
(e) the ebank Investor Rights Agreement duly executed by New Talisman;
(f) the New Talisman Investor Rights Agreement duly executed by New
Talisman;
(g) an officer's certificate executed by Talisman's President certifying
that all of the representations and warranties of Talisman contained
herein are true and correct in all material respects as of the Closing;
(h) an officer's certificate executed by New Talisman's President
certifying that all of the representations and warranties of New
Talisman contained in the Transaction Documents are true and correct in
all material respects as of the Closing; and
(i) certificates, duly endorsed, representing the ebank Investment Shares
to be issued to ebank pursuant to Section 2.2 hereof.
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<PAGE>
5 REPRESENTATIONS AND WARRANTIES OF EBANK. ebank represents and warrants to
Talisman and New Talisman the following with respect to ebank, and, where
appropriate, all subsidiaries and predecessor entities (without limiting the
generality of the foregoing, the representations and warranties set forth in
Section 5.7 through 5.22 shall apply to each subsidiary of ebank):
5.1 Organization and Standing. ebank is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Georgia, and
has all requisite corporate power and authority to carry on its business as
currently conducted and as proposed to be conducted.
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5.2 Corporate Power. ebank has all requisite legal and corporate power to
execute and deliver this Agreement and the Transaction Documents, to issue
shares of its common stock hereunder, and to carry out and perform its
obligations under the terms of the Transaction Documents.
5.3 Authority. The execution, delivery, and performance of the Transaction
Documents, and the consummation of the transactions hereby, have been duly
and validly authorized by all necessary corporate action on the part of
ebank. The Transaction Documents, when executed and delivered by ebank,
shall constitute the valid and binding obligations of ebank enforceable in
accordance with their terms (except as may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar laws affecting the enforcement of creditors' rights
generally, except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceedings may be brought, and except as may be objected
to by the OTS). When issued in compliance with the provisions of this
Agreement, the Talisman Investment Shares will be validly issued, fully
paid and nonassessable, not subject to any preemptive rights, and free of
any Liens.
5.4 Compliance with Other Instruments, etc. Provided that this Agreement and
the consummation of all transactions contemplated herein are not objected
to by the OTS, ebank's execution and delivery of the Transaction Documents,
consummation of the transactions contemplated hereby and thereby, and
compliance with the provisions hereof and thereof have not and will not (i)
violate or conflict with any of the provisions of the articles of
incorporation, bylaws, or other governing documents of ebank; (ii) violate,
conflict with, or result in a breach or default under or cause termination
of any term or condition of any mortgage, indenture, contract, license,
permit, instrument, trust document, or other agreement, document, or
instrument to which ebank is a party or by which ebank or any of its
properties may be bound; (iii) violate any material provision of any
applicable law, rule, or regulation; or (iv) result in the creation or
imposition of any material encumbrance upon any asset of ebank.
5.5 Capitalization. As of the date of this Agreement, the authorized capital
stock of ebank consists of 10,000,000 shares of common stock, par value
$.01 per share, of which 1,469,250 shares are issued and outstanding, and
10,000,000 shares of preferred stock, par value $0.01 per share, of which
no shares have been issued or are outstanding. All issued and outstanding
shares of the capital stock of ebank have been duly authorized and validly
issued, are fully paid and nonassessable, and were issued in compliance
with all applicable federal and state securities laws. There are currently
202,125 shares of common stock issuable upon the exercise of options
outstanding as of the date of this Agreement, warrants to purchase a number
of shares equal to 3% of the shares issued in the Placement will be granted
to Sutro at an exercise price of 125% of market value upon the Closing of
the Placement, and ebank intends to grant options to purchase 200,000
shares to ebank directors following the Placement. There are no other (and
no agreements or commitments with respect to any) warrants, options,
conversion rights, preemptive rights, rights of first refusal, or other
rights to purchase or acquire any shares of common stock or other equity
securities of ebank.
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5.6 Subsidiaries. Except as set forth on Schedule 5.6 hereto, ebank has no
subsidiaries or Affiliates and does not own or control, directly or
indirectly, any equity interest in any other corporation, association, or
business entity. Schedule 5.6 hereto lists each of ebank's subsidiaries
identifying (i) its jurisdiction of incorporation or law under which it was
organized, (ii) each jurisdiction in which the character of its assets or
the nature or conduct of its business requires it to be qualified and/or
licensed to transact business, (iii) and the number of shares owned and
percentage ownership interest represented by such share ownership.
5.7 Assets. Except as set forth on Schedule 5.7 hereto, ebank has good, valid,
and marketable title to all of its assets (real and personal, tangible and
intangible), free and clear of all Liens. All of ebank's tangible assets
are usable in the ordinary course of business consistent with ebank's past
practices.
5.8 Intellectual Property.
(a) Schedule 5.8 hereto (i) lists and describes all patents, patent
applications, trade names, trademarks, service marks, copyrights,
trademark, service mark and copyright registrations and applications,
and all patent, trademark, and service mark licenses, computer
software, databases, and all other intellectual property that are owned
by or registered in the name of any of the ebank Companies or to which
any of the ebank Companies has any rights as licensee or otherwise
(excluding operating systems, network software, office productivity
software, shrink-wrap, over the counter software, or other software
which is not material to the conduct of the ebank Companies' business
or operations), which list specifies which items are owned and to which
items any of the ebank Companies has rights as a licensee or otherwise;
and (ii) lists and describes all contracts, agreements, or
understandings pursuant to which ebank has authorized any person to
use, or which any person otherwise has the right to use, in any
business or commercial activity, any of the items listed in clause (i)
above.
(b) The items listed or described in Schedule 5.8 constitute or
represent all of the intellectual property necessary to the conduct of
ebank's business as currently conducted, and ebank's ownership and use
rights with respect thereto are free and clear of all Liens, and ebank
has not granted any other party any rights with respect thereto.
(c) All of ebank's federal trademark or service mark registrations, and
all of ebank's applications to register any trademarks or service
marks, or any trademark register maintained by the United States Patent
and Trademark Office, any similar authority of any other country, or in
any state, province, territory, or other government subdivision, are
based on truthful affidavits or declarations of use.
(d) Except as disclosed in Schedule 5.8, ebank has not to its knowledge
infringed upon any patent, service mark, trade name, trademark,
copyright, trade secret, or other intellectual property right belonging
to any other person. To ebank's knowledge, no person is infringing upon
any of ebank's patents, patent applications, trade names, trademarks,
service marks, trademark and service mark registrations, licenses,
copyrights, computer software, or other intellectual property rights.
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(e) Except as set forth on Schedule 5.8, ebank owns all right, title
and interest in and to the intellectual property assets set forth on
Schedule 5.8 and there are no claims pending or, to ebank's knowledge,
threatened against any of the ebank Companies by any person with
respect to that company's use of any of the intellectual property
assets or any facts known to any of the ebank Companies which could
reasonably be expected to serve as the basis for any such claims.
5.9 Financial Statements. ebank's balance sheet and statements of income and
changes in financial position (the "Financial Statements") at or for the
period ended December 31, 1998, and at any for the nine month interim
period ended September 30, 1999, as set forth in the SEC Filings, are true
and correct and present a fair and accurate presentation of the financial
condition and assets and liabilities (whether accrued, absolute,
contingent, or otherwise) of ebank as of the dates thereof, in accordance
with generally accepted accounting principles applied on a consistent
basis.
5.10 Undisclosed Liabilities. Except to the extent reflected in or reserved
against in the Financial Statements, or as disclosed in the SEC Filings,
ebank has no material liabilities or obligations of any nature, whether
absolute, accrued, contingent, or otherwise, and whether due or to become
due. As of the date of the Financial Statements, there was no basis for any
assertion against ebank of any liability or obligation that is not fully
reflected or reserved against in the Financial Statements.
5.11 Absence of Certain Changes or Events. Since the date of the Financial
Statements, ebank has not incurred any material liability (fixed or
contingent), subjected any of its assets or properties to any Lien,
transferred any of its assets or properties or transferred or granted any
rights under or with respect to any license, agreement, trademark, trade
name, copyright, know-how, technical assistance or other intellectual
property assets, made or entered into any material contract or commitment,
or declared any dividend or made any payment or distribution to ebank's
shareholders except in the ordinary course of business.
5.12 Tax Matters. ebank correctly and timely filed all tax returns for all
periods, and ebank is not the subject of any inquiry, investigation, or
audit that could have a Material Adverse Effect on ebank.
5.13 Books and Records. ebank's stock books, minute books, books of account,
ledgers of account, computer data, and other financial and corporate
records are in all material respects complete and correct and are
maintained in accordance with good business practices. ebank has not made
any questionable, improper, or illegal corporate payments, guarantees, or
commitments. ebank's minute books contain accurate records of all meetings
and accurately reflect all corporate actions of the shareholders and
directors of ebank.
5.14 Contracts Schedule 5.14 hereto lists all material contracts, leases,
letters of intent and commitments to which ebank is a party or to which its
assets are bound including, without limitation, any that involve the
payment or receipt of more than $50,000 in cash, goods or services, but
excluding loan agreements and other agreements entered into with banking
customers in the ordinary course of its banking business, and true and
complete copies of such contracts have been included in the SEC Filings.
ebank is not a party to any material oral contracts, letters of intent, or
other binding commitments.
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5.15 Permits. ebank holds free and clear all permits, licenses, franchises, and
authorizations from its regulatory authorities as are necessary to conduct
ebank's business (the "Company Permits"). No event has occurred that allows
(nor after notice or lapse of time or both would allow) revocation or
termination of any Company Permit or would result in any other impairment
of the rights of the holder of any Company Permit.
5.16 Litigation. Except as described in the SEC Filings, ebank has not
instituted, and is not a party to, any action, suit, proceeding or
investigation against any party. Except as described in the SEC Filings or
in Schedule 5.16, there are no actions, suits, investigations, or
proceedings pending or threatened against ebank or its properties before
any court or governmental agency which may result in a Material Adverse
Effect on ebank, or in any material impairment of the right or ability of
ebank to carry on its business, or in any material liability on the part of
ebank, and none of which questions the validity of this Agreement or any
action taken or to be taken in connection herewith and therewith; to
ebank's knowledge, there are no existing facts or circumstances which could
reasonably form the basis on which any such action, suit, proceeding or
investigation might be commenced with any reasonable likelihood of success.
5.17 Labor Matters. ebank is in material compliance with all laws, regulations,
orders and rules respecting employment and employment practices, terms and
conditions of employment, wages, and hours.
5.18 Employees. No employee or consultant of ebank is in violation of any term
of any employment contract, intellectual property disclosure agreement, or
any other contract or agreement relating to the relationship of any such
person with ebank or any other party because of the nature of the business
conducted or proposed to be conducted by ebank. ebank is not aware of any
key employee of ebank who has any plans to terminate his or her employment
with ebank.
5.19 Employee Benefit Plans and Arrangements. All of the ebanks Companies'
employee benefit plans have been maintained, funded, and administered in
material compliance, in all respects, with all applicable rules, laws and
regulations, including but not limited to the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code of 1986 (the "Tax
Code"). There are no penalties, interest, or taxes related to the employee
benefit plans due to any federal or state authority. Any such employee
benefit plan which is intended to be a qualified plan under Tax Code
Section 401(a) has received a favorable determination letter from the
Internal Revenue Service and, to the knowledge of the ebank Companies, no
fact exists which could adversely affect the qualified status of any such
plans.
5.20 Environmental Matters. ebank and its properties are in compliance with all
environmental laws, rules, and regulations and there are no circumstances
affecting ebank's premises, business, or operations conducted by or on
behalf of ebank which may (i) justify or lead any government or
semi-governmental authority to issue any notice, direction, or order
requiring clean-up, decontamination, remedial action, or making good under
any environmental law, or (ii) give rise to a claim by any third party
arising from property damage or personal injury or death caused by any
hazardous material of whatever nature
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caused or contributed to in whole or in part by ebank or ebank's premises,
operations, or business.
5.21 Governmental Consent, Etc. Other than in connection or compliance with the
provisions of applicable federal banking laws, and other than consents
required from the OTS, no consent, approval, or authorization of or
designation, declaration, or filing with any governmental authority on the
part of ebank is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale, or issuance of the Talisman
Investment Shares hereunder, or the consummation of any other transaction
contemplated hereby or by the Transaction Documents.
5.22 Reports. Since the date of organization, ebank has timely filed all reports
and statements, together with any amendments required to be made with
respect thereto, that it was required to file with the OTS, the Federal
Deposit Insurance Corporation, or the SEC. As of their respective dates,
each report and document, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable
laws, rules, and regulations. As of its respective date, each report and
document did 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 made therein, in light of the circumstances under which they
were made, not misleading, except to the extent corrected by a subsequently
filed document.
5.23 Offering. Subject to the accuracy of New Talisman's representations to be
delivered at the Closing pursuant to this Agreement, the offer, sale, and
issuance of the Talisman Investment Shares will constitute transactions
exempt from the registration requirements of Section 5 of the Securities
Act of 1933.
5.24 Restrictions on Resale. ebank is acquiring the ebank Investment Shares for
its own account and not for distribution or resale to others, and it agrees
that it will not sell or otherwise transfer the ebank Investment Shares
unless the transfer of the shares has been registered under the Securities
Act of 1933 and applicable state securities laws (which may be pursuant to
the registration rights being granted by Talisman to ebank), or, in the
opinion of counsel to New Talisman, an exemption therefrom is available.
ebank acknowledges that the certificates representing the ebank Investment
Shares will contain a legend stating that their issuance has not been
registered under the Securities Act of 1933 or any state securities laws
and referring to the above restrictions on transferability and sale.
5.25 Material Facts. This Agreement, its schedules, the SEC Filings, and each
other agreement, document, certificate, or written statement furnished, or
to be furnished, to Talisman through the Closing by or on behalf of ebank
in connection with the transactions contemplated hereby (including, without
limitation, the other Transaction Documents), taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein or herein in light
of the circumstances in which they were made not misleading, except to the
extent previously corrected by a subsequently furnished document. To the
best knowledge of ebank, there is no fact which has not been disclosed
herein by ebank to Talisman and which may materially adversely affect the
business, properties, assets, or condition, financial or
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otherwise, of ebank, except for facts relating to general economic and
regulatory conditions which may affect all companies which are in a similar
industry in the same manner.
5.26 Insurance. All insurance policies of the ebank Companies are valid,
outstanding and in full force and effect and all premiums have been paid
currently. All such policies are sufficient for compliance with all
agreements to which any of the ebank Companies is a party and are
sufficient to insure each of such companies against the customary risks of
their business operations in amounts customary to such business activities.
Further, The Bank's customer accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent such insurance is legally
available and The Bank is in compliance with all requirements of the FDIC
regarding such insurance.
6 REPRESENTATIONS AND WARRANTIES OF TALISMAN. Talisman and/or New Talisman, as
indicated in each of the following subsections, represents and warrants to ebank
the following with respect to Talisman and, where appropriate, all predecessor
entities, provided that, except for those representations and warranties
contained in Sections 6.1 through 6.7, no representation or warranty of Talisman
shall survive the assignment of Talisman's rights hereunder pursuant to Section
3.5 hereof:
6.1 Organization and Standing. Talisman is a corporation duly organized,
validly existing, and in good standing under the laws of the British Virgin
Islands, and has all requisite corporate power and authority to carry on
its business as currently conducted and as proposed to be conducted.
6.2 Corporate Power. Talisman has all requisite legal and corporate power to
execute and deliver the Transaction Documents, to issue the shares to be
issued hereunder, and to carry out and perform its obligations under the
terms of the Transaction Documents.
6.3 Authority. The execution, delivery, and performance of the Transaction
Documents, and the consummation of the transactions hereby, have been duly
and validly authorized by all necessary corporate action on the part of
Talisman. The Transaction Documents, when executed and delivered by
Talisman, shall constitute the valid and binding obligations of Talisman
enforceable in accordance with their terms (except as may be limited by
applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought).
When issued in compliance with the provisions of this Agreement, the ebank
Investment Shares will be validly issued, fully paid and nonassessable, not
subject to any preemptive rights and free of any Liens.
6.4 Compliance with Other Instruments, etc. Talisman's execution and delivery
of the Transaction Documents, consummation of the transactions contemplated
hereby and thereby, and compliance with the provisions hereof and thereof
have not and will not (i) violate or conflict with any of the provisions of
the articles of incorporation, bylaws, or other governing documents of
Talisman; (ii) violate, conflict with, or result in a breach or default
under or cause termination of any term or condition of any mortgage,
indenture, contract, license, permit, instrument, trust document, or other
agreement, document, or instrument to which Talisman is a party or by which
Talisman or any of its properties may
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be bound; (iii) violate any material provision of any applicable law, rule,
or regulation; or (iv) result in the creation or imposition of any material
encumbrance upon any asset of Talisman.
6.5 Capitalization. As of the date of this Agreement, the authorized capital
stock of Talisman consists of 50,000 shares of common stock, par value
$1.00 per share, of which 50,000 shares are issued and outstanding.
Schedule 6.5 hereto sets forth a list of all Talisman shareholders and the
number of shares held by each. All issued and outstanding shares of the
capital stock of Talisman have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all
applicable federal and state securities laws. There are no outstanding (and
no agreements or commitments with respect to any) warrants, options,
conversion rights, preemptive rights, rights of first refusal, or other
rights to purchase or acquire any shares of common stock or other equity
securities of Talisman.
6.6 Subsidiaries. Except as set forth on Schedule 6.6 hereto, Talisman has no
subsidiaries or Affiliates and does not own or control, directly or
indirectly, any equity interest in any other corporation, association, or
business entity. Schedule 6.6 lists each of Talisman's subsidiaries
identifying (i) its jurisdiction of incorporation or law under which it was
organized, (ii) each jurisdiction in which the character of its assets or
the nature or conduct of its business requires it to be qualified and/or
licensed to transact business, (iii) and the number of shares owned and
percentage ownership interest represented by such share ownership.
6.7 Assets. Except as set forth on Schedule 6.7 hereto, Talisman has good,
valid, and marketable title to all of its assets (real and personal,
tangible and intangible), free and clear of all Liens. All tangible assets
of Talisman are usable in the ordinary course of business consistent with
Talisman's past practices.
6.8 Intellectual Property.
(a) Schedule 6.8 hereto (i) lists and describes all patents, patent
applications, trade names, trademarks, service marks, trademark and
service mark registrations and applications, and all patent, trademark,
and service mark licenses, copyrights, computer software (excluding
operating systems, network software, office productivity software,
shrink-wrap, over the counter software, or other software which is not
material to the conduct of New Talisman's business or operations),
databases, and all other intellectual property that will be,
immediately following the Closing, owned by or registered in the name
of New Talisman or to which New Talisman will then have any rights as
licensee or otherwise, which list specifies which items are owned and
to which items New Talisman will have rights as a licensee or
otherwise; and (ii) lists and describes all contracts, agreements, or
understandings pursuant to which New Talisman will have authorized any
person to use, or which any person otherwise has the right to use, in
any business or commercial activity, any of the items listed in clause
(i) above.
(b) The items listed or described in Schedule 6.8 constitute or represent
all of the intellectual property necessary to the conduct of New
Talisman's business, and New Talisman's ownership and use rights with
respect thereto will be, immediately following the Closing, free and
clear of encumbrances.
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(c) Talisman has not infringed upon any patent, service mark, trade name,
trademark, copyright, trade secret, or other intellectual property
right belonging to any other person. To Talisman's knowledge, no person
is infringing upon any of Talisman's patents, patent applications,
trade names, trademarks, service marks, trademark and service mark
registrations, licenses, copyrights, computer software, or other
intellectual property rights.
(d) Except as set forth on Schedule 6.8, Talisman owns all right, title and
interest in and to the intellectual property assets set forth on
Schedule 5.8 and there are no claims pending or, to Talisman's
knowledge, threatened against any of the Talisman Companies by any
person with respect to that company's use of any of the intellectual
property assets or any facts known to any of the Talisman Companies
which could reasonably be expected to serve as the basis for any such
claims.
6.9 Financial Statements. New Talisman will deliver, at the Closing, to ebank
New Talisman's balance sheet (the "Balance Sheet") as of the date of the
Closing. The Balance Sheet will be true and correct and present a fair and
accurate presentation of the financial condition and assets and liabilities
(whether accrued, absolute, contingent, or otherwise) of Talisman as of the
date thereof, in accordance with generally accepted accounting principles
applied on a consistent basis.
6.10 Undisclosed Liabilities. As of the Closing, except to the extent reflected
in or reserved against in the Balance Sheet, New Talisman will have no
material liabilities or obligations of any nature, whether absolute,
accrued, contingent, or otherwise, and whether due or to become due. There
will be no basis for any assertion against New Talisman of any material
liability or obligation as of the Closing that is not fully reflected or
reserved against in the Balance Sheet.
6.11 Books and Records. The stock books, minute books, books of account, ledgers
of account, computer data and and other financial and corporate records of
Talisman in all material respects complete and correct and are maintained
in accordance with good business practices. Talisman has not made any
questionable, improper, or illegal corporate payments, guarantees, or
commitments. The minute books of Talisman contain accurate records of all
meetings and accurately reflect all corporate actions of the shareholders
and directors of Talisman. This representation shall be made solely as to
New Talisman following its formation pursuant to Section 3.6.
6.12 Contracts. Schedule 6.12 hereto lists (or prior to the Closing will list)
all material contracts, leases, letters of intent and commitments to which
Talisman is a party or to which its assets are bound, and which will be
assigned to New Talisman, including but not limited to those that involve
the payment or receipt of more than $50,000, and true and complete copies
of such contracts have been furnished to ebank. New Talisman as of the
Closing will not be a party to any material oral contracts, letters of
intent, or other binding commitments.
6.13 Litigation. Talisman has not instituted, and is not a party to, any action,
suit proceeding or investigation against any party. There are no actions,
suits, investigations, or proceedings pending or threatened against
Talisman or its properties before any court or governmental agency which
may result in a material adverse change in the business or
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financial condition of Talisman or any of its properties or assets, or in
any material impairment of the right or ability of Talisman to carry on its
business, or in any material liability on the part of Talisman, and none of
which questions the validity of this Agreement or any action taken or to be
taken in connection herewith and therewith; to New Talisman's knowledge,
there are no existing facts or circumstances which could reasonably form
the basis on which any such action, suit, proceeding or investigation might
be commenced with any reasonable likelihood of success.
6.14 Labor Matters. Talisman is in material compliance with all rules respecting
employment and employment practices, terms and conditions of employment,
wages, and hours.
6.15 Employees. No employee or consultant of Talisman is in violation of any
term of any employment contract, intellectual property disclosure
agreement, or any other contract or agreement relating to the relationship
of any such person with Talisman or any other party because of the nature
of the business conducted or proposed to be conducted by Talisman. Talisman
is not aware of any key employee of Talisman who has any plans to terminate
his or her employment with Talisman.
6.16 Environmental Matters. Talisman and its properties are in material
compliance with all environmental laws, rules, and regulations and there
are no circumstances whatsoever affecting Talisman's premises, business, or
operations conducted by or on behalf of Talisman which may (i) justify or
lead any government or semi-governmental agency to issue any notice,
direction, or order requiring clean-up, decontamination, remedial action,
or making good under any environmental law, or (ii) give rise to a claim by
any third party arising from property damage or personal injury or death
caused by any hazardous material of whatever nature caused or contributed
to in whole or in part by Talisman or its premises, operations, or
business.
6.17 Governmental Consent, Etc. Other than in connection or compliance with the
provisions of applicable federal banking laws, no consent, approval, or
authorization of or designation, declaration, or filing with any
governmental authority, or any other person or entity, on the part of
Talisman is required in connection with the valid execution and delivery of
the Transaction Documents, or the offer, sale, or issuance of the shares to
be issued hereunder, or the consummation of any other transaction
contemplated hereby.
6.18 Offering. Subject to the accuracy of ebank's representations in this
Agreement, the offer, sale, and issuance of the ebank Investment Shares
constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933.
6.19 Restrictions on Resale. Talisman is acquiring the Talisman Investment
Shares for its own account and not for distribution or resale to others,
and it agrees that it will not sell or otherwise transfer the Talisman
Investment Shares unless the transfer of the shares has been registered
under the Securities Act of 1933 and applicable state securities laws
(which may be pursuant to the registration rights being granted by ebank to
Talisman), or, in the opinion of counsel to ebank, an exemption therefrom
is available. The certificates representing the Talisman Investment Shares
will contain a legend stating that their issuance has not been registered
under the Securities Act of 1933 or any state securities laws and referring
to the above restrictions on transferability and sale.
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6.20 Material Information. Talisman acknowledges that in connection with this
Agreement it has obtained material, nonpublic information about ebank and
that any person who has received material, nonpublic information about a
company is prohibited from purchasing or selling securities of that company
in the open market and from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell the securities. Talisman agrees to
comply with this restriction and to cause its employees, directors, and
affiliates to comply with this restriction.
6.21 Material Facts. This Agreement, its Schedules, and each other agreement,
document, certificate, or written statement furnished, or to be furnished,
to ebank through the Closing by or on behalf of Talisman in connection with
the transactions contemplated hereby, (including, without limitation, the
other Transaction Documents, taken as a whole, does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements contained therein or herein in light of the
circumstances in which they were made not misleading, except to the extent
previously corrected by a subsequently furnished document. To the best
knowledge of Talisman, there is no fact which has not been disclosed herein
to ebank and which may materially adversely affect the business,
properties, assets, or condition, financial or otherwise, of Talisman,
except for facts relating to general economic and regulatory conditions
which may affect all companies which are in a similar industry in the same
manner.
7 OTHER COVENANTS.
7.1 Performance of Obligations. Each of ebank and Talisman shall fully and
faithfully carry out all of their obligations under this Agreement.
7.2 Material Adverse Effects. Each party shall promptly notify the other of any
Material Adverse Effects.
7.3 Access. Prior to the Closing, each of ebank and Talisman shall (i) provide
the other party and its designees (officers, counsel, accountants, and
other authorized representatives) with such information as it may from time
to time reasonably request with respect to the transactions contemplated by
this Agreement; (ii) provide the other party and its designees complete
access to personnel, counsel, and accountants as it or its designees may
from time to time reasonably request; and (iii) permit the other party and
its designees to make such inspections of the premises of the other party
as it may reasonably request. No such investigation shall limit or modify
in any way either party's obligation with respect to any breach,
inaccuracy, or untruth of its representations, warranties, covenants, or
agreements contained herein.
7.4 Expenses. Whether or not the expenses are incurred before or after the
Closing, each of the expenses incurred by ebank and Talisman in connection
with the authorization, preparation, execution, and performance of this
Agreement and the Transaction Documents, including without limitation all
fees, commissions, and expenses of agents, representatives, counsel,
accountants, brokers and finders, shall be paid by the party that incurred
such expenses.
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7.5 No Public Announcements. Prior to Closing, without the prior written
consent of the other party, neither ebank nor Talisman shall make any press
release or other public disclosure, or make any statement to any customer,
supplier, or other person with regard to the transactions contemplated by
this Agreement. Notwithstanding, ebank may make such disclosures as it
determines to be necessary or advisable with the assistance of counsel in
any filings with the SEC, any private placement memorandum or other
document associated with any of ebank's capital raising efforts, or as
otherwise required by any law, rule, or regulation. ebank shall afford
Talisman a reasonable opportunity to review and comment on any such
disclosure in any SEC filing or offering document prior to its use or
disclosure. After Closing, without the prior written consent of the other
party, neither ebank nor Talisman shall make any press release or other
public disclosure, or make any statement to any customer, supplier, or
other person with regard to the transactions contemplated by this
Agreement, except as required by law in consultation with the other party.
7.6 Further Assurances.
(a) Pending the Closing, ebank and Talisman shall take all reasonable
actions necessary to obtain (and shall cooperate with others in
obtaining) all filings necessary to receive governmental
authorizations, consents, and approvals for the valid consummation of
the transactions contemplated hereby.
(b) From and after Closing, ebank and New Talisman shall execute and
perform all such other acts, deeds, and documents as the other party
may from time to time reasonably require in order to carry out the
intent of this Agreement.
7.7 Standstill. Neither party may purchase on the open market or otherwise any
shares of the common stock of the other or any option, warrant, or other
derivative thereof without the express written consent of the other party,
or during any period during which a party has possession of material
non-public information concerning the other party or its assets,
liabilities, business, prospects, financial status or results, or
otherwise.
8 CONDITIONS TO CLOSING OF TALISMAN. Talisman's obligation to cause New Talisman
to execute the Transaction Documents and to issue the ebank Investment Shares to
ebank at the Closing is, at the option of Talisman, subject to the fulfillment
of the following conditions:
8.1 Representations and Warranties Correct. The representations and warranties
made by ebank in Section 5 shall have been materially true and correct when
made, and shall be materially true and correct as of the date of Closing
with the same force and effect as if they had been made on and as of such
date.
8.2 Material Adverse Effects. There shall have been no change in the business,
assets, liabilities, or intellectual properties of ebank or other change,
occurrence, or event which has had or may be reasonably expected to have a
Material Adverse Effect (whether or not such change is referred to or
described herein).
8.3 Covenants. All covenants, agreements, and conditions contained in the
Transaction Documents to be performed by ebank on or prior to the Closing
Date shall have been performed or complied with.
17
<PAGE>
8.4 Due Diligence. Talisman shall have completed to its reasonable satisfaction
all due diligence regarding ebank, and shall not have identified any fact
or circumstance which would have a Material Adverse Effect on this
Agreement, the Transaction Documents, or any right of Talisman or
obligation of ebank under any of them.
8.5 Documents. ebank shall have executed and delivered to Talisman the
documents required by Section 4.3.
8.6 Blue Sky. If applicable, ebank shall have obtained all necessary Blue Sky
law permits and qualifications, or secured exemptions therefrom, required
by any state for the offer and sale of the shares.
8.7 Required Governmental Approvals. All filings necessary to receive
governmental authorizations, consents, and approvals for the valid
consummation of the transactions contemplated hereby, shall have been made
on or prior to closing date
8.8 Board Approval. Talisman shall have received the approval of its board of
directors to complete all of the transactions set forth herein.
9 CONDITIONS TO CLOSING OF EBANK. ebank's obligation to execute the Transaction
Documents and to issue the Talisman Investment Shares to Talisman at the Closing
is, at the option of ebank, subject to the fulfillment of the following
conditions:
9.1 Representations and Warranties Correct. The representations and warranties
made by Talisman and/or New Talisman in Section 6 shall have been true and
correct when made, and shall be true and correct on the Closing Date with
the same force and effect as if they had been made on and as of such date.
9.2 Material Adverse Effects. There shall have been no change in the business,
assets, liabilities, or intellectual properties of Talisman or other
change, occurrence, or event which has had or may be reasonably expected to
have a Material Adverse Effect (whether or not such change is referred to
or described herein).
9.3 Covenants. All covenants, agreements, and conditions contained in the
Transaction Documents to be performed by Talisman or New Talisman on or
prior to the Closing Date shall have been performed or complied with.
9.4 Due Diligence. ebank shall have completed to its reasonable satisfaction
all due diligence regarding Talisman and its technology. ebank shall have
received or waived its right to receive an opinion of an investment bank or
other appraiser acceptable to ebank that the relative valuation of Talisman
and ebank are such to support the exchange of stock hereunder. ebank shall
not have identified any fact or circumstance which would have a Material
Adverse Effect on this Agreement, the Transaction Documents, or any right
of ebank or obligation of Talisman under any of them.
9.5 Documents: Talisman shall have executed and delivered to ebank the
documents required by Section 4.4.
9.6 Blue Sky. If applicable, Talisman shall have obtained all necessary Blue
Sky law permits and qualifications, or secured exemptions therefrom,
required by any state for the offer and sale of the Shares.
18
<PAGE>
9.7 Board Approval. Ebank shall have received the approval of its board of
directors to complete all of the transactions set forth herein.
9.8 OTS Letter. ebank shall have received from the OTS a letter of
non-objection to the transactions contemplated by the Transaction
Documents.
10 MISCELLANEOUS PROVISIONS.
10.1 Rights Not Exclusive. No right or remedy of either party provided hereby
shall be exclusive of any other right or remedy.
10.2 No Waiver. No failure of either party to exercise any of its rights under
any provision of this Agreement or waiver of any breach of the terms of
this Agreement by the other party shall be construed as waiver of such
rights or of any other breach of the same or any other provision hereof.
10.3 Notices. All notices, requests and other communications required or
permitted to be given or delivered hereunder to either party (or to New
Talisman) should be in writing, and shall be personally delivered, or sent
by certified or registered mail, postage prepaid and addressed, or by
overnight courier such as Federal Express to such party (and, in the case
of New Talisman, to the same address as for Talisman) at the address shown
on the first page of this Agreement, or at such other address as shall have
been furnished by notice given in compliance with this section. All
notices, requests and other communications shall be deemed to have been
given upon delivery as evidenced by the return receipt or delivery records
of the courier.
10.4 Entire Agreement. The parties agree that as of the date of this Agreement
and as of the date of Closing, the Transaction Documents, and all exhibits
and attachments hereto, contain the entire agreement between the parties
concerning the subject matter hereof.
10.5 Amendment, Waiver. This Agreement may not be amended or altered and no
rights shall be deemed waived unless such amendment or waiver is set forth
in writing and executed by all parties hereto.
10.6 Assignment. This agreement may not be assigned by either party without the
express written consent to of the other party. This agreement shall be
binding upon and shall inure to the benefit of each party's permitted
successors and assigns. Notwithstanding the foregoing, either party may
perform its obligations through and assign its rights hereunder to one or
more of its subsidiaries upon prior written notice to the other party,
provided that the signatory to this agreement shall remain primarily liable
for the performance and actions of any assignee.
10.7 Severability. If any provision of this Agreement should be held to be
invalid, illegal or unenforceable, then such provision shall be construed
in such a way as to make such provision enforceable, this Agreement shall
be construed as if such provision had never been contained herein, or the
parties shall incorporate an enforceable provision with the same or similar
intended effect of the invalid or unenforceable provision, and such
invalidity, illegality or unenforceability shall not affect any other
provision hereof.
19
<PAGE>
10.8 Headings. The headings contained in this Agreement are for convenience only
and shall be ignored when interpreting this Agreement and shall not be
construed to alter or change any provision hereof.
10.9 Choice of Law. This agreement shall be governed by the laws of the State of
Georgia without regard to its choice of law rules.
10.10 Force Majeure. Neither party shall be in default by reason of any failure
in the performance of this Agreement (other than a failure to make payment
when due or to comply with restrictions upon the use of any confidential
information or trade secrets) if such failure arises out of any act, event
or circumstance beyond the reasonable control of such party, whether or not
otherwise foreseeable. The party so affected will resume performance as
soon as reasonably possible.
10.11 Enforcement. If either party brings an action under this Agreement
(including appeal), the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs.
10.12 Counterparts. This Agreement may be executed in one or more counterparts,
which when fully executed and delivered by the parties shall constitute one
and the same instrument, binding against both ebank and Talisman. To the
maximum extent permitted by law or by any applicable governmental
authority, any document may be signed and transmitted by facsimile with the
same validity as if it were an ink-signed document. Each signatory below
represents and warrants by his or her signature that he or she is duly
authorized (on behalf of the respective entity for which such signatory has
acted) to execute and deliver this instrument and any other document
related to this transaction, thereby fully binding each such respective
entity.
[signatures to be attached]
20
<PAGE>
Signature Page to the Stock Exchange and Rights Agreement
IN WITNESS WHEREOF, the undersigned hereby executes this Stock Exchange
and Rights Agreement as of the date set forth on such agreement.
ebank.com, Inc. Talisman Entertainment, Inc.
By: /s/ Richard A. Parlontieri By: /s/ Michael J. Milne
-------------------------------- ---------------------------
Richard A. Parlontieri Michael J. Milne
Chairman and CEO President and CEO
<PAGE>
Schedule 5.6
ebank Subsidiaries
ebank, a federally chartered thrift, wholly owned by ebank.com, Inc.
Commerce Mortgage Company, LLC, a Georgia limited liability company. Owned 75%
by ebank, 12.5% by each of two individuals. All operations have been absorbed by
ebank. It is a shell with $75,000 in book value of computers, leasehold
improvements, software, etc. It owes ebank about $300,000, so it has a negative
book value of approximately ($225,000).
<PAGE>
Schedule 5.7
Exceptions to ebank's title to assets
None.
<PAGE>
Schedule 5.8
ebank Intellectual Property
Software Licenses
The Phoenix Banking System from Phoenix International Ltd., Inc., including
intranet (core banking system)
CFI from Concentrics (loan and deposit front end)
Webtone Lyric from Webtone Technologies (telephony service for call center)
NetZee ATM processor and bill pay from Netzee
The Connection from The Bankers Bank (wire transfer, ACH, EFT)
TranPak from The Intercept Group (ATM cards and reporting)
real secure intrusion detection system from ISS
Eservices managed firewall from ISS
Penware from Penware Technologies (digital signature capture)
The Esweep Account from SEI (product software)
Credit Base from Equifax (credit bureau reporting)
Dunn & Bradstreet credit inquiry program
CreditPak from IFS (credit analysis)
UPS shipping software
Winpak from ADT (security software)
AOE 3 from Clark American (check ordering)
MSOES from Main Street Checks (internet checking)
IRS Reporter from Data Systems Design (IRS reporting software)
IPS from Sendero (accounts payable)
Webtrends Enterprise Suite from Webtrends (internet site management)
PGP Enterprise Security from Network Associates (encryption)
Software Owned
ebank website
interfaces for internet banking products
Trademarks and Domain Names
ebank has filed application with the U.S. Patent and Trademark Office for the
following marks:
ebank with design
ebank with design (different)
ebank.com with design
Ready to Grow
iworldbanc.com (iwb)
ESWEEP
Prime Timers Account
<PAGE>
ebank has filed application for either ebank with design or ebank.com with
design in the following countries:
1. Argentina
2. Bahamas
3. Bahrain
4. Bermuda
5. Brazil
6. Canada
7. Chile
8. China
9. Colombia
10. Czech Republic
11. Egypt
12. European Union
13. France
14. Germany
15. Hong Kong
16. Israel
17. Jamaica
18. Japan
19. Liechtenstein
20. Mexico
21. Monaco
22. Norway
23. Oman
24. Paraguay
25. Poland
26. Qatar
27. St. Kitts and Nevis
28. St. Lucia
29. Saudi Arabia
30. Singapore
31. South Africa
32. Taiwan
33. Tunisia
34. Turkey
35. United Kingdom, including Scotland and Northern Ireland
36. Venezuela
37. Vietnam
38. Yugoslavia
Additional applications are being prepared for filing in other countries at this
time.
<PAGE>
ebank has acquired the following U.S. domain names:
ebank.com banknekkid.com
e-commercebank.com ebanksucks.com
ecommercebanc.com iworldbanc.com
ecommercebancshares.com networldbanc.com
ebanknaked.com gigabank.com
banknaked.com
ebank has submitted domain name acquisition requests and has acquired the
international domain names listed under the columns "submitted" and "confirmed"
on Attachment A to this Schedule 5.8.
<PAGE>
Known conflicts and exceptions to ebank's title in its trademarks:
1. Below is a list of the countries where the country specific domain name
for ebank has already been acquired by another party:
- --------------------------------------------------------------------------------
Australia - commercial Romania
Austria - commercial Russia
British Virgin Islands Slovak
Canada Tonga
China commercial Turks and Caicos Islands
Czech Republic U.K.
Denmark Argentina commercial
Germany Ascension
Hong Kong commercial Bermuda
Italy Chile
Japan commercial Heard and Mcdonald Islands
Liechtenstein Malaysia commercial
Luxembourg New Zealand commercial
Mexico commercial Niue
Montserrat Philippines
Netherlands South Africa commercial
Republic of Korea commercial Yugoslavia commercial
- ----------------------------------------- --------------------------------------
(if the above contains "commercial", this refers to the country's commercial
subdomain - e.g. Japan commercial means ".co.jp")
2. The following entities have notified ebank of a claimed conflict with
ebank's use of the mark "ebank" in the United States:
a. Huntington Bancshares, Incorporated - holds the federal registration
for "E-Bank." Huntington and ebank have filed suit against one another
on this matter.
b. USABanc.com, Inc. of Philadelphia, PA - sent demand letter June 28,
1999. ebank.com did not respond. No further action since that time.
c. Busey Bank has used "Busey ebank" on its web page since prior to the
time ebank.com, Inc. began using ebank. Busey Bank's attorney contacted
us around the time we received the demand letter from Huntington. Busey
Bank had also received a demand letter from Huntington. As of this
date, Busey Bank has not demanded or requested that ebank.com cease
using the mark "ebank."
3. We know of the following uses of "ebank" or derivatives thereof in the
United States:
a. Stillwater National Bank & Trust Company holds an Ohio state
registration for "EBANK" and uses the domain name www.snb-ebank.com.
<PAGE>
b. Earlham Savings Bank holds an Iowa state registration for E Bank.
c. First-Citizens Bank & Trust Company in Raleigh, North Carolina has a
North Carolina state registration for "EBANK" and also uses "ebanking"
in its online banking service.
d. Wyoming Bank and Trust advertises its coming "eBank" on the website
www.wyobank.com.
e. A common law search found: (1) China Everbright Bank uses "Ebank"
for banking services; (2) First Union uses "ebank" for free bank
accounts; and Thai Farmers Bank Plc of Thailand uses "e-Web-Bank" for
online banking services.
f. Evision Inc. has a subsidiary named "Ebanker USA.com".
4. Ebank is aware of the following applications for possibly conflicting
marks that have been filed with the United States Patent & Trademark
Office ("USPTO"). We have no information on whether the marks described
in the applications were ever used, or are currently being used and
thus may have acquired certain common law rights, by the respective
applicants.
a. The Pathways Group, Inc. filed an intent to use application for
"E-BANK" on March 16, 1998. This application was abandoned at
applicant's request.
b. John N. Vatistas filed an intent to use application for "E BANK" on
July 18, 1995. The application was later abandoned due to the failure
of the applicant to respond to an office action from the USPTO.
c. Alexander Major filed an intent to use application for "E BANK" on
July 3, 1996. The application was abandoned September 29, 1997 due to
his failure to respond to the USPTO office action.
d. Financialware, Inc. filed an intent to use application for
"E://BANKING." This application was later abandoned due to the
applicant's failure to respond to the USPTO office action.
e. First Federal Savings and Loan Association of Charleston (South
Carolina) filed an intent to use application for "E-BANKER" on March
10, 1997. This application was abandoned May 27, 1998.
f. John B. Beausang filed an intent to use application for "BANK.COM"
on March 11, 1998. The applicant's response to the USPTO final office
action was filed December 4, 1999.
<PAGE>
g. ECOM Corporation filed an intent to use application for "EBANKS."
The application was abandoned June 15, 1999 due to the applicant's
failure to respond to the USPTO office action.
h. Glenn M. Kelley, President of ORCA Financial Solutions Corp. filed
an intent to use application for e bank on April 23, 1998. The
application was abandoned due to the applicant's failure to respond to
the USPTO office action.
i. Information and Database Network, Inc. filed an application for "E
bank." An office action containing a final refusal of the application
was mailed to the applicant on January 14, 2000.
j. Gilles W. Desaulniers filed an application for "WWW.FIRSTEBANK.COM
FIRST EBANK.COM FIRST EBANK" on December 8, 1999. The claimed date of
first use is October 28, 1999.
k. Gilles W. Desaulniers also filed a use application for "FIRSTEBANK
FIRST-EBANK FIRSTEBANK.COM FIRSTEBANKS" on October 15, 1999. The
claimed date of first use is July of 1998 and the claimed date of first
use in interstate commerce is January 1, 1999.
l. Sanwa Bank California filed an intent to use application for "SANWA
EBANK" on June 29, 1999.
m. Financial Services Provider Network, Inc. filed an intent to use
application for "EBANCARD" on September 21, 1999.
n. First National Bank of Omaha filed an intent to use application for
"1ST EBANK" on July 6, 1999.
o. First National Bank of Omaha also filed an intent to use application
for "FIRST EBANK" on July 6, 1999.
p. Patriot Bank filed an intent to use application for "AMERICA'S
E-BANK" on April 26, 1999.
q. Patriot Bank also filed an intent to use application for "PATRIOT
E-BANK.COM" on April 26, 1999.
r. City National Bank filed an intent to use application for "CITY
NATIONAL E-BANK" on October 5, 1999.
s. el Banc.com Corp. filed an intent to use application for "E ONE
BANK" on June 10, 1999.
<PAGE>
t. Angeltips.com filed an intent to use application for "/E-BANKER/" on
July 22, 1999.
u. Harbor Florida Bancshares, Inc. filed an intent to use application
for "EBANKER" on August 16, 1999.
v. Burr Wolff, L.P. filed an intent to use application for "E BANK
BILL" on July 26, 1999.
w. Pepperell Trust Company filed an intent to use application for
"E/BANC" on November 3, 1998.
x. eBanker USA.com, Inc. filed an intent to use application for
"EBANKERUSA.COM, INC." on August 18, 1999.
y. Access Global Financial Corp. filed an intent to use application for
"EBANKGLOBAL" on April 26, 1999.
z. Access Global Financial Corp. also filed an intent to use
application for "EBANKGLOBAL.COM" on April 26, 1999.
aa. AcuPrint, Inc. filed an intent to use application for
"EBANKLINK.COM" on June 10, 1999.
bb. John R. Brick filed an intent to use application for "EBANKUSA" on
January 8, 1999.
cc. eBanx Limited filed a use application for "EBANX" on June 4, 1999.
The claimed date of first use is December 1, 1997.
dd. First Coastal Bank, N.A. filed an intent to use application for
"EBUSINESSBANK" on July 28, 1999.
ee. Pennsylvania State Bank filed an intent to use application for
"PSBEBANK" on October 6, 1999.
ff. Pacific & Western Credit Corp. filed an intent to use application
for "EBANK OF CANADA" on December 2, 1999.
gg. Pacific & Western Credit Corp. also filed an application for
"EBANKOFCANADA.COM" on December 2, 1999.
hh. Bank of Hawaii filed an intent to use application for "E-BANKOH" on
December 2, 1999. Bank of Hawaii uses "e-BANKOH" on its web site.
<PAGE>
ii. Unity Bank filed an intent to use application for "U NET E.
BANKING" on November 18, 1999.
jj. Unity Bank also filed an intent to use application for "net e.
banking" (with design) on November 18, 1999.
kk. e-piggybank.com, Inc. filed an intent to use application for
"E-PIGGYBANK.COM" on July 14, 1999.
ll. Market Domain, Inc. filed an intent to use application for
"E-NATIONALBANK" on July 6, 1999.
mm. E*TRADE Group filed an intent to use application for "E*TRADE BANK"
on August 23, 1999.
nn. E*TRADE Group, Inc. filed five different intent to use applications
for "It's Time for E*Trade Bank" for goods and services relating to
financial services.
oo. ENBA Ltd. filed an intent to use application for "FE FIRST-E THE
INTERNET BANK" on October 8, 1999.
pp. ENBA Ltd. filed an intent to use application for "fe first-e the
internet bank" (with design) on October 8, 1999.
qq. Hampden Savings Bank, Inc. filed a use application for "YOUREBANK"
on October 12, 1999. The claimed date of first use is August 5, 1999.
rr. SouthTrust Corporation filed an intent to use application for
"E-BUSINESS BANKER" on December 14, 1999.
ss. SSGM Consultants, Inc. filed an intent to use application for "E
BZBANKING" on June 23, 1999.
tt. Hampden Savings Bank, Inc. filed a use application for "YOUREBANK"
on December 12, 1999. The claimed date of first use is August 5, 1999.
uu. Regions Financial Corporation filed an intent to use application
for "REGIONS E-BANK" on September 9, 1999. This application was
abandoned.
vv. Pennsylvania State Bank filed an intent to use application for
"PSBEBANK" on October 6, 1999.
ww. MMC Bancorp filed the following intent to use applications in
November and December of 1999:
<PAGE>
(i) EWAVEBANK
---------
(ii) EW@VEB@NK
---------
(iii) EW@[email protected]
-------------
(iv) EW@[email protected]
-------------
(v) EW@[email protected]
-------------
(vi) EWAVEB@NK
----------
(vii) [email protected]
-------------
(viii) [email protected]
-------------
(ix) [email protected]
-------------
(x) EWAVEB@NC
---------
(xi) [email protected]
-------------
(xii) [email protected]
-------------
(xiii) [email protected]
-------------
(xiv) EW@[email protected]
-------------
(xv) EW@[email protected]
-------------
(xvi) EW@[email protected]
-------------
(xvii) EWVEB@NC
--------
xx. Bill Lougheed filed an intent to use application for `EBANX" on
January 4, 2000.
5. The following domain names are registered to third parties:
a. EBANK.NET
b. EBANK.ORG
c. EBANKS.NET
d. EBANKS.ORG
e. EBANKS.COM
f. EBANKSONLINE.COM
g. EBANKING.ORG
h. EBANKING.NET
i. E-BANK.COM
j. E-BANK.ORG
k. E-BANK.NET
l. E-BANKS.COM
m. E-BANKS.NET
n. E-BANKS.ORG
o. E-BANKING.NET
p. EBANC.COM
q. EBANC.NET
r. E-BANC.COM
s. E-BANC.ORG
t. E-BANC.NET
u. EBANQ.COM
v. EBANQUE.NET
w. EBANQUE.ORG
x. EBANQUE.COM
<PAGE>
y. EBANQUES.COM
z. EBANKJP.COM
aa. EBANKMEDIA.COM
bb. E-BANK-CORP.COM
cc. EBANKWORLD.COM
dd. EBANCMORTGAGE.COM
ee. ebanking.com (registered to Fortis Bank Luxembourg)
ff. e-banking.org (Electronic Banking Association's web page)
gg. e-banking.com (registered to Fortis Bank Luxembourg)
6. A full search on 3/13/00 for all registered domain names beginning with
"ebank" is appended hereto as Attachment B.
7. The following companies use "ebank" or a form thereof in their company
names:
a. E-Bank.com, Inc. (Denver, Colorado)
b. EBANK CORP (Minatoku, Tokyo)
c. EBANK.COM, LLC (Fountain Hills, Arizona)
d. E-Banc Mortgage (Marietta, Georgia)
e. eBanking.org (Las Vegas, NV)
f. ebanking.net (Beverly Hills, California)
g. e-bank.net (South Korea)
h. e-banks.org (Los Angeles, California)
i. E-BANK WORLD (Cary, N.C.)
8. A list of all currently known potential conflicts with ebank's use
and/or registration of its trademark/service mark outside of the U.S.
is as follows:
a. Argentina: There is a pending application for the mark "E-BANKING"
filed November 11, 1999, which is currently in publication phase. We
have filed an opposition notice to this mark.
b. Australia: "St. George e-bank" and "BankSA e-bank" are both
registered marks in Australia. "ebanker", "E BANK PTY LIMITED
GLOBALLY", "WWW.EBANK.COM.AU", and "EBANK" are all pending applications
with IP Australia.
c. Barbados: There are pending applications by Pacific and Western
Credit Corporation for "EBANK OF CANADA" and "EBANK OF CANADA.COM",
both filed December 7, 1999.
d. Benelux (Belgium, Netherlands, Luxembourg): The name "ebank", or a
derivative, has been filed and/or registered as a trademark in the
following instances:
<PAGE>
1. Benelux trademark "E-BANK" valid as of November 21, 1997 for Class 36
and held by Europees Diensteen, etc.
2. Benelux trademark "E-BANK" valid as of March 16, 1995 for Classes 9,
36 and 42 and held by Mr. David Chaum.
3. Benelux trademark "E-BANK" valid as of December 30, 1992 for Classes 9,
16, 41 and 42 and held by Exact Holding B.V.
4. Additionally, two trademark applications containing the name "E BANK"
have been refused by the Benelux-Trademark Bureau including one
application filed twice on December 18, 1996 for Classes 35 and 36 on
behalf of Caisse International de Credit, and for "E BANK YOUR ONLINE
BANK" filed on December 18, 1996 for Classes 35 and 36 again by Caisse.
d. Bermuda: There are pending applications for the marks "THE
ELECTRONIC BANK OF CANADA", "EBANKOFCANADA.COM", and "EBANK OF CANADA"
which we have been told would be cited against a new application. These
applications were filed on December 6, 1999 by Pacific & Western Credit
Corp.
e. Canada: There was a filing for "EBANK" by Canadian Imperial Bank
which was made in 1996 but which was apparently abandoned late in
1999.There was separately a filing for "EBANK 24" in 1996 also filed by
Canadian Imperial but which was apparently abandoned in 1998.
Additional details would need to be reviewed to confirm these
abandonments. Pacific & Western has pending applications for "EBANK OF
CANADA" and "EBANKOFCANADA.COM".
f. Chile: The trademark "E-BANKING" is pending. We have filed a formal
opposition writ against this pending application.
g. China: The search in China revealed three (3) word marks "NEDBANK",
"WEBBANK" and "UNIBANK", and in addition, the search revealed a
stylized "e design" mark also registered. While we have been told that
these marks may be considered somewhat similar to the Registrar, they
should not bar registration of the mark "ebank.com" with design.
h. European Union: An application for "ebanking.com" was filed in
September 1999 by Fortis Bank for Classes 9, 36 and 38. Additionally,
there is an EU registration for "E BANK EUROKOSMOS" from 1993 by
Kommertschky Bank from Russia. (See also note for EU under Portugal).
Our search report also identifies a Community Trademark application in
the name of "EBANX." The applicant is Ebanx.com Corporation in the Isle
of
<PAGE>
Man. Finally, an application for "EBANK" was filed on November 11, 1999
for Class 36 by an unidentified holder.
i. Finland: There is a registration for "E BANKING
ELEKTRONISCH--DIREKT" held by Deutsche Bank, for Class 36.
j. France: We filed an mark application in France on January 20, 2000;
however, there may be difficulties in obtaining approval of this
application due to an European application for "ebank".
k. Germany: There is a registration for "E BANKING
ELEKTRONISCH--DIREKT" held by Deutsche Bank, for Class 36.
l. Hong Kong: The following trademarks are somewhat similar to "ebank"
but counsel believes that any citations against our application can be
overcome by submissions that the marks differ visually and
phonetically:
1. EXTEBANK --- pending application
2. EB --- pending application
3. E --- pending application
4. E --- pending application (separate application)
5. EB --- registered mark (separate from number 2 above)
6. E --- registered mark (different than numbers 3 and 4 above)
7. NEDBANK --- registered trademark
8. NEDBANK --- registered trademark (different registered mark than
number 7 above)
m. Italy: There is a national filing with international extension 99/FI
000264, Class 36 for "e-bank". This filing was made in April 1999 by an
Italian savings bank.
n. Israel: "Private E-bank" was filed by Investec Clali Bank on October
20, 1999.
o. Japan: There is a pending application for "e-bank" (with a Japanese
phonetic equivalent) in Class 36 filed in 1999 by Kabushiki Kaisha
Telephony.
p. Liechtenstein: In this country, there is a mark for "BANK" owned by
Liechtensteinische Landis Bank.
q. Monaco: There is a registered trademark "EBANKING" for Classes 36,
38 and 42 with the owner being Techworld SAM for general information
services on the bank market on Internet.
<PAGE>
r. Mexico: "EBANK" is registered at the Mexican Institute of Industrial
Property by Banca Quadrum, S.A.
s. New Zealand: Both "ebank" and "ASB ebank" are registered with IP New
Zealand by ASB Banking.
t. Norway: There is a registration for "E BANKING ELEKTRONISCH--DIREKT"
held by Deutsche Bank, for Class 36.
u. Peru: There is an application pending for "EXTEBANK" and also for
"E-BANKING", with the latter filed on behalf of
BANKBOSTON Corporation on July 22, 1999.
v. Portugal: There is a Community Trademark application for "EBANX" and
a Community Trademark application for "EBANK" which may prevent the
registration of "ebank" with a design.
w. Romania: The following mark applications in Romania have been
partially or totally refused, therefore causing concern for
an application for "ebank":
1. EUROPEAN BANK
2. EB EURO BANK
3. EB EURO PROFIT BANK
4. EB EURO BUSINESS BANK
5. EUROBANK
6. EFG EUROBANK
Additionally, Romanian counsel found an international mark "E"
held by Europay International S.A. for Classes 9, 16 and 36.
x. Singapore: There is a pending application for "DBS e-bank" filed by
the Development Bank of Singapore. Separately, there is an application
pending for the mark "E Banking" filed by the United Overseas Bank.
y. Spain: There is an international trademark application pending for
"UBANK" filed on July 7, 1999 with German priority by the company
DEEPAK RAJNI. Separately, there is an application pending with the
European Union also for the mark "UBANK" applied on April 29, 1999 by
U.S. Bancorp. There is a pending European Union trademark application
for "EBANX" which has been previously mentioned, which would possibly
prevent an application for "ebank" from prevailing.
z. South Africa: There is a registration for "E-Bank" and separately
for E-Bank and logo both in the name of the Standard Bank of South
Africa. However a full
<PAGE>
search cannot be accomplished at this time due to continuing computer
problems in the South African Patents and Trade Marks Office.
aa. Sweden: The EU application for "ebank" filed on November 11, 1999, if
allowed, would prevent our mark application for "ebank".
bb. Switzerland: On September 15, 1999, EUROSWISS EU-Finanz AG applied for
the international registration of the trademark "EBANK" in Classes 36
and 38. This application for international registration also includes
an application for registration in the Swiss trademark register. "e
banking elektronisch - direkt" is also listed on the international
trademark register with extension of protection in Switzerland.
Finally, there is a company in Switzerland operating under the name of
"e-BankingSolutions AG".
cc. United Kingdom including Scotland and Northern Ireland: An application
has been made for "Lloyds TSB E-Bank" by Lloyds TSB Group. There is the
same registration as in other countries for "e banking
elektronisch-direkt" by Deutsche Bank.
Additional searches and work is in progress. The foregoing represents only those
conflicts and potential conflicts known to ebank as of March 13, 2000. There are
most certainly others which have not yet been identified throughout the U.S. and
the world.
<PAGE>
Schedule 5.16
ebank Litigation
ebank is currently involved in litigation with Huntington regarding the
trademark "ebank".
Report of Independent Certified Public Accountants
To the Audit Committee of the Board of Directors of ebank.com, Inc.
We have reviewed the accompanying consolidated financial statements of
ebank.com, Inc. and subsidiaries as of March 31, 2000, and for the three-month
period then ended. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Atlanta, Georgia
May 15, 2000
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